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EXHIBIT 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION
OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
SECURED CONVERTIBLE DEBENTURE
Raynham, Massachusetts
December __, 2000 $600,000
FOR VALUE RECEIVED, INFOTOPIA, INC., a Nevada corporation
(hereinafter called the "BORROWER"), hereby promises to pay to the order of
Altea Investments, Ltd. or registered assigns (the "HOLDER") the sum of Six
Hundred Thousand Dollars ($600,000), on December __, 2003 (the "MATURITY
DATE"), and to pay interest on the unpaid principal balance hereof at the rate
of twelve percent (12%) per annum from December __, 2000 (the "ISSUE DATE")
until the same becomes due and payable, whether at maturity or upon
acceleration or by prepayment or otherwise. Any amount of principal or
interest on this Debenture which is not paid when due shall bear interest at
the rate of fifteen percent (15%) per annum from the due date thereof until
the same is paid ("DEFAULT INTEREST"). Interest shall commence accruing on the
issue date, shall be computed on the basis of a 365-day year and the actual
number of days elapsed and shall be payable, at the option of the Holder,
either quarterly on March 1, June 1, September 1 and December 1 of each year
beginning on March 1, 2001, or at the time of conversion of the principal to
which such interest relates in accordance with Article I below. All payments
due hereunder (to the extent not converted into common stock, par value $0.001
per share, of the Borrower (the "COMMON STOCK") in accordance with the terms
hereof) shall be made in lawful money of the United States of America or, at
the option of the Holder, in whole or in part, in shares of Common Stock of
the Borrower valued at the then applicable Conversion Price (as defined
herein). All payments shall be made at such address as the Holder shall
hereafter give to the Borrower by written notice made in accordance with the
provisions of this Debenture. Whenever any amount expressed to be due by the
terms of this Debenture is due on any day which is not a business day, the
same shall instead be due on the next succeeding day which is a business day
and, in the case of any interest payment date which is not the date on which
this Debenture is paid in full, the extension of the due date thereof shall
not be taken into account for purposes of determining the amount of interest
due on such date. As used in this Debenture, the term "business day" shall
mean any day other than a Saturday, Sunday or a day on which commercial banks
in the city of Los Angeles, California are authorized or required by law or
executive order to remain closed. This Debenture shall be secured pursuant to
the terms of that certain Security Agreement by and between the Borrower and
the Holder of even date herewith. Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in that certain
Securities Purchase Agreement, dated December __, 2000, pursuant to which this
Debenture was originally issued (the "PURCHASE AGREEMENT").
The following terms shall apply to this Debenture:
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ARTICLE I. CONVERSION RIGHTS
1.1 CONVERSION RIGHT.
(a) CONVERSION. Subject to Section 1.1(b), the Holder
shall have the right from time to time, and at any time on or after the date
that is forty-five (45) days after the date hereof and on or prior to the
earlier of (i) the Maturity Date and (ii) the date of payment of the Default
Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III,
the Optional Prepayment Amount (as defined in Section 5.1 or any payments
pursuant to Section 1.7, each in respect of the remaining outstanding
principal amount of this Debenture to convert all or any part of the
outstanding and unpaid principal amount of this Debenture into fully paid and
non-assessable shares of Common Stock, as such Common Stock exists on the
Issue Date, or any shares of capital stock or other securities of the Borrower
into which such Common Stock shall hereafter be changed or reclassified at the
conversion price (the "CONVERSION PRICE") determined as provided herein (a
"CONVERSION"); provided, however, that in no event shall the Holder be
entitled to convert any portion of this Debenture) in excess of that portion
of this Debenture upon conversion of which the sum of (1) the number of shares
of Common Stock beneficially owned by the Holder and its affiliates (other
than shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Debentures or the unexercised or
unconverted portion of any other security of the Borrower (including, without
limitation, the warrants issued by the Borrower pursuant to the Purchase
Agreement) subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Debenture with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulations 13D-G thereunder, except as otherwise provided in
clause (1) of such proviso. The Holder of this Debenture may waive the
limitations set forth herein by written notice to the Company. The number of
shares of Common Stock to be issued upon each conversion of this Debenture
shall be determined by dividing the Conversion Amount (as defined below) by
the applicable Conversion Price then in effect on the date specified in the
notice of conversion, in the form attached hereto as Exhibit A (the "NOTICE OF
CONVERSION"), delivered to the Borrower by the Holder in accordance with
Section 1.4 below; provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in, or reasonably expected to result
in, notice) to the Borrower before 3:00 p.m., New York, New York time on such
conversion date (the "CONVERSION DATE"). The term "CONVERSION AMOUNT" means,
with respect to any conversion of this Debenture, the sum of (1) the principal
amount of this Debenture to be converted in such conversion plus (2) accrued
and unpaid interest, if any, on such principal amount at the interest rates
provided in this Debenture to the Conversion Date plus (3) Default Interest,
if any, on the amounts referred to in the immediately preceding clauses (1)
and/or (2) plus (4) at the Holder's option, any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of that
certain Registration Rights Agreement, dated as of December __, 2000, executed
in connection with the initial issuance of this Debenture and the other
Debentures issued on the Issue Date (the "REGISTRATION RIGHTS AGREEMENT").
