NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. E-1 U.S. $750,000
INNOVACOM, INC.
7% SECURED CONVERTIBLE DEBENTURE DUE JANUARY 14, 2004
FOR VALUE RECEIVED, InnovaCom, Inc., a corporation organized under the laws
of the Nevada and having a principal place of business at 0000 Xxxxxxx Xxxxx,
Xxxxx Xxxxx, Xxxxxxxxxx 00000 (the "Company") promises to pay to JNC Strategic
Fund Ltd., or registered assigns (the "Holder"), the principal sum of Seven
Hundred Fifty Thousand Dollars ($750,000), on or prior to January 14, 2004 or
such earlier date as this Debenture (the Debenture") is required to be repaid as
provided hereunder (the "Maturity Date") and to pay interest to the Holder on
the principal sum at the rate of 7% per annum, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year while this
Debenture is outstanding and on each Conversion Date (as defined in Section
4(a)(i)), commencing on the earlier to occur of a Conversion Date (as defined
herein) for such principal amount and March 31, 1999. Interest shall accrue
daily commencing on the Original Issue Date (as defined in Section 6) until
payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest shall be calculated on the basis of a 360-day year and for the actual
number of days elapsed. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of this Debenture (the "Debenture Register"). All overdue, accrued
and unpaid interest and other amounts due hereunder shall bear interest at the
rate of 15% per annum (to accrue daily) from the date such interest is due
hereunder through and including the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
overdue interest) may, at the Company's option, be paid in shares of Common
Stock (as defined in Section 6) calculated based upon the Conversion Price (as
defined below) on the date such interest was due. All amounts due hereunder
other than such interest shall be paid in cash. Notwithstanding anything to the
contrary contained herein, the Company may not issue shares of Common Stock in
2
payment of interest on the principal amount if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes,
or held as treasury stock, is insufficient to pay interest hereunder in shares
of Common Stock; (ii) such shares are not either registered for resale pursuant
to an Underlying Securities Registration Statement (as defined in Section 6) or
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
as determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; or (iii) such shares are not Actively Traded (as defined
herein) (or listed or quoted for trading on the American Stock Exchange, Nasdaq
National Market, Nasdaq SmallCap Market or The New York Stock Exchange, and any
other exchange on which the Common Stock is then listed for trading (each, a
"Subsequent Market")). As used herein, "Actively Traded" shall mean that (a) the
average value of the shares of Common Stock traded on the OTC Bulletin Board in
each week measured over a four (4) week period on a rolling basis equals or
exceeds $50,000 and (b) there are no fewer than ten (10) market makers actively
making a market in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of
Debentures outstanding to such Holder. No service charge will be made for
such registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement. Prior to due presentment to the Company for transfer of
this Debenture, the Company and any agent of the Company may treat the
person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal of, interest on
or liquidated damages in respect of, this Debenture, free of any claim
of subordination, as and when the same shall become due and payable
(whether on the applicable quarterly interest payment date, a
Conversion Date or the Maturity Date or by acceleration or otherwise);
3
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement, the Security
Agreement or the Registration Rights Agreement, and such failure or
breach shall not have been remedied within 10 days after the date on
which notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is
commenced against the Company or any subsidiary thereof any such
bankruptcy, insolvency or other proceeding which remains undismissed
for a period of 60 days; or the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Company
or any subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the
Company or any subsidiary thereof makes a general assignment for the
benefit of creditors; or the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or
any corporate or other action is taken by the Company or any
subsidiary thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness of the Company in an
amount exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be Actively Traded or fail to
be listed or quoted for trading on any Subsequent Market if after the
Original Issue Date the Common Stock shall be listed or quoted for
trading on any such Subsequent Market, or if the Common Stock shall be
suspended from trading thereon without being actively traded, relisted
or having such suspension lifted, as the case may be, within fifteen
(15) days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or,
if the Company is the surviving entity, the Company shall issue or
sell to another Person, or group thereof, in excess of 50% of the
Common Stock) or shall dispose of all or substantially all of its
4
assets in one or more transactions, or shall redeem more than a de
minimis number of shares of Common Stock (other than redemptions of
Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not
have been declared effective by the Securities and Exchange Commission
(the "Commission") on or prior to the 180th day after the Original
Issue Date;
(viii) an Event (as hereinafter defined) shall not have been
cured to the satisfaction of the Holder prior to the expiration of
thirty (30) days from the Event Date (as hereinafter defined) relating
thereto (other than an Event resulting from a failure of an Underlying
Securities Registration Statement to be declared effective by the
Commission on or prior to the 90th day after the Original Issue Date);
or
(ix) the Company shall fail to deliver certificates to the Holder
prior to the 15th day after the Conversion Date pursuant to Section
4(b).
