Exhibit 4.1
Form of Debenture
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED 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.
Socrates Technologies Corporation
(Incorporated in the State of Delaware)
4% CONVERTIBLE DEBENTURE DUE 2005
No. CD-__ Principal Amount U.S. $_________
Original Issue Date: March 20, 2000
FOR VALUE RECEIVED, Socrates Technologies Corporation, a corporation
duly incorporated and existing under the laws of the State of Delaware (the
"Company"), hereby promises to pay to the order of _________________________, or
registered assigns (hereinafter, the "Holder"), the principal sum of
_________________ United States Dollars ($________________) on March 20, 2005
(the "Maturity Date"), subject to earlier conversion or redemption as provided
herein. The Debentures will be convertible into shares of common stock, par
value $.01 per share, of the Company ("Common Stock") on the terms and subject
to the conditions hereinafter set forth at any time after the date hereof.
Interest shall be paid on the unpaid principal balance of this debenture at the
rate of 4% per annum from the date hereof, payable, in the manner set forth
below, upon conversion, redemption or maturity of this Debenture to the person
that is the Holder on the date of such event. Interest hereon shall be
calculated on the basis of a 360 day year and the actual number of days elapsed.
1. General. (a) This Debenture is one of a duly authorized issue of
Debentures of the Company in original aggregate principal amount of $4,553,333
designated as its 4% Convertible Debentures due 2005 (herein called the
"Debentures"), issued pursuant to the authorization of the Board of Directors of
the Company and issued pursuant to a Securities Purchase Agreement, dated March
20, 2000, by and among the Company and the Purchasers identified therein (the
"Securities Purchase Agreement"). The Securities Purchase Agreement contains
certain additional terms that are binding upon the Company and each holder of
the Debentures.
(b) The Debentures are issuable, without coupons, in principal
denominations of U.S. $1,000 and integral multiples thereof. The Debentures, and
transfers thereof, shall be in registered form. The registered holder of a
Debenture shall (to the fullest extent permitted by applicable law) be treated
at all times, by all persons and for all purposes as the absolute owner of such
Debenture, regardless of any notice of ownership, theft or loss or of any
writing thereon.
2. Principal. The Aggregate Principal Amount (as defined in Section 7)
of this Debenture shall be converted into shares of Common Stock on the Maturity
Date in accordance with the terms hereof. The Company may not prepay all or any
portion of this Debenture, except as specifically provided herein.
3. Interest. Each Debenture shall be entitled to receive interest at
the rate of 4.0% per annum, compounded quarterly, on the Aggregate Principal
Amount thereof. Such interest shall be due and payable upon conversion,
redemption or maturity of this Debenture. Interest shall accrue from the
Original Issue Date (as defined herein), whether or not earned or declared,
until maturity or such time as the Debenture has been converted or redeemed as
herein provided. Interest is payable on the Debentures on the last day of March,
June, September and December of each year by increasing the Aggregate Principal
Amount of the Debentures by the amount of such interest. Such increase in the
Aggregate Principal Amount shall constitute full payment of such interest. When
any interest is added to the Aggregate Principal Amount, such interest shall,
for all purposes of this Debenture, be deemed to be part of the Aggregate
Principal Amount for purposes of determining interest thereafter payable
hereunder and amounts thereafter convertible into Common Stock hereunder, and
all references herein to the Aggregate Principal Amount shall mean the Aggregate
Principal Amount, as adjusted pursuant to this Section 3. The interest so
payable will be paid to the person in whose name the Debenture (or one or more
predecessor debentures) is registered on the records of the Company regarding
registration and transfers of the Debentures; provided, however, that the
Company's obligation to a transferee of a Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions hereof and the Securities Purchase Agreement.