(b) PREPAYMENT IN LIEU OF CONVERSION. Notwithstanding
anything to the contrary contained in Section 1.1(a), if, on the date that the
Holder delivers a Conversion Notice to the Borrower, the Conversion Price is
less than $0.05 per share, the Borrower shall have the right to prepay the
principal amount of the Debenture to be converted in the conversion. In order
to exercise such right, the Borrower shall deliver a written notice of
prepayment delivered to the Holder within one (1) day after delivery of the
Conversion Notice. The Borrower shall make payment to the Holder of an amount
in cash equal to 135% multiplied by the sum of (w) the principal amount of the
Debenture to be converted in the conversion plus (x) accrued and unpaid
interest on the unpaid principal amount of the Debenture to be converted in
the conversion plus (y) Default Interest, if any, on the amounts referred to
in clauses (w) and
<PAGE> 3
(x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement
within three (3) business days following the date on which notice of
prepayment is delivered. If the Borrower fails to make such payment within
such three-day period, the Borrower shall be obligated to deliver the shares
of Common Stock issuable upon conversion of the principal amount of the
Debenture to be converted in the conversion within one (1) business day and
shall be subject to a penalty of $5,000 for every additional business day on
which such shares are not delivered.
1.2 CONVERSION PRICE.
(a) CALCULATION OF CONVERSION PRICE. The Conversion Price
shall be the lesser of (i) the Variable Conversion Price (as defined herein)
and (ii) the Fixed Conversion Price (as defined herein) (subject, in each
case, to equitable adjustments for stock splits, stock dividends or rights
offerings by the Borrower relating to the Borrower's securities or the
securities of any subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events). The
"VARIABLE CONVERSION PRICE" shall mean the Applicable Percentage (as defined
herein) multiplied by the Market Price (as defined herein). "MARKET PRICE"
means the average of the lowest three (3) Closing Bid Prices (as defined
below) for the Common Stock during the twenty (20) Trading Day period ending
one Trading Day prior to the date the Conversion Notice is sent by the Holder
to the Borrower via facsimile (the "CONVERSION DATE"). "CLOSING BID PRICE"
means, for any security as of any date, the closing bid price on the
Over-the-Counter Bulletin Board (the "OTCBB") as reported by Bloomberg
Financial Markets or an equivalent, reliable reporting service mutually
acceptable to and hereafter designated by Holders of a majority in interest of
the Debentures and the Borrower ("BLOOMBERG") or, if the OTCBB is not the
principal trading market for such security, the closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg or, if no closing bid
price of such security is available in any of the foregoing manners, the
average of the bid prices of any market makers for such security that are
listed in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date in the
manner provided above, the Closing Bid Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority in
interest of the Debentures being converted for which the calculation of the
Closing Bid Price is required in order to determine the Conversion Price of
such Debentures. "TRADING DAY" shall mean any day on which the Common Sock is
traded for any period on the OTCBB, or on the principal securities exchange or
other securities market on which the Common Stock is then being traded.
"APPLICABLE PERCENTAGE" shall mean 70.0%. The "FIXED CONVERSION PRICE" shall
mean $__________ [the average of the lowest 3 Closing Bid Prices during the 20
Trading Days immediately prior to the Closing Date discounted by 30%].
(b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS.
Notwithstanding anything contained in Section 1.2(a) to the contrary, in the
event the Borrower (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock
is unchanged) or sell or transfer all or substantially all of the assets of
the Borrower or (ii) any person, group or entity (including the Borrower)
publicly announces a tender offer to purchase 50% or more of the Borrower's
Common Stock (or any other takeover scheme) (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the
"ANNOUNCEMENT DATE"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (x) the
Conversion Price which would have been applicable for a Conversion occurring
on the Announcement Date and (y) the Conversion Price that would otherwise be
in effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in this Section 1.2(a). For
purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall mean, with
respect to any proposed transaction or tender offer (or takeover scheme) for
which a public announcement as contemplated by this Section 1.2(b) has been
made, the date upon which the Borrower (in the case of clause (i) above) or
the person, group or entity (in the case of clause (ii) above) consummates or
publicly announces the termination or abandonment of the proposed
<PAGE> 4
transaction or tender offer (or takeover scheme) which caused this Section
1.2(b) to become operative.
1.3 AUTHORIZED SHARES. The Borrower covenants that during the
period the conversion right exists, the Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance of Common Stock upon the full
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement. As of the date of issuance of this Debenture, [_______
(greater of 20,000,000 or 2x currently required)] authorized and unissued
shares of Common Stock have been duly reserved for issuance upon conversion of
this Debenture and the other Debentures issued pursuant to the Purchase
Agreement (the "RESERVED AMOUNT"). The Reserved Amount shall be increased from
time to time in accordance with the Borrower's obligations pursuant to Section
4(h) of the Purchase Agreement. The Borrower represents that upon issuance,
such shares will be duly and validly issued, fully paid and non-assessable. In
addition, if the Borrower shall issue any securities or make any change to its
capital structure which would change the number of shares of Common Stock into
which the Debentures shall be convertible at the then current Conversion
Price, the Borrower shall at the same time make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Debentures. The Borrower (i) acknowledges that it has irrevocably
instructed its transfer agent to issue certificates for the Common Stock
issuable upon conversion of this Debenture, and (ii) agrees that its issuance
of this Debenture shall constitute full authority to its officers and agents
who are charged with the duty of executing stock certificates to execute and
issue the necessary certificates for shares of Common Stock in accordance with
the terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of
Conversion, and the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section
4.8, the Borrower shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of this
Debenture which the Holder included in its Conversion Notice and which exceeds
the amount which is then convertible into available shares of Common Stock
(the "EXCESS AMOUNT") shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the Holder's option at any time after) the date
additional shares of Common Stock are authorized by the Borrower to permit
such conversion, at which time the Conversion Price in respect thereof shall
be the lesser of (i) the Conversion Price on the Conversion Default Date (as
defined below) and (ii) the Conversion Price on the Conversion Date thereafter
elected by the Holder in respect thereof. In addition, the Borrower shall pay