(b) If any Event of Default occurs and is continuing the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other
amounts owing in respect thereof, to the date of acceleration, to be, shall
become, immediately due and payable in cash. The aggregate amount payable
upon an Event of Default in respect of the Debentures shall be equal to the
sum of (i) the Mandatory Prepayment Amount (as defined in Section 6) plus
(ii) the product of (A) the number of Underlying Shares issued in respect
of conversions or as payment of interest hereunder and then held by the
Holder and (B) the Per Share Market Value on the date prepayment is
demanded or the date the full prepayment price is paid, whichever is
greater. The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder
may immediately and without expiration of any grace period enforce any and
all of its rights and remedies hereunder and all other remedies available
to it under applicable law. Such declaration may be rescinded and annulled
by Xxxxxx at any time prior to payment hereunder. No such rescission or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.
Section 4. Conversion.
(a)(i) This Debenture shall be convertible into shares of Common Stock
at the option of the Holder, in whole or in part at any time and from time
to time, from and after the 100th day following the Original Issue Date and
prior to the close of business on the Maturity Date. The number of shares
of Common Stock as shall be issuable upon a conversion hereunder shall be
determined by dividing the outstanding principal amount of this Debenture
to be converted, plus all accrued but unpaid interest thereon, by the
Conversion Price (as defined below), each as subject to adjustment as
provided hereunder. The Holder shall effect conversions by surrendering
this Debenture (or such portions thereof) to be converted, together with
the form of conversion notice attached hereto as Exhibit A (a "Conversion
Notice") to the Company. Each Conversion Notice shall specify the principal
amount of Debentures to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date such Conversion
Notice is deemed to have been delivered hereunder (a "Conversion Date"). If
5
no Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that such Conversion Notice is deemed delivered
hereunder. Subject to Section 4(b) hereof, each Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all of
the principal amount represented by the Debenture(s) tendered by the Holder
with the Conversion Notice, or if a conversion hereunder cannot be effected
in full for any reason, the Company shall honor such conversion to the
extent permissible hereunder and shall promptly deliver to such Holder (in
the manner and within the time set forth in Section 4(b)) a new Debenture
for such principal amount as has not been converted.
(ii) Certain Conversion Restrictions.
(A) The Holder agrees not to convert Debentures to the extent
such conversion would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and
the rules thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon
conversion of the Debentures held by such Holder after application of
this Section. The Holder shall have the sole authority and obligation
to determine whether the restriction contained in this Section applies
and, to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which
Debentures are convertible shall be in the sole discretion of the
Holder. The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 75
days prior notice to the Company (in which case, the Holder shall make
such filings with the Commission, including under Rule 13D or 13G, as
are required by applicable law). Other Holders shall be unaffected by
any such waiver.
(B) The Holder agrees not to convert Debentures to the extent
such conversion would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and
the rules thereunder) in excess of 9.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon
conversion of the Debentures held by such Holder after application of
this Section. The Holder shall have the sole authority and obligation
to determine whether the restriction contained in this Section applies
and, to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which
Debentures are convertible shall be in the sole discretion of the
Holder. The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 75
days prior notice to the Company. Other Holders shall be unaffected by
any such waiver.