4. Conversion at the Option of the Holder. (a) (i) The Debentures shall be
convertible into shares of Common Stock (subject to Section 4(a)(ii) and Section
4(a)(iii)) at the Conversion Ratio (as defined in Section 7) at the option of
the holder of the Debentures in whole or in part at any time after the earliest
to occur of the 120th day after the Original Issue Date or the effective date of
the Registration Statement (as defined in the Registration Rights Agreement). If
any Debentures remain outstanding on the Maturity Date, then all such Debentures
shall be converted at the Conversion Ratio as of such date in accordance with
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this Section 4. To convert Debentures into shares of Common Stock on any date,
the holder hereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m., Eastern time, on such date, a copy of an
executed notice of conversion in the form attached hereto as Exhibit 1 (the
"Conversion Notice") to the Company with a copy thereof to the Company's
designated transfer agent (the "Transfer Agent") and (B) if required by Section
4(b)(vi), surrender to a common carrier for delivery to the Transfer Agent as
soon as practicable following such date the original Debentures representing the
Debentures being converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction) (the "Debenture
Certificates"). Each Conversion Notice shall specify the Aggregate Principal
Amount of Debentures to be converted. The date as of which such conversion is to
be effected shall be the date the holder delivers such Conversion Notice by
facsimile (the "Conversion Date")(if such date is not a Business Day, then the
Conversion Date will be the next following Business Day). Subject to Sections
4(a)(ii) and 4(b) hereof, each Conversion Notice, once given, shall be
irrevocable. Upon receipt by the Company of a copy of a Conversion Notice, the
Company shall (1) as soon as practicable, but in no event later than within one
(1) Business Day, send, via facsimile, a confirmation of receipt of such
Conversion Notice to such holder and the Transfer Agent, which confirmation
shall constitute an instruction to the Transfer Agent to process such Conversion
Notice in accordance with the terms herein and (2) on or before the second (2nd)
Trading Day following the date of receipt by the Company of such Conversion
Notice (the "Delivery Date"), (A) issue and deliver to the address as specified
in the Conversion Notice, a certificate, registered in the name of the holder or
its designee, for the number of shares of Common Stock to which the holder shall
be entitled, or (B) provided the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program,
upon the request of the holder, credit such aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's or its designee's
balance account with DTC through its Deposit Withdrawal Agent Commission system.
If the Aggregate Principal Amount of Debentures represented by the Debenture
Certificate(s) submitted for conversion, as may be required pursuant to Section
4(b)(iv), is greater than the Aggregate Principal Amount of Debentures being
converted, then the Company shall, as soon as practicable and in no event later
than the Delivery Date and at its own expense, issue and deliver to the holder a
new Debenture Certificate representing the Aggregate Principal Amount of
Debentures not converted.
(ii) If on the Conversion Date applicable to any conversion,
(A) the Common Stock is then listed for trading on the Nasdaq National
Market, the New York Stock Exchange, the American Stock Exchange or The
Nasdaq Small Cap Market, (B) the Conversion Price then in effect is
such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion of all the outstanding Debentures,
together with any shares of Common Stock previously issued upon
conversion of Debentures, would equal or exceed 20% of the number of
shares of Common Stock outstanding on the Original Issue Date (the
"Issuable Maximum"), and (C) the Company has not previously obtained
(or attempted to obtain) the Stockholder Approval (as defined below)
for the issuance of the Securities, then the Company shall issue to any
Holder so requesting conversion of Debentures its pro rata portion of
the Issuable Maximum in the same ratio that the Aggregate Principal
Amount of Debentures held by any such holder bears to the Aggregate
Principal Amount of Debentures then outstanding and, with respect to
the Aggregate Principal Amount of the Debentures that remains
outstanding after such issuance (the "Remaining Aggregate Principal
Amount"), the Company shall at the holder's request, (x) as promptly as
possible but in no event later than 45 days after such Conversion Date,
convene a meeting of the holders of the Common Stock and use its best
efforts to obtain Stockholder Approval or a waiver of such approval
from the appropriate exchange and (y) as promptly as possible from time
to time, after a written request by the holder, issue shares of Common
Stock at a Conversion Price equal to the Per Share Market Value on the
Trading Day immediately preceding the date of such request for all or a
portion of the Remaining Aggregate Principal Amount (plus any and all
accrued and unpaid interest thereon) held by such holder (whether or
not subject to the Conversion Notice specified above) or (2) as
promptly as possible, but in any event within five Trading Days after a
request by the holder, redeem all or a portion of the Remaining
Aggregate Principal Amount (plus any and all accrued and unpaid
interest thereon) to which such Conversion Notice applies, for an
amount, paid in cash, equal to the greater of (A) the Remaining
Aggregate Principal Amount (plus any accrued interest thereon),
multiplied by 125%, or (B) the Remaining Aggregate Principal Amount
(plus any accrued interest thereon), divided by the Conversion Price as
of the Conversion Date and multiplied by the highest Per Share Market
Value for any day in the period from the fifth Trading Day immediately
preceding the Conversion Date through the date of payment. If the
holder has requested that the Company redeem Debentures pursuant to
this Section and the Company fails for any reason to pay the redemption
price, as calculated pursuant to the immediately preceding sentence,
within
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seven days after such notice is deemed delivered pursuant to the
preceding sentence, the Company will pay interest on the redemption
price at a rate of 15% per annum, in cash to such holder, accruing from
such seventh day until the redemption price and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated
damages and not as a penalty). "Stockholder Approval" means the
approval by a majority of the total votes cast on the proposal, in
person or by proxy, at a meeting of the stockholders of the Company
called pursuant to Section 3.13 of the Securities Purchase Agreement
and held in accordance with the Company's certificate of incorporation
and by-laws, of the issuance by the Company of shares of Common Stock
exceeding the Issuable Maximum as a consequence of the conversion of
the Debentures into Common Stock at a price less than the greater of
the book or market value on the Original Issue Date as and to the
extent required pursuant to the rules of the appropriate exchange or
market.