to the Holder payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion
Default in the amount of (x) the sum of (1) the then outstanding principal
amount of this Debenture plus (2) accrued and unpaid interest on the unpaid
principal amount of this Debenture through the Authorization Date (as defined
below) plus (3) Default Interest, if any, on the amounts referred to in
clauses (1) and/or (2), multiplied by (y) .24, multiplied by (z) (N/365),
where N = the number of days from the day the holder submits a Notice of
Conversion giving rise to a Conversion Default (the "CONVERSION DEFAULT DATE")
to the date (the "AUTHORIZATION DATE") that the Borrower authorizes a
sufficient number of shares of Common Stock to effect conversion of the full
outstanding principal balance of this Debenture. The Borrower shall use its
best efforts to authorize a sufficient number of shares of Common Stock as
soon as practicable following the earlier of (i) such time that the Holder
notifies the Borrower or that the Borrower otherwise becomes aware that there
are or likely will be insufficient authorized and unissued shares to allow
full conversion thereof and (ii) a Conversion Default. The Borrower shall send
notice to the Holder of the authorization of additional shares of Common
Stock, the Authorization Date and the amount of Holder's accrued Conversion
Default Payments. The accrued Conversion Default Payments for each calendar
month shall be paid in cash or shall be convertible into Common Stock (at such
time as there are sufficient authorized shares of Common Stock) at the
applicable Conversion Price, at the Holder's option, as follows:
(a) In the event Holder elects to take such payment in
cash, cash payment shall be made to Holder by the fifth (5th) day of the month
following the month in which it has accrued; and
<PAGE> 5
(b) In the event Holder elects to take such payment in
Common Stock, the Holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of conversion) at any time
after the fifth day of the month following the month in which it has accrued
in accordance with the terms of this Article I (so long as there is then a
sufficient number of authorized shares of Common Stock).
The Holder's election shall be made in writing to the Borrower at
any time prior to 6:00 p.m., New York time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower's
failure to maintain a sufficient number of authorized shares of Common Stock,
and each holder shall have the right to pursue all remedies available at law
or in equity (including degree of specific performance and/or injunctive
relief).
1.4 METHOD OF CONVERSION.
(a) MECHANICS OF CONVERSION. Subject to Section 1.1, this
Debenture may be converted by the Holder in whole or in part (provided such
partial conversion is at least $50,000, or such lesser amount as shall remain
unpaid at the time of the conversion (together with accrued and unpaid
interest thereon)) at any time from time to time after the Issue Date, by (A)
submitting to the Borrower a Notice of Conversion (by facsimile or other
reasonable means of communication dispatched on the Conversion Date prior to
3:00 p.m., New York, New York time) and (B) subject to Section 1.4(b),
surrendering this Debenture at the principal office of the Borrower.
(b) SURRENDER OF DEBENTURE UPON CONVERSION.
Notwithstanding anything to the contrary set forth herein, upon conversion of
this Debenture in accordance with the terms hereof, the Holder shall not be
required to physically surrender this Debenture to the Borrower unless the
entire unpaid principal amount of this Debenture is so converted. The Holder
and the Borrower shall maintain records showing the principal amount so
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Borrower, so as not to require
physical surrender of this Debenture upon each such conversion. In the event
of any dispute or discrepancy, such records of the Borrower shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Debenture is converted
as aforesaid, the Holder may not transfer this Debenture unless the Holder
first physically surrenders this Debenture to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of the Holder a new
Debenture of like tenor, registered as the Holder (upon payment by the Holder
of any applicable transfer taxes) may request, representing in the aggregate
the remaining unpaid principal amount of this Debenture. The Holder and any
assignee, by acceptance of this Debenture, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of a portion
of this Debenture, the unpaid and unconverted principal amount of this
Debenture represented by this Debenture may be less than the amount stated on
the face hereof.
(c) PAYMENT OF TAXES. The Borrower shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock or other securities or property
on conversion of this Debenture in a name other than that of the Holder (or in
street name), and the Borrower shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons (other than the Holder or the custodian in whose street name such
shares are to be held for the Holder's account) requesting the issuance
thereof shall have paid to the Borrower the amount of any such tax or shall
have established to the satisfaction of the Borrower that such tax has been
paid.
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(d) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon receipt
by the Borrower from the Holder of a facsimile transmission (or other
reasonable means of communication) of a Notice of Conversion meeting the
requirements for conversion as provided in this Section 1.4, the Borrower
shall issue and deliver or cause to be issued and delivered to or upon the
order of the Holder certificates for the Common Stock issuable upon such
conversion within two (2) business days after such receipt (and, solely in the
case of conversion of the entire unpaid principal amount hereof, surrender of
this Debenture) (such second business day being hereinafter referred to as the
"DEADLINE") in accordance with the terms hereof and the Purchase Agreement
(including, without limitation, in accordance with the requirements of Section
2(g) of the Purchase Agreement that certificates for shares of Common Stock
issued on or after the effective date of the Registration Statement upon
conversion of this Debenture shall not bear any restrictive legend).
(e) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon
receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed
to be the holder of record of the Common Stock issuable upon such conversion,
the outstanding principal amount and the amount of accrued and unpaid interest
on this Debenture shall be reduced to reflect such conversion, and, unless the
Borrower defaults on its obligations under this Article I, all rights with
respect to the portion of this Debenture being so converted shall forthwith
terminate except the right to receive the Common Stock or other securities,
cash or other assets, as herein provided, on such conversion. If the Holder
shall have given a Notice of Conversion as provided herein, the Borrower's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of the absence of any action by the
Holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any
other obligation of the Borrower to the holder of record, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder of any obligation to the Borrower, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Borrower to the Holder in connection with such conversion. The Conversion Date
specified in the Notice of Conversion shall be the Conversion Date so long as
the Notice of Conversion is received by the Borrower before 3:00 p.m., New
York, New York time, on such date.