(b) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing
the number of shares of the Common Stock being acquired upon the conversion
of Debentures, (ii) Debentures in a principal amount equal to the principal
amount of Debentures not converted; (iii) a bank check in the amount of all
accrued and unpaid interest (if the Company has elected and is permitted
hereunder to pay accrued interest in cash), together with all other amounts
then due and payable in accordance with the terms hereof, in respect of
Debentures tendered for conversion and (iv) if the Company has elected to
pay accrued interest in shares of the Common Stock, certificates, which
shall be free of restrictive legends and trading restrictions (other than
6
those required by Section 3.1(b) of the Purchase Agreement), representing
such number of shares of the Common Stock as equals such interest divided
by the Conversion Price calculated on the Conversion Date; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of the Common Stock issuable upon conversion of the
principal amount of Debentures until Debentures are delivered for
conversion to the Company or the Holder notifies the Company that such
Debenture has been mutilated, lost, stolen or destroyed and complies with
Section 9 hereof. If in the case of any Conversion Notice such certificate
or certificates, including for purposes hereof, any shares of the Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
interest hereunder, are not delivered to or as directed by the Holder by
the third Trading Day after a Conversion Date, the Holder shall be entitled
by written notice to the Company at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such conversion
(whether subject to a Holder or a Company Conversion Notice), in which
event the Company shall immediately return the Debentures tendered for
conversion. If the Company fails to deliver to the Holder such certificate
or certificates pursuant to this Section, including for purposes hereof,
any shares of the Common Stock to be issued on the Conversion Date on
account of accrued but unpaid interest hereunder, prior to the fifth
Trading Day after the Conversion Date, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, $1,500 for
each day thereafter until the Company delivers such certificates (such
amount shall be also be due for each Trading Day after the date that the
Holder may rescind such conversion until such date as the Holder shall have
received the return of the principal amount of Debentures relating to such
rescission). If the Company fails to deliver to the Holder such certificate
or certificates pursuant to this Section prior to the 15th day after the
Conversion Date, the Company shall, upon notice from the Holder, prepay
such portion of the aggregate of the principal amount of Debentures then
held by such Xxxxxx, as requested by such Holder, for the Mandatory
Prepayment Amount, in cash. If any portion of the Mandatory Prepayment
Amount pursuant to this Section is not paid within seven days after notice
therefor is deemed delivered hereunder, the Company will pay interest on
the Mandatory Prepayment Amount at a rate of 15% per annum (to accrue
daily), in cash to such Holder, accruing from such seventh day until the
Mandatory Prepayment Amount, plus all accrued interest thereon, is paid in
full.
(c)(i) The conversion price (the "Conversion Price") in effect on any
Conversion Date shall be the lesser of (A) $.1275 (the "Initial Conversion
Price") and (B) the Applicable Percentage (as defined in Section 6)
multiplied by the Average Price (as defined herein) calculated on the
Conversion Date; provided, that the five (5) Trading Day period
contemplated in the Average Price shall be extended for the number of
Trading Days, if any, during such period in which (A) the shares of Common
Stock are not Actively Traded or suspended or delisted from trading on any
Subsequent Market, (B) after the date declared effective by the Commission,
the Underlying Securities Registration Statement is not effective, or (C)
after the date declared effective by the Commission, the Prospectus
included in the Underlying Securities Registration Statement may not be
used by the Holder for the resale of Underlying Shares, provided, further,
that if (a) an Underlying Securities Registration Statement is not filed on
or prior to the Filing Date (as defined in the Registration Rights
Agreement), or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) days of the
date that the Company is notified (orally or in writing, whichever is
earlier by the Commission that an Underlying Securities Registration
7
Statement will not be "reviewed" or is not subject to further review or
comment by the Commission, or (c) the Underlying Securities Registration
Statement is not declared effective by the Commission on or prior to the
Effectiveness Date (as defined in the Registration Rights Agreement), or
(d) such Underlying Securities Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be effective
as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) for more than twenty (20) days at any time
prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Securities Registration Statement filed with and
declared effective by the Commission within twenty (20) days, or (e)
trading in the Common Stock shall fail to be Actively Traded or if the
Common Stock shall be suspended or delisted from trading on any Subsequent
Market for any reason for more than five (5) days, or (f) the conversion
rights of the Holders of Debentures are suspended for any reason or if the
Holder is not permitted to resell Registrable Securities under the
Underlying Securities Registration Statement, or (g) an amendment to the
Underlying Securities Registration Statement is not filed by the Company
with the Commission within fifteen (15) days of the Commission's notifying
the Company that such amendment is required in order for the Underlying
Securities Registration Statement to be declared effective (any such
failure being referred to as an "Event," and for purposes of clauses (a),
(c) and (f) the date on which such Event occurs, or for purposes of clauses
(b) and (e) the date on which such five (5) day period is exceeded, or for
purposes of clause (d) the date which such twenty (20) day period is
exceeded, or for purposes of clause (g) the date on which such fifteen (15)
day period is exceeded, being referred to as "Event Date"), the Company
shall pay, in cash, as liquidated damages and not as a penalty, on the
Event Date and on the first day of each month thereafter until the Event is
cured, 1.5% of the aggregate principal amount of Debentures then
outstanding pro rata to the holders thereof in accordance with their
holdings thereof. The provisions of this Section are not exclusive and
shall in no way limit the Company's obligations under the Registration
Rights Agreement.