(iii) In no event shall a holder be permitted to convert in
excess of such Aggregate Principal Amount of Debentures upon the
conversion of which, (x) the number of shares of Common Stock owned by
such holder (other than shares of Common Stock issuable upon conversion
of Debentures or upon exercise of the Warrants (as defined in the
Securities Purchase Agreement) plus (y) the number of shares of Common
Stock issuable upon such conversion of such Debentures, would be equal
to or exceed (z) 4.999% of the number of shares of Common Stock then
issued and outstanding, including shares issuable on conversion of the
Debentures held by such holder after application of this Section
4(a)(iii). As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations thereunder. To the extent that the limitation contained in
this Section 4(a)(iii) applies, the determination of whether Debentures
are convertible (in relation to other securities owned by a holder) and
of which Debentures are convertible shall be in the sole discretion of
such holder, and the submission of Debentures for conversion shall be
deemed to be such holder's determination of whether such Debentures are
convertible (in relation to other securities owned by a holder) and of
which Debentures are convertible, in each case subject to such
aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination.
Nothing contained herein shall be deemed to restrict the right of a
holder to convert such Debentures at such time as such conversion will
not violate the provisions of this paragraph. No conversion in
violation of this paragraph but otherwise in accordance with this
Debenture shall affect the status of the securities issued upon such
conversion as validly issued, fully-paid and nonassessable.
(b) (i) Not later than any Delivery Date, the Company will deliver to
the applicable holder by express courier (A) 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
Securities Purchase Agreement) representing the number of shares of
Common Stock being acquired upon the conversion of Debentures (subject
to reduction pursuant to Section 4(a)(ii) and Section 4(a)(iii)) and
(B) to the extent required pursuant to Section 4(b)(iv), a new
Debenture Certificate representing the unconverted Aggregate Principal
Amount. If in the case of any Conversion Notice such new Debenture or
Debentures are not delivered to or as directed by the applicable holder
by the fifth (5th) Trading Day after the applicable Conversion Date,
the holder shall be entitled by written notice to the Company at any
time on or before its receipt of such Debenture or Debentures
thereafter, to rescind such conversion, whereupon the Company and the
holder shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that any
amounts described in Sections 4(b)(ii) and (iii) shall be payable
through the date notice of rescission is given to the Company.
(ii) The Company understands that a delay in the delivery of
the shares of Common Stock upon conversion of Debentures and failure to
deliver a new Debenture representing the unconverted Aggregate
Principal Amount beyond the Delivery Date could result in economic loss
to the holder. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to this Section hereunder by the
Delivery Date for any reason, other than due to the action of the
holder, the Company shall pay to such holder, in cash, an amount per
Trading Day for each Trading Day the earlier of the date such
certificates are delivered or the date the conversion is rescinded
pursuant to Section 6(b)(i) above, together with interest on such
amount at a rate of 15% per annum, accruing until such amount and any
accrued interest thereon is paid in full, equal to (i) 1% of the
Aggregate Principal Amount of the Debentures, plus the accrued and
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unpaid interest thereon, requested to be converted for the first five
Trading Days after the Delivery Date and (ii) 2% of the Aggregate
Principal Amount of the Debentures, plus the accrued and unpaid
interest thereon, requested to be converted for each Trading Day
thereafter (which amounts shall be paid as liquidated damages and not
as a penalty). If the Company fails to deliver to the holder such
certificate or certificates pursuant to this Section prior to the 15th
Trading Day after the Conversion Date, the Company shall, at the
holder's option, redeem in cash, from funds legally available therefor
at the time of such redemption, all or a portion of the Aggregate
Principal Amount of Debentures then held by such holder, plus the
accrued and unpaid interest thereon, as requested by such holder, in
cash. The redemption price shall be equal to the Aggregate Principal
Amount of Debentures requested to be redeemed, plus accrued and unpaid
interest thereon, multiplied by the greater of (A) 125% or (B) the
applicable Conversion Ratio as of the Conversion Date multiplied by the
average Per Share Market Value for the five Trading Days immediately
preceding (1) the Conversion Date or (2) the date of payment in full by
the Company of such prepayment price, whichever is greater. If the
holder has requested that the Company redeem Debentures pursuant to
this Section and the Company fails for any reason to pay the redemption
price, as calculated pursuant to the immediately preceding sentence,
within seven days after such notice is deemed delivered pursuant to
Section 4(a)(i), the Company will pay interest on the redemption price
at a rate of 15% per annum, in cash to such holder, accruing from such
seventh day until the redemption price and any accrued interest thereon
is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). Nothing herein shall limit a holder's right to
pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period
specified herein (including, without limitation, damages relating to
any purchase of shares of Common Stock by such holder to make delivery
on a sale effected in anticipation of receiving certificates
representing shares of Common Stock upon conversion, such damages to be
in an amount equal to (A) the aggregate amount paid by such holder for
the shares of Common Stock so purchased minus (B) the aggregate amount
of net proceeds, if any, received by such holder from the sale of the
shares of Common Stock which would have been issued by the Company
pursuant to such conversion), and such holder shall have the right to
pursue all remedies available to it at law or in equity (including,
without limitation, a decree of specific performance and/or injunctive
relief).