(f) DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER. In
lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Borrower's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the Holder and its
compliance with the provisions contained in Section 1.1 and in this Section
1.4, the Borrower shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the
Holder by crediting the account of Holder's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system.
(g) FAILURE TO DELIVER COMMON STOCK PRIOR TO DEADLINE.
Without in any way limiting the Holder's right to pursue other remedies,
including actual damages and/or equitable relief, the parties agree that if
delivery of the Common Stock issuable upon conversion of this Debenture is
more than two (2) days after the Deadline (other than a failure due to the
circumstances described in Section 1.3 above, which failure shall be governed
by such Section) the Borrower shall pay to the Holder $2,000 per day in cash,
for each day beyond the Deadline that the Borrower fails to deliver such
Common Stock. Such cash amount shall be paid to Holder by the fifth day of the
month following the month in which it has accrued or, at the option of the
Holder (by written notice to the Borrower by the first day of the month
following the month in which it has accrued), shall be added to the principal
amount of this Debenture, in which event interest shall accrue thereon in
accordance with the terms of this Debenture and such additional principal
amount shall be convertible into Common Stock in accordance with the terms of
this Debenture.
1.5 CONCERNING THE SHARES. The shares of Common Stock issuable
upon conversion of this Debenture may not be sold or transferred unless (i)
such shares are sold pursuant to an
<PAGE> 7
effective registration statement under the Act or (ii) the Borrower or its
transfer agent shall have been furnished with an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that the shares to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration or (iii) such shares are sold or transferred pursuant to Rule 144
under the Act (or a successor rule) ("RULE 144") or (iv) such shares are
transferred to an "affiliate" (as defined in Rule 144) of the Borrower who
agrees to sell or otherwise transfer the shares only in accordance with this
Section 1.5 and who is an Accredited Investor (as defined in the Purchase
Agreement). Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), until such time as the
shares of Common Stock issuable upon conversion of this Debenture have been
registered under the Act as contemplated by the Registration Rights Agreement
or otherwise may be sold pursuant to Rule 144 without any restriction as to
the number of securities as of a particular date that can then be immediately
sold, each certificate for shares of Common Stock issuable upon conversion of
this Debenture that has not been so included in an effective registration
statement or that has not been sold pursuant to an effective registration
statement or an exemption that permits removal of the legend, shall bear a
legend substantially in the following form, as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION
OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
The legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any transfer legend if
(i) the Borrower or its transfer agent shall have received an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and the shares are
so sold or transferred, (ii) such Holder provides the Borrower or its transfer
agent with reasonable assurances that the Common Stock issuable upon
conversion of this Debenture (to the extent such securities are deemed to have
been acquired on the same date) can be sold pursuant to Rule 144 or (iii) in
the case of the Common Stock issuable upon conversion of this Debenture, such
security is registered for sale by the Holder under an effective registration
statement filed under the Act or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold. Nothing in this Debenture shall (i) limit
the Borrower's obligation under the Registration Rights Agreement or (ii)
affect in any way the Holder's obligations to comply with applicable
prospectus delivery requirements upon the resale of the securities referred to
herein.
1.6 EFFECT OF CERTAIN EVENTS.
(a) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of
the Holder, the sale, conveyance or disposition of all or substantially all of
the assets of the Borrower, the effectuation by the Borrower of a transaction
or series of related transactions in which more than 50% of the voting power
of the Borrower is disposed of, or the consolidation, merger or other business
combination of the Borrower with or into any other Person (as defined below)
or Persons when the Borrower is not the survivor shall either: (i) be deemed
to be an Event of Default (as defined in Article III) pursuant to which the
Borrower shall be required to pay to the Holder upon the consummation of and
as a condition to such transaction an amount equal to the Default Amount (as
defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof.
"PERSON" shall mean any individual, corporation, limited liability company,
partnership, association, trust or other entity or organization.
<PAGE> 8
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at
any time when this Debenture is issued and outstanding and prior to conversion
of all of the Debentures, there shall be any merger, consolidation, exchange
of shares, recapitalization, reorganization, or other similar event, as a
result of which shares of Common Stock of the Borrower shall be changed into
the same or a different number of shares of another class or classes of stock
or securities of the Borrower or another entity, or in case of any sale or
conveyance of all or substantially all of the assets of the Borrower other
than in connection with a plan of complete liquidation of the Borrower, then
the Holder of this Debenture shall thereafter have the right to receive upon
conversion of this Debenture, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such stock, securities or assets which
the Holder would have been entitled to receive in such transaction had this
Debenture been converted in full immediately prior to such transaction
(without regard to any limitations on conversion set forth herein), and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Debenture to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Debenture) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the
conversion hereof. The Borrower shall not effect any transaction described in
this Section 1.6(b) unless (a) it first gives, to the extent practicable,
thirty (30) days prior written notice (but in any event at least fifteen (15)
days prior written notice) of the record date of the special meeting of
stockholders to approve, or if there is no such record date, the consummation
of, such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Debenture) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written
instrument the obligations of this Section 1.6(b). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or
share exchanges.