(ii) If the Company, at any time while any Debentures are outstanding,
(a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, the Initial Conversion Price shall
be multiplied by a fraction of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of
shares of the Common Stock outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common
Stock (and not to Holders of Debentures) entitling them to subscribe for or
purchase shares of the Common Stock at a price per share less than the Per
Share Market Value of the Common Stock at the record date mentioned below,
8
the Initial Conversion Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of the Common
Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of
the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section, if any
such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to
the price which it would have been (but reflecting any other adjustments in
the Initial Conversion Price made pursuant to the provisions of this
Section 4 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that number of shares of the Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of the Common Stock (and not to Holders of
Debentures) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security, then in each such case the
Initial Conversion Price at which Debentures shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the Per Share Market Value of the Common Stock
determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event
of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in
interest of Debentures then outstanding; and provided, further, that the
Company, after receipt of the determination by such Appraiser shall have
the right to select an additional Appraiser, in good faith, in which case
the fair market value shall be equal to the average of the determinations
by each such Appraiser. In either case the adjustments shall be described
in a statement provided to the holders of Debentures of the portion of
assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of the Common Stock. Such adjustment shall
be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
9
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder of this Debenture shall
have the right thereafter to, at its option, (A) convert the then
outstanding principal amount, together with all accrued but unpaid interest
and any other amounts then owing hereunder in respect of this Debenture
only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holders of the
Debentures shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to
such reclassification or share exchange would have been entitled or (B)
require the Company to prepay, from funds legally available therefor at the
time of such prepayment, the aggregate of its outstanding principal amount
of Debentures, plus all interest and other amounts due and payable thereon,
at a price determined in accordance with Section 3(b). The entire
prepayment price shall be paid in cash. This provision shall similarly
apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted pursuant to
any of Section 4(c)(ii) - (v), the Company shall promptly mail to each
Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
D. the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is
converted into other securities, cash or property; or
10
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of the Debentures, and shall cause
to be mailed to the Holders of Debentures at their last addresses as they
shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which
it is expected that holders of the Common Stock of record shall be entitled
to exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in
such notice. Holders are entitled to convert Debentures during the 30-day
period commencing the date of such notice to the effective date of the
event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures and
payment of interest on the Debentures, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of the Common
Stock as shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 4(c)) upon
the conversion of the outstanding principal amount of the Debentures and
payment of interest hereunder. The Company covenants that all shares of the
Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if the
Underlying Securities Registration Statement has been declared effective
under the Securities Act, freely tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such
time. If the Company elects not, or is unable, to make such a cash payment,
the holder shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of such
Debentures so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting
11
the issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such tax
has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed
to the Company, at 0000 Xxxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000
(facsimile number (000) 000-0000), attention Chief Financial Officer, or
such other address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this
Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed
to each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior
to 7:00 p.m. (New York City time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section later than 7:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if send by
nationally recognized overnight courier service, or (v) upon actual receipt
by the party to whom such notice is required to be given.
Section 5. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
thirty (30) Trading Days prior written notice to the Holders of the
Debentures to be prepaid (the "Optional Prepayment Notice") given at any
time after the 90th day following the date the Underlying Securities
Registration Statement has been declared effective by the Commission
(provided that any Trading Days that the holders are prohibited from
utilizing such Underlying Securities Registration Statement to resell
Underlying Shares, despite their desire to do so, shall be added to such 90
day period), to prepay, from funds legally available therefor at the time
of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which
Conversion Notices have not previously been delivered hereunder, at a price
equal to the Optional Prepayment Price (as defined below). Any such
prepayment by the Company shall be in cash and shall be free of any claim
of subordination. The Holders shall have the right to tender, and the
Company shall honor, Conversion Notices delivered prior to the expiration
of the thirtieth (30th) Trading Day after receipt by the Holders of an
Optional Prepayment Notice for such Debentures (such date, the "Optional
Prepayment Date").