(iii) In addition to any other rights available to the holder,
if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i) by the Delivery Date and if
after the Delivery Date the holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such holder of the Underlying Shares which
the holder anticipated receiving upon such conversion (a "Buy-In"),
then the Company shall immediately pay in cash to the holder (in
addition to any remedies available to or elected by the holder) the
amount by which (A) the holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the Aggregate Principal Amount of the Debentures
for which such conversion was not timely honored, together with
interest thereon at a rate of 15% per annum, accruing until such amount
and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). For example, if the
holder purchases shares of Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted conversion of
$10,000 Aggregate Principal Amount of Debentures, the Company shall be
required to pay the holder $1,000, plus interest. The holder shall
provide the Company written notice indicating the amounts payable to
the holder in respect of the Buy-In.
(iv) Notwithstanding anything to the contrary set forth
herein, upon conversion of Debentures in accordance with the terms
hereof, the holder thereof shall not be required to physically
surrender the certificate representing the Debentures to the Company
unless the entire Aggregate Principal Amount of Debentures represented
by the certificate are being converted. The holder and the Company
shall maintain records showing the Aggregate Principal Amount of
Debentures so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the holder and the
Company, so as not to require physical surrender of the certificate
representing the Debentures upon each such conversion. In the event of
any dispute or discrepancy, such records of the Company shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if Debentures represented by a
certificate are converted as aforesaid, the holder may not transfer the
certificate representing the Debentures unless the holder first
physically surrenders the certificate representing the Debentures to
the Company, whereupon the Company will forthwith issue and deliver
upon the order of the holder a new certificate of like tenor,
registered as the holder may request, representing in the aggregate the
remaining
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Aggregate Principal Amount of Debentures represented by such
certificate.
(c) (i) The conversion price for the Debentures (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (A)
$3.38 (the "Original Conversion Price") and (B) an amount equal to 100%
of the lowest Per Share Market Value during the 30 consecutive Trading
Days immediately prior to the Conversion Date; provided, however, that,
in any Conversion Notice, a holder may specify a Conversion Price
higher than the Conversion Price then in effect, provided further that,
if during any period (a "Black-out Period"), a holder is unable to
trade any Common Stock issued or issuable upon conversion of Debentures
immediately due to the postponement of filing or delay or suspension of
effectiveness of a registration statement or because the Company has
otherwise informed such holder that an existing prospectus cannot be
used at that time in the sale or transfer of such Common Stock, such
holder shall have the option but not the obligation on any Conversion
Date within ten Trading Days following the expiration of the Black-out
Period of using the Conversion Price applicable on such Conversion Date
or any Conversion Price selected by such holder that would have been
applicable had such Conversion Date been at any earlier time during the
Black-out Period or within the ten Trading Days thereafter.
(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 security payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c)
combine outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of Common Stock any
shares of capital stock of the Company, the Original Conversion Price
shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 4(c)(ii) 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 Debentures are
outstanding, shall sell or issue additional shares of Common Stock or
rights or warrants to acquire shares of Common Stock at a price per
share less than the Original Conversion Price, excluding any rights of
the holder of the Debentures or the holders of the Warrants issued
pursuant to the Securities Purchase Agreement to acquire Common Stock,
the Original Conversion Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of
issuance of such shares, rights or warrants plus the number of
additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such shares, 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 Original Conversion Price.