(c) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall
declare or make any distribution of its assets (or rights to acquire its
assets) to holders of Common Stock as a dividend, stock repurchase, by way of
return of capital or otherwise (including any dividend or distribution to the
Borrower's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then the
Holder of this Debenture shall be entitled, upon any conversion of this
Debenture after the date of record for determining shareholders entitled to
such Distribution, to receive the amount of such assets which would have been
payable to the Holder with respect to the shares of Common Stock issuable upon
such conversion had such Holder been the holder of such shares of Common Stock
on the record date for the determination of shareholders entitled to such
Distribution.
(d) PURCHASE RIGHTS. If, at any time when any Debentures
are issued and outstanding, the Borrower issues any convertible securities or
rights to purchase stock, warrants, securities or other property (the
"PURCHASE RIGHTS") pro rata to the record holders of any class of Common
Stock, then the Holder of this Debenture will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Holder could have acquired if such Holder had held the number of shares
of Common Stock acquirable upon complete conversion of this Debenture (without
regard to any limitations on conversion contained herein) immediately before
the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
(e) NOTICE OF ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price as a result of the events
described in this Section 1.6, the Borrower, at its expense, shall promptly
compute such adjustment or readjustment and prepare and furnish to the Holder
of a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of the Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the
<PAGE> 9
Conversion Price at the time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Debenture.
1.7 TRADING MARKET LIMITATIONS. Unless permitted by the
applicable rules and regulations of the principal securities market on which
the Common Stock is then listed or traded, in no event shall the Borrower
issue upon conversion of or otherwise pursuant to this Debenture and the other
Debentures issued pursuant to the Purchase Agreement more than the maximum
number of shares of Common Stock that the Borrower can issue pursuant to any
rule of the principal United States securities market on which the Common
Stock is then traded (the "MAXIMUM SHARE AMOUNT"), which, as of the Issue Date
shall be ___________ shares (19.99% of the total shares outstanding on the
Issue Date), subject to equitable adjustment from time to time for stock
splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Common Stock occurring after the date hereof. Once the
Maximum Share Amount has been issued (the date of which is hereinafter
referred to as the "MAXIMUM CONVERSION DATE"), if the Borrower fails to
eliminate any prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Borrower or any of its securities on
the Borrower's ability to issue shares of Common Stock in excess of the
Maximum Share Amount (a "TRADING MARKET PREPAYMENT EVENT"), in lieu of any
further right to convert this Debenture, and in full satisfaction of the
Borrower's obligations under this Debenture, the Borrower shall pay to the
Holder, within fifteen (15) business days of the Maximum Conversion Date (the
"TRADING MARKET PREPAYMENT DATE"), an amount equal to 135% times the sum of
(a) the then outstanding principal amount of this Debenture immediately
following the Maximum Conversion Date, plus (b) accrued and unpaid interest on
the unpaid principal amount of this Debenture to the Trading Market Prepayment
Date, plus (c) Default Interest, if any, on the amounts referred to in clause
(a) and/or (b) above, plus (d) any optional amounts that may be added thereto
at the Maximum Conversion Date by the Holder in accordance with the terms
hereof (the then outstanding principal amount of this Debenture immediately
following the Maximum Conversion Date, plus the amounts referred to in clauses
(b), (c) and (d) above shall collectively be referred to as the "REMAINING
CONVERTIBLE AMOUNT"). With respect to each Holder of Debentures, the Maximum
Share Amount shall refer to such Holder's pro rata share thereof determined in
accordance with Section 4.8 below. In the event that the sum of (x) the
aggregate number of shares of Common Stock issued upon conversion of this
Debenture and the other Debentures issued pursuant to the Purchase Agreement
plus (y) the aggregate number of shares of Common Stock that remain issuable
upon conversion of this Debenture and the other Debentures issued pursuant to
the Purchase Agreement, represents at least one hundred percent (100%) of the
Maximum Share Amount (the "TRIGGERING EVENT"), the Borrower will use its best
efforts to seek and obtain Stockholder Approval (or obtain such other relief
as will allow conversions hereunder in excess of the Maximum Share Amount) as
soon as practicable following the Triggering Event and before the Maximum
Conversion Date. As used herein, "STOCKHOLDER APPROVAL" means approval by the
stockholders of the Borrower to authorize the issuance of the full number of
shares of Common Stock which would be issuable upon full conversion of the
then outstanding Debentures but for the Maximum Share Amount.
1.8 STATUS AS STOCKHOLDER. Upon submission of a Notice of
Conversion by a Holder, (i) the shares covered thereby (other than the shares,
if any, which cannot be issued because their issuance would exceed such
Holder's allocated portion of the Reserved Amount or Maximum Share Amount)
shall be deemed converted into shares of Common Stock and (ii) the Holder's
rights as a Holder of such converted portion of this Debenture shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such Holder because of a failure by the Borrower to comply
with the terms of this Debenture. Notwithstanding the foregoing, if a Holder
has not received certificates for all shares of Common Stock prior to the
tenth (10th) business day after the expiration of the Deadline with respect to
a conversion of any portion of this Debenture for any reason, then (unless the
Holder otherwise elects to retain its status as a holder of Common Stock by so
notifying the Borrower) the Holder shall regain the rights of a Holder of this
Debenture with respect to such unconverted portions of this Debenture and the
Borrower shall, as soon as practicable, return such unconverted Debenture to
the Holder or, if the Debenture has not been surrendered, adjust its records
to reflect that such portion of this Debenture has not
<PAGE> 10
been converted. In all cases, the Holder shall retain all of its rights and
remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent required thereby for
such Conversion Default and any subsequent Conversion Default and (ii) the
right to have the Conversion Price with respect to subsequent conversions
determined in accordance with Section 1.3) for the Borrower's failure to
convert this Debenture.