(b) If any portion of the Optional Prepayment Price shall not be paid
by the Company by the Optional Prepayment Date, the Optional Prepayment
12
Price shall be increased by 15% per annum (to accrue daily) until paid
(which amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of the optional Prepayment Price remains unpaid
through the expiration of the Optional Prepayment Date, the Holder subject
to such prepayment may elect by written notice to the Company to either (i)
demand conversion in accordance with the formula and the time period
therefor set forth in Section 4 of any portion of the principal amount of
Debentures for which the Optional Prepayment Price, plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Prepayment
Principal Amount"), in which event the applicable Per Share Market Value
shall be the lower of the Per Share Market Value calculated on the Optional
Prepayment Date and the Per Share Market Value as of the Holder's written
demand for conversion, or (ii) invalidate ab initio such optional
redemption, notwithstanding anything herein contained to the contrary. If
the Holder elects option (i) above, the Company shall within three (3)
Trading Days such election is deemed delivered hereunder to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Amount subject to such conversion demand and otherwise perform its
obligations hereunder with respect thereto; or, if the Holder elects option
(ii) above, the Company shall promptly, and in any event not later than
three Trading Days from receipt of notice of such election, return to the
Holder new Debentures for the full Unpaid Prepayment Principal Amount. If,
upon an election under option (i) above, the Company fails to deliver the
shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Principal Amount prior to the fifth Trading Day after such election is
deemed delivered hereunder, the Company shall pay to the Holder in cash, as
liquidated damages and not as a penalty, $1,500 per day until the Company
delivers such Common Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal the
sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x)
the Optional Prepayment Date or (y) the date the Optional Prepayment Price
is paid in full, whichever is less, multiplied by the Average Price on (x)
the Optional Prepayment Date or (y) the date the Optional Prepayment Price
is paid in full, whichever is greater, and (ii) all other amounts,
expenses, costs and liquidated damages due in respect of such principal
amount.
Section 6. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored prior to
the 120th day after the Original Issue Date, (ii) 77.5% for any conversion
honored on or after the 120th day and prior to the 150th day after the Original
Issue Date, and (iii) 75% for any conversion honored on or after the 150th day
after the Original Issue Date. For purposes hereof, a conversion is deemed to
have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder in accordance with the terms hereof.
"Average Price" on any date means the average Per Share Market Value for
the five (5) Trading Days immediately preceding such date.
13
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government action to close.
"Common Stock" means the Company's common stock, $.001 par value per share,
and stock of any other class into which such shares may hereafter have been
reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum of (i)
the principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is less, multiplied by the Average Price on (x) the date
the Mandatory Prepayment Amount is demanded or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is greater, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"Original Issue Date" shall mean the date of the first issuance of any
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"Per Share Market Value" on any particular date means (a) the closing bid
price per share of the Common Stock on such date as quoted by Bloomberg
Information Services, Inc. ("Bloomberg"), or similar organizations or agencies
succeeding to its functions of reporting prices, or (b) if the Common Stock is
no longer reported by Bloomberg, or such similar organizations or agencies, such
closing bid price per share shall be determined by reference to "Pink Sheet"
quotes for the relevant conversion period as determined in good faith by the
Holder or (c) if the Common Stock is not then publicly traded, the fair market
value of a share of Common Stock as determined by an appraiser selected in good
faith by the Holders of a majority in interest of the Debentures.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase Agreement,
dated as of the Original Issue Date, between the Company and the original Holder
of Debentures, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Original Issue Date, between the Company and the original Holder
of Debentures, as amended, modified or supplemented from time to time in
accordance with its terms.
"Security Agreement" means the Security Agreement, dated as of June 29,
1998, between the Company and the original Holder of Debentures, as amended and
restated on August 28, 1998, December 15, 1998 and the Original Issue Date, and
as may be further amended modified or supplemented from time to time in
accordance with its terms.
14
"Trading Day" means (a) a day on which the Common Stock is traded on the
Nasdaq Stock Market or other stock exchange or market on which the Common Stock
has been listed, or (b) if the Common Stock is not listed on the Nasdaq Stock
Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the terms
hereof.
"Underlying Securities Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Company, including without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Company,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or destroyed,
the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
Section 10. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws thereof. The Company hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
15
improper. The Company hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
receiving a copy thereof sent to the Company at the address in effect for
notices to it under this instrument and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
Section 11. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 12. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
Section 13. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next calendar month, the preceding Business Day in the appropriate calendar
month).
Section 14. The payment obligations under this Debenture and the
obligations of the Company to the Holder arising upon the conversion of all or
any of the Debentures in accordance with the provisions hereof are secured
pursuant to the Security Agreement.
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date first
above indicated.
INNOVACOM, INC.
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
17
EXHIBIT A
INNOVACOM, INC
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. E-1 into shares of Common
Stock, $.001 par value per share (the "Common Stock"), of INNOVACOM, INC. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
_____________________________________________
Date to Effect Conversion
_____________________________________________
Principal Amount of Debentures to be Converted
_____________________________________________
Number of shares of Common Stock to be Issued
_____________________________________________
Applicable Conversion Price
_____________________________________________
Signature
_____________________________________________
Name
_____________________________________________
Address