Such adjustment shall be made whenever such shares, rights or warrants
are issued, and shall become effective immediately after the issuance
of such shares, rights or warrants or, if such rights or warrants are
issued to stockholders of the Company, 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 Common Stock the issuance of which resulted in an adjustment
in the Original Conversion Price pursuant to this Section 4(c)(iii),
if any such right or warrant shall expire and shall not have been
exercised, the Original Conversion Price shall immediately upon such
expiration be re-computed and effective immediately upon such
expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Original Conversion Price made
pursuant to the provisions of this Section 4 after the issuance of
such rights or warrants) had the adjustment of the Original 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 Common Stock actually purchased upon the exercise of such
rights or warrants actually exercised.
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(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of 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
(excluding those referred to in Sections 4(c)(ii) and (iii) above),
then in each such case the Original Conversion Price shall be
multiplied by a fraction of which the denominator shall be the Per
Share Market Value determined as of the record date fixed for
determination of stockholders entitled to receive such distribution,
and of which the numerator shall be such Per Share Market Value 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 Common Stock as
determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent of the net
assets of the Company, such fair market value shall be determined by
an Independent Appraiser (as defined below) selected in good faith by
the holders of a majority in interest of the Aggregate Principal
Amount of Debentures then outstanding; and provided, further, that the
Company, after receipt of the determination by such Independent
Appraiser, shall have the right to select an additional Independent
Appraiser, in good faith, in which case the fair market value shall be
equal to the average of the determinations by each such Independent
Appraiser. In either case the adjustments shall be described in a
statement provided to the Holders of the portion of assets or
evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(v) 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.
(vi) Whenever the Original Conversion Price is adjusted
pursuant to Section 4(c)(ii),(iii) or (iv) (for purposes of this
Section 4(c)(vi), each an "adjustment"), the Company shall cause its
Chief Financial Officer to prepare and execute a certificate setting
forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was
calculated (including a description of the basis on which the Board
made any determination hereunder), and the Original Conversion Price
after giving effect to such adjustment, and shall cause copies of such
certificate to be delivered to each Holder promptly after each
adjustment. Any dispute between the Company and the Holders with
respect to the matters set forth in such certificate may at the option
of the Holders be submitted to one of the national accounting firms
currently known as the "big five" selected by the holders of a
majority in interest of the Aggregate Principal Amount of Debentures
then outstanding, provided that the Company shall have ten days after
receipt of notice from such Holders of their selection of such firm to
object thereto, in which case the holders of a majority in interest of
the Aggregate Principal Amount of Debentures then outstanding shall
select another such firm and the Company shall have no such right of
objection. The firm selected by the holders of a majority in interest
of the Aggregate Principal Amount of Debentures then outstanding as
provided in the preceding sentence shall be instructed to deliver a
written opinion as to such matters to the Company and the Holders
within thirty days after submission to it of such dispute. Such
opinion shall be final and binding on the parties hereto. The fees and
expenses of such accounting firm shall be paid by the Company.
(vii) In case the Company after the Original Issue Date shall
do any of the following (each, a "Major Transaction") (a) consolidate
with or merge into any other person and the Company shall not be the
continuing or surviving person of such consolidation or merger, or (b)
permit any other person to consolidate with or merge into the Company
and the Company shall be the continuing or surviving person but, in
connection with such consolidation or merger, any capital stock of the
Company shall be changed into or exchanged for securities of any other
person or cash or any other property, or (c) transfer all or
substantially all of its properties or assets to any other person, or
(d) effect a capital reorganization or reclassification of its capital
stock, the holders of the Debentures then outstanding shall have the
right thereafter to convert such shares only into the shares of stock
and other securities, cash and property receivable upon or deemed to
be held by holders of Common Stock following such Major Transaction,
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 such Debentures could have
been converted immediately prior to such Major Transaction would have
been entitled; provided, however, that each Holder shall have the
option to require the Company to redeem, from funds legally
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available therefor at the time of such redemption, such Aggregate
Principal Amount of its Debentures at a price equal to the Aggregate
Principal Amount of Debentures to be redeemed, plus accrued and unpaid
interest thereon, (i) multiplied by (A) the average Per Share Market
Value for the five Trading Days immediately preceding (1) the effective
date, the date of the closing or the date of the announcement, as the
case may be, of the Major Transaction triggering such redemption right
or (2) the date of payment in full by the Company of the redemption
price hereunder, whichever is greater, and (B) the Conversion Ratio as
of the (1) the effective date, the date of the closing or the date of
the announcement, as the case may be, of the Major Transaction
triggering such redemption right or (2) the date of payment in full by
the Company of the redemption price hereunder, whichever is greater,
and (ii) divided by the Conversion Price calculated on the date of the
closing or the effective date, as the case may be, of the Major
Transaction triggering such redemption right, as the case may be. The
entire redemption price shall be paid in cash. If the Holder has
requested that the Company redeem Debentures pursuant to this Section
and the Company fails for any reason to pay the redemption price, as
calculated pursuant to the immediately preceding sentence, within five
days after such notice is deemed delivered pursuant to the preceding
sentence, the Company will pay interest on the redemption price at a
rate of 15% per annum, in cash to such Holder, accruing from such
seventh day until the redemption price and any accrued interest thereon
is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). The terms of any such Major Transaction shall
include such terms so as to continue to give to the holder of
Debentures the right to receive the securities, cash or property set
forth in this Section 4(c)(vii) upon any conversion or redemption
following such Major Transaction. This provision shall similarly apply
to successive Major Transactions.