ARTICLE II. CERTAIN COVENANTS
2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower
shall have any obligation under this Debenture, the Borrower shall not without
the Holder's written consent (a) pay, declare or set apart for such payment,
any dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock other than dividends on shares of
Common Stock solely in the form of additional shares of Common Stock or (b)
directly or indirectly or through any subsidiary make any other payment or
distribution in respect of its capital stock except for distributions pursuant
to any shareholders' rights plan which is approved by a majority of the
Borrower's disinterested directors.
2.2 RESTRICTION ON STOCK REPURCHASES. So long as the Borrower
shall have any obligation under this Debenture, the Borrower shall not without
the Holder's written consent redeem, repurchase or otherwise acquire (whether
for cash or in exchange for property or other securities or otherwise) in any
one transaction or series of related transactions any shares of capital stock
of the Borrower or any warrants, rights or options to purchase or acquire any
such shares.
2.3 BORROWINGS. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, create, incur, assume or suffer to exist any liability for
borrowed money, except (a) borrowings in existence or committed on the date
hereof and of which the Borrower has informed Holder in writing prior to the
date hereof, (b) indebtedness to trade creditors or financial institutions
incurred in the ordinary course of business or (c) borrowings, the proceeds of
which shall be used to repay this Debenture.
2.4 SALE OF ASSETS. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, sell, lease or otherwise dispose of any significant portion
of its assets outside the ordinary course of business. Any consent to the
disposition of any assets may be conditioned on a specified use of the
proceeds of disposition.
2.5 ADVANCES AND LOANS. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, lend money, give credit or make advances to any person, firm,
joint venture or corporation, including, without limitation, officers,
directors, employees, subsidiaries and affiliates of the Borrower, except
loans, credits or advances (a) in existence or committed on the date hereof
and which the Borrower has informed Holder in writing prior to the date hereof
or (b) made in the ordinary course of business.
2.6 CONTINGENT LIABILITIES. So long as the Borrower shall have
any obligation under this Debenture, the Borrower shall not, without the
Holder's written consent, assume, guarantee, endorse, contingently agree to
purchase or otherwise become liable upon the obligation of any person, firm,
partnership, joint venture or corporation, except by the endorsement of
negotiable instruments for deposit or collection and except assumptions,
guarantees, endorsements and contingencies (a) in existence or committed on
the date hereof and which the Borrower has informed Holder in writing prior to
the date hereof, and (b) similar transactions in the ordinary course of
business.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "EVENT OF
DEFAULT") shall occur:
<PAGE> 11
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to
pay the principal hereof or interest thereon when due on this Debenture,
whether at maturity, upon a Trading Market Prepayment Event pursuant to
Section 1.7, upon acceleration or otherwise.
3.2 CONVERSION AND THE SHARES. The Borrower fails to issue
shares of Common Stock to the Holder (or announces or threatens that it will
not honor its obligation to do so) upon exercise by the Holder of the
conversion rights of the Holder in accordance with the terms of this Debenture
(for a period of at least sixty (60) days, if such failure is solely as a
result of the circumstances governed by Section 1.3 and the Borrower is using
its best efforts to authorize a sufficient number of shares of Common Stock as
soon as practicable), fails to transfer or cause its transfer agent to
transfer (electronically or in certificated form) any certificate for shares
of Common Stock issued to the Holder upon conversion of or otherwise pursuant
to this Debenture as and when required by this Debenture or the Registration
Rights Agreement, or fails to remove any restrictive legend (or to withdraw
any stop transfer instructions in respect thereof) on any certificate for any
shares of Common Stock issued to the Holder upon conversion of or otherwise
pursuant to this Debenture as and when required by this Debenture or the
Registration Rights Agreement (or makes any announcement, statement or threat
that it does not intend to honor the obligations described in this paragraph)
and any such failure shall continue uncured (or any announcement, statement or
threat not to honor its obligations shall not be rescinded in writing) for ten
(10) days after the Borrower shall have been notified thereof in writing by
the Holder.
3.3 FAILURE TO EFFECT REGISTRATION. The Borrower fails to obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement prior to March 1, 2001 or such Registration Statement lapses in
effect (or sales cannot otherwise be made thereunder effective, whether by
reason of the Borrower's failure to amend or supplement the prospectus
included therein in accordance with the Registration Rights Agreement or
otherwise) for more than thirty (30) consecutive days or sixty (60) days in
any twelve month period after the Registration Statement becomes;
3.4 BREACH OF COVENANTS. The Borrower breaches any material
covenant or other material term or condition contained in Sections 1.3, 1.6 or
1.7 of this Debenture, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the
Purchase Agreement and such breach continues for a period of ten (10) days
after written notice thereof to the Borrower from the Holder;
3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation
or warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has (or with the passage of time will have) a
material adverse effect on the rights of the Holder with respect to this
Debenture, the Purchase Agreement or the Registration Rights Agreement;
3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for
or consent to the appointment of a receiver or trustee for it or for a
substantial part of its property or business, or such a receiver or trustee
shall otherwise be appointed;
3.7 JUDGMENTS. Any money judgment, writ or similar process shall
be entered or filed against the Borrower or any subsidiary of the Borrower or
any of its property or other assets for more than $50,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;
3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by or against the
Borrower or any subsidiary of the Borrower; or
<PAGE> 12
3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to
maintain the listing of the Common Stock on at least one of the OTCBB, the
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock
Exchange, or the American Stock Exchange;
3.10 DEFAULT UNDER OTHER DEBENTURES. An Event of Default has
occurred and is continuing under any of the other Debentures issued pursuant
to the Purchase Agreement, then, upon the occurrence and during the
continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4,
3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
aggregate principal amount of the outstanding Debentures issued pursuant to
the Purchase Agreement exercisable through the delivery of written notice to
the Borrower by such Holders (the "DEFAULT NOTICE"), and upon the occurrence
of an Event of Default specified in Section 3.6 or 3.8, the Debentures shall
become immediately due and payable and the Borrower shall pay to the Holder,
in full satisfaction of its obligations hereunder, an amount equal to the
greater of (i) 135% times the sum of (w) the then outstanding principal amount
of this Debenture plus (x) accrued and unpaid interest on the unpaid principal
amount of this Debenture to the date of payment (the "MANDATORY PREPAYMENT
DATE") plus (y) Default Interest, if any, on the amounts referred to in
clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to
Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration
Rights Agreement (the then outstanding principal amount of this Debenture to
the date of payment plus the amounts referred to in clauses (x), (y) and (z)
shall collectively be known as the "DEFAULT SUM") or (ii) the "parity value"
of the Default Sum to be prepaid, where parity value means (a) the highest
number of shares of Common Stock issuable upon conversion of or otherwise
pursuant to such Default Sum in accordance with Article I, treating the
Trading Day immediately preceding the Mandatory Prepayment Date as the
"Conversion Date" for purposes of determining the lowest applicable Conversion
Price, unless the Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the
"DEFAULT AMOUNT") and all other amounts payable hereunder shall immediately
become due and payable, all without demand, presentment or notice, all of
which hereby are expressly waived, together with all costs, including, without
limitation, legal fees and expenses, of collection, and the Holder shall be
entitled to exercise all other rights and remedies available at law or in
equity. If the Borrower fails to pay the Default Amount within five (5)
business days of written notice that such amount is due and payable, then the
Holder shall have the right at any time, so long as the Borrower remains in
default (and so long and to the extent that there are sufficient authorized
shares), to require the Borrower, upon written notice, to immediately issue,
in lieu of the Default Amount, the number of shares of Common Stock of the
Borrower equal to the Default Amount divided by the average of the lowest
three (3) Closing Bid Prices for the Common Stock during the twenty (20)
Trading Day period ending one Trading Day prior to the date of issuance of
such shares of Common Stock.
ARTICLE IV. MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof
or of any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.2 NOTICES. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or
sent by United States mail and shall be deemed to have been given upon receipt
if personally served (which shall include telephone line facsimile
transmission) or sent by courier or three (3) days after being deposited in
the United States mail, certified, with postage pre-paid and properly
addressed, if sent by mail. For the purposes hereof, the address of the Holder
shall be as shown on the records of the Borrower; and the address of the
Borrower shall be 218 Tearall Road, Raynham, Massachusetts 02767, facsimile
number: ____________). Both the Holder and
<PAGE> 13
the Borrower may change the address for service by service of written notice
to the other as herein provided.
4.3 AMENDMENTS. This Debenture and any provision hereof may only
be amended by an instrument in writing signed by the Borrower and the Holder.
The term "Debenture" and all reference thereto, as used throughout this
instrument, shall mean this instrument (and the other Debentures issued
pursuant to the Purchase Agreement) as originally executed, or if later
amended or supplemented, then as so amended or supplemented.
4.4 ASSIGNABILITY. This Debenture shall be binding upon the
Borrower and its successors and assigns, and shall inure to be the benefit of
the Holder and its successors and assigns. Each transferee of this Debenture
must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Debenture to the contrary, this Debenture may
be pledged as collateral in connection with a bona fide margin account or
other lending arrangement.
4.5 COST OF COLLECTION. If default is made in the payment of
this Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 GOVERNING LAW. THIS DEBENTURE SHALL BE ENFORCED, GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW
YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS DEBENTURE, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF
AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH
PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST
CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON
THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER
PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH
PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT
PREVAIL IN ANY DISPUTE ARISING UNDER THIS DEBENTURE SHALL BE RESPONSIBLE FOR
ALL FEES AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING
PARTY IN CONNECTION WITH SUCH DISPUTE.
4.7 CERTAIN AMOUNTS. Whenever pursuant to this Debenture the
Borrower is required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time) plus accrued
and unpaid interest plus Default Interest on such interest, the Borrower and
the Holder agree that the actual damages to the Holder from the receipt of
cash payment on this Debenture may be difficult to determine and the amount to
be so paid by the Borrower represents stipulated damages and not a penalty and
is intended to compensate the Holder in part for loss of the opportunity to
convert this Debenture and to earn a return from the sale of shares of Common
Stock acquired upon conversion of this Debenture at a price in excess of the
price paid for such shares pursuant to this Debenture. The Borrower and the
Holder hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Debenture into shares of
Common Stock.
4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The
Maximum Share Amount and Reserved Amount shall be allocated pro rata among the
Holders of Debentures based on the principal amount of such Debentures issued
to each Holder. Each increase to the
<PAGE> 14
Maximum Share Amount and Reserved Amount shall be allocated pro rata among the
Holders of Debentures based on the principal amount of such Debentures held by
each Holder at the time of the increase in the Maximum Share Amount or Reserved
Amount. In the event a Holder shall sell or otherwise transfer any of such
Holder's Debentures, each transferee shall be allocated a pro rata portion of
such transferor's Maximum Share Amount and Reserved Amount. Any portion of the
Maximum Share Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Debentures shall be allocated to the remaining
Holders of Debentures, pro rata based on the principal amount of such Debentures
then held by such Holders.