(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 Major Transaction; or
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 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 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 Common Stock of record shall be entitled to
exchange their shares of 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.
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(d) If at any time conditions shall arise by reason of action taken by
the Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially and adversely
affect the rights of the holders of Debentures (different than or distinguished
from the effect generally on rights of holders of any class of the Company's
capital stock) or if at any time any such conditions are expected to arise by
reason of any action contemplated by the Company, the Company shall mail a
written notice briefly describing the action contemplated and the material
adverse effects of such action on the rights of the holders of Debentures at
least 10 calendar days prior to the effective date of such action, and an
Independent Appraiser selected by the holders of majority in interest of the
Debentures shall give its opinion as to the adjustment, if any (not inconsistent
with the standards established in this Section 4), of the Conversion Price
(including, if necessary, any adjustment as to the securities into which
Debentures may thereafter be convertible) and any distribution which is or would
be required to preserve without diluting the rights of the holders of
Debentures. The Board of Directors shall make the adjustment recommended
forthwith upon the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion of the
Independent Appraiser giving the aforesaid opinion would result in an increase
of the Conversion Price to more than the Conversion Price then in effect.
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Debentures free from preemptive rights or any
other actual contingent purchase rights of persons other than the holders of
Debentures, not less than 200% of such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Securities Purchase Agreement) be issuable (taking into
account the adjustments of Section 4(c)) upon the conversion of all outstanding
Debentures (without regard to any limitations on conversions or exercise
thereof). The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and freely tradable.
(f) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of 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.
(g) The issuance of certificates for shares of Common Stock on
conversion of 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.
(h) Debentures converted into Common Stock shall be canceled and
retired by the Company.
(i) Whenever notice is required to be given under this Debenture,
unless otherwise provided herein, such notice shall be given in accordance with
Section 5.3 of the Securities Purchase Agreement.
(j) In the event a Holder shall elect to convert any Debentures as
provided herein, the Company cannot refuse conversion based on any claim that
such Holder or any one associated or affiliated with such Holder has been
engaged in any violation of law, contract, agreement or for any other reason,
unless, an injunction from a court, on notice, restraining and/or adjoining
conversion of all or of said Debentures shall have issued and the Company posts
a surety bond for the benefit of such Holder in the amount of the principal
amount of Debentures sought to be converted, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Holder in the event it obtains judgment.
5. Company Redemption.
(a) Notwithstanding the foregoing, upon receipt by the Company of a
Conversion Notice specifying a Conversion Price which is less than the Original
Conversion Price, at such time as the Conversion Price is less than the Original
Conversion Price, then the Company shall, if written notice pursuant to Section
5(b) had been previously delivered to the Holder, in lieu of issuing shares of
Common Stock pursuant to Section 4, redeem the
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Aggregate Principal Amount of the Debentures subject to such Conversion Notice
by paying the Holder, within seven days, a redemption price equal to 125% of the
Aggregate Principal Amount of the Debentures subject to such Conversion Notice
(plus any and all accrued and unpaid interest thereon) (a "Company Redemption").
If the Company redeems Debentures pursuant to this Section and the Company fails
for any reason to pay the redemption price, within seven days after receipt of
the applicable Conversion Notice, (i) the Company will pay interest on the
redemption price at a rate of 15% per annum, in cash to such holder, accruing
from such seventh day until the redemption price and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty) and (ii) any Company Redemption Notice(s) then in effect shall
become null and void and the Company shall lose the right to issue any further
Company Redemption Notices pursuant to Section 5(b). Nothing herein shall limit
a holder's right to pursue actual damages for the Company's failure to pay the
redemption price within the period specified herein, and such holder shall have
the right to pursue all remedies available to it at law or in equity (including,
without limitation, a decree of specific performance and/or injunctive relief).
(b) If at any time, the Conversion Price is less than the Original
Conversion Price and the Company elects, if it were to receive Conversion Notice
from any Holder specifying a Conversion Price which is less than the Original
Conversion Price, to exercise the Company Redemption pursuant to Section 5(a),
the Company , at least two (2) Trading Days prior to receipt of any such
Conversion Notice, must provide all the Holders with written notice of such
election (the "Company Redemption Notice"). Such Company Redemption Notice shall
remain effective unless the Conversion Price is greater than or equal to the
Original Conversion Price, in which case any outstanding Company Redemtion
Notices shall be of no further force and effect. The Company will not be
entitled to exercise the Company Redemption with respect to a Holder unless the
Company Redemption Notice was delivered to such Holder in a timely manner.
6. Events of Default.
Each of the following shall constitute an event of default ("Event of
Default"), whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
administrative, governmental or non-governmental body or otherwise howsoever:
(a) the Company shall default in any payment of any amounts due under
the Transaction Documents when and as due (whether at maturity, upon
acceleration or otherwise); or
(b) the Company shall fail duly to perform or observe any term,
covenant or agreement contained in any of the Debentures or in the Securities
Purchase Agreement or in the Registration Rights Agreement for a period of seven
days after the date on which written notice of such failure shall first have
been given to the Company; or
(c) (i) a final judgment shall be entered by any court against the
Company for the payment of money which together with all other outstanding final
judgments against the Company exceeds $150,000 in the aggregate, or (ii) a
warrant of attachment or execution or similar process shall be issued or levied
against any of the Company's property which exceeds in value $150,000 in the
aggregate, and if, within 30 days after the entry, issue or levy thereof, such
judgment, warrant or process shall not have been paid or discharged; or
(d) a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other similar law
now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or for any
substantial part of the property of it or ordering the winding-up or liquidation
of the affairs of it and such decree or order shall remain unstayed and in
effect for a period of 30 days; or
(e) the Company shall commence a voluntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or similar official) of the Company or for any substantial part of
its property, or shall make any general assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as they become due or
shall take any corporate action in furtherance of any of the foregoing; or
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<PAGE>
(f) an event of default, as defined in any indenture or instrument
evidencing or under which the Company shall have outstanding indebtedness for
borrowed money in excess of $150,000, inclusive of accrued interest, accrued
premium, if any, or any additional amounts payable, shall happen and be
continuing and such default shall involve the failure to pay the principal of
such indebtedness (or any part thereof), when due and payable after the
expiration of any applicable grace period with respect thereto, or such
indebtedness shall have been accelerated so that the same shall be or become due
and payable prior to the date on which the same would otherwise have become due
and payable, and failure to pay shall not have been cured by the Company within
30 days after such failure or such acceleration shall not be rescinded or
annulled within 30 days after notice thereof shall have first been given to the
Company; provided that if such event of default under such indenture or
instrument shall be remedied or cured by the Company or waived by the holders of
such indebtedness, then the Event of Default hereunder by reason thereof shall
be deemed likewise to have been thereupon remedied, cured or waived without
further action upon the part of any of the holders of Debentures; or
(g) trading in the Common Stock shall have been suspended for more than
ten Trading Days on the Nasdaq National Market or the Common Stock is delisted
from any principal market or exchange (including, but not limited to, The Nasdaq
Small-Cap Market and the Nasdaq National Market) on which the Common Stock is
then listed for trading; or
(h) the Company fails to timely deliver the shares of Common Stock to
the Holder or a replacement Debenture representing any unconverted portion of
this Debenture pursuant to this Debenture; or
(i) the issuance by the Securities and Exchange Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities (as defined in the Registration Rights
Agreement) or the initiation of any proceedings for that purpose.
With the exception of an Event of Default specified in clauses (d) or (e) above,
upon the occurrence and continuance of an Event of Default, the Holder may
declare the Aggregate Principal Amount of and interest on the Debentures and all
other amounts owing under the Transaction Documents to be forthwith due and
payable by giving written notice thereof to the Company without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, anything in the Transaction Documents to the contrary notwithstanding.
Upon the occurrence and continuance of an Event of Default specified in clauses
(d) or (e) above, such principal, interest and other amounts shall thereupon and
concurrently therewith become automatically due and payable all without any
action by the Holder and without presentment, demand, protest or other notice of
any kind, all of which are expressly waived, anything in the Transaction
Documents to the contrary notwithstanding.
Interest on overdue principal and interest (and other amounts, if any)
shall accrue from the date on which such principal and interest (and other
amounts, if any) were due and payable to the date such principal and interest
(and other amounts, if any) are paid or duly provided for, at a rate of 15% per
annum (to the extent payment of such interest shall be legally enforceable).