4.9 DAMAGES SHARES. The shares of Common Stock that may be
issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant
to Section 2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall be
treated as Common Stock issuable upon conversion of this Debenture for all
purposes hereof and shall be subject to all of the limitations and afforded all
of the rights of the other shares of Common Stock issuable hereunder, including
without limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("DAMAGES AMOUNTS")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.
4.10 DENOMINATIONS. At the request of the Holder, upon surrender of
this Debenture, the Borrower shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $50,000 as the Holder shall request.
4.11 PURCHASE AGREEMENT. By its acceptance of this Debenture, each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.
4.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided
below, the Holder of this Debenture shall have no rights as a Holder of Common
Stock unless and only to the extent that it converts this Debenture into Common
Stock. The Borrower shall provide the Holder with prior notification of any
meeting of the Borrower's shareholders (and copies of proxy materials and other
information sent to shareholders). In the event of any taking by the Borrower of
a record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation, reclassification or recapitalization) any share of any class or
any other securities or property, or to receive any other right, or for the
purpose of determining shareholders who are entitled to vote in connection with
any proposed sale, lease or conveyance of all or substantially all of the assets
of the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12.
4.13 REMEDIES. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Debenture will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Debenture, that the
Holder shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Debenture
and to enforce specifically the terms and provisions thereof, without the
necessity of showing economic loss and without
<PAGE> 15
any bond or other security being required.
ARTICLE V. OPTIONAL PREPAYMENT
5.1 OPTIONAL PREPAYMENT. Notwithstanding anything to the
contrary contained in this Article V, so long as (i) no Event of Default or
Trading Market Prepayment Event shall have occurred and be continuing, (ii) the
Registration Statement is then in effect and has been in effect and sales can be
made thereunder for at least twenty (20) days prior to the Optional Prepayment
Date (as defined below) and (iii) the Borrower has a sufficient number of
authorized shares of Common Stock reserved for issuance upon full conversion of
the Debentures, then at any time after the Issue Date, the Borrower shall have
the right, exercisable on not less than ten (10) Trading Days prior written
notice to the Holders of the Debentures (which notice may not be sent to the
Holders of the Debentures until the Borrower is permitted to prepay the
Debentures pursuant to this Section 5.1), to prepay all of the outstanding
Debentures in accordance with this Section 5.1. Any notice of prepayment
hereunder (an "OPTIONAL PREPAYMENT") shall be delivered to the Holders of the
Debentures at their registered addresses appearing on the books and records of
the Borrower and shall state (1) that the Borrower is exercising its right to
prepay all of the Debentures issued on the Issue Date and (2) the date of
prepayment (the "OPTIONAL PREPAYMENT NOTICE"). On the date fixed for prepayment
(the "OPTIONAL PREPAYMENT DATE"), the Borrower shall make payment of the
Optional Prepayment Amount (as defined below) to or upon the order of the
Holders as specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional Prepayment Date. If the Borrower exercises
its right to prepay the Debentures, the Borrower shall make payment to the
holders of an amount in cash (the "OPTIONAL PREPAYMENT AMOUNT") equal to 135%
multiplied by the sum of (w) the then outstanding principal amount of this
Debenture plus (x) accrued and unpaid interest on the unpaid principal amount of
this Debenture to the Optional Prepayment Date plus (y) Default Interest, if
any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed
to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section
2(c) of the Registration Rights Agreement (the then outstanding principal amount
of this Debenture to the date of payment plus the amounts referred to in clauses
(x), (y) and (z) shall collectively be known as the "OPTIONAL PREPAYMENT SUM").
If the Borrower delivers an Optional Prepayment Notice and fails to pay the
Optional Prepayment Amount due to the Holders of the Debentures within two (2)
business days following the Optional Prepayment Date, the Borrower shall forever
forfeit its right to redeem the Debentures pursuant to this Section 5.1.
<PAGE> 16
IN WITNESS WHEREOF, Borrower has caused this Debenture to be
signed in its name by its duly authorized officer this ___ day of December,
2000.
INFOTOPIA, INC.
By:
------------------------
Daniel Hoyng
Chief Executive Officer
<PAGE> 17
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debentures)
The undersigned hereby irrevocably elects to convert $______
principal amount of the Debenture (defined below) into shares of common stock,
par value $0.001 per share ("COMMON STOCK"), of Infotopia, Inc., a Nevada
corporation ("the CORPORATION") according to the conditions of the convertible
debentures of the Corporation dated as of December __, 2000 (the "Debentures"),
as of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Debenture is attached hereto (or evidence of loss, theft
or destruction thereof).
The Corporation shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC TRANSFER").
Name of DTC Prime Broker:
--------------------------------------------
Account Number:
------------------------------------------------------
In lieu of receiving shares of Common Stock issuable pursuant to
this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the number
of shares of Common Stock set forth below (which numbers are based on the
Holder's calculation attached hereto) in the name(s) specified immediately below
or, if additional space is necessary, on an attachment hereto:
Name:
----------------------------------------------------------------
Address:
-------------------------------------------------------------
<PAGE> 18
The undersigned represents and warrants that all offers and sales
by the undersigned of the securities issuable to the undersigned upon conversion
of the Debentures shall be made pursuant to registration of the securities under
the Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption
from registration under the Act.
Date of Conversion:
-------------------------------
Applicable Conversion Price:
----------------------
Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Debentures:
---------------
Signature:
----------------------------------------
Name:
------------------------------------------
Address:
---------------------------------------
The Corporation shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Debenture(s) to be converted, and shall make payments pursuant to the Debentures
for the number of business days such issuance and delivery is late.