7. Definitions. For the purposes hereof, the following terms shall have
the following meanings:
"Aggregate Principal Amount" means, with respect to the Debentures, the
sum of (a) the principal amount thereof, plus (b) accrued but unpaid interest
thereon (whether or not earned or declared).
"Common Stock" means the common stock, $.01 par value per share, of the
Company and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Conversion Ratio" means the number of shares of Common Stock issuable
upon conversion of each Debenture determined by the application of the following
formula where "D" equals the accrued and unpaid interest on the Aggregate
Principal Amount of Debentures so converted Stock (not previously added to the
Aggregate Principal Amount pursuant to Section 2 hereof) as of the Conversion
Date:
Aggregate Principal Amount to be Converted + D
-------------------------------------------------------
Conversion Price
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<PAGE>
"Independent Appraiser" means 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) that is regularly engaged in the business of
appraising the capital stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Company or any
Holder.
"Original Issue Date" shall mean the date of the first issuance of any
Debentures regardless of the number of transfers of any particular Debentures
and regardless of the number of certificates which may be issued to evidence
such Debentures.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on The Nasdaq Small-Cap
Market, the Nasdaq National Market or other registered national stock exchange
on which the Common Stock is then listed or if there is no such price on such
date, then the closing bid price on such exchange or quotation system on the
date nearest preceding such date, or (b) if the Common Stock is not listed then
on The Nasdaq Small-Cap Market, the Nasdaq National Market or any registered
national stock exchange, the closing bid price for a share of Common Stock in
the over-the-counter market, as reported by NASDAQ or in the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the over-the-counter quotes on the
Electronic Bulletin Board of the National Association of Securities Dealers,
Inc. for the relevant conversion period, as determined in good faith by the
holder, or (d) if the Common Stock is not then publicly traded, then the fair
market value of a share of Common Stock as determined by an Independent
Appraiser selected in good faith by the holders of a majority in interest of the
shares of the Debentures; provided, however, that the Company, after receipt of
the determination by such Independent Appraiser, shall have the right to select
an additional Independent Appraiser, in which case, the fair market value shall
be equal to the average of the determinations by each such Independent
Appraiser; and provided, further that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period. The determination of fair market
value by an Independent Appraiser shall be based upon the fair market value of
the Company determined on a going concern basis as between a willing buyer and a
willing seller and taking into account all relevant factors determinative of
value, and shall be final and binding on all parties. In determining the fair
market value of any shares of Common Stock, no consideration shall be given to
any restrictions on transfer of the Common Stock imposed by agreement or by
federal or state securities laws, or to the existence or absence of, or any
limitations on, voting rights.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, by and among the Company and the
original Holders.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq National Market, The Nasdaq Small-Cap Market or other registered
national stock exchange on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on the Nasdaq National Market, The Nasdaq Small-Cap
Market or any registered national stock exchange, a day or which the Common
Stock is traded in 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 in 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); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean 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.
"Underlying Shares" means the number of shares of Common Stock into
which the Debentures are convertible in accordance with the terms hereof and the
Securities Purchase Agreement.
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<PAGE>
8. Taxes. The Company shall pay any and all taxes attributable to the
issuance and delivery of Common Stock or other securities upon conversion of the
Debentures.
9. No Impairment. The Company shall not by any action including,
without limitation, amending the articles of incorporation or the by-laws of the
Company, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this
Debenture, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder hereof against dilution (to the
extent specifically provided herein) or impairment. Without limiting the
generality of the foregoing, the Company will (i) not permit the par value, if
any, of its Common Stock to exceed the then effective Conversion Price, (ii) not
amend or modify any provision of the certificate of incorporation or by-laws of
the Company in any manner that would adversely affect in any way the powers,
preferences or relative participating, optional or other special rights of the
Common Stock or which would adversely affect the rights of the Holders of the
Debentures, (iii) take all such action as may be reasonably necessary in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this
Debentures, and (iv) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be reasonably necessary to enable the Company to perform its
obligations under this Debenture.
10. Governing Law. The Debentures shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of law.
11. Countersignature and Registration. This Debenture shall not become
valid or obligatory for any purpose until the Debentures shall have been duly
executed by the Company and such signature attested to by an authorized Officer
thereof.
12. Warranty of the Company. The Company hereby certifies and warrants
that all acts, conditions and things required to be done and performed and to
have happened precedent to the creation and issuance of this Debenture, and to
constitute the same as legal, valid and binding obligations of the Company
enforceable in accordance with their terms, have been done and performed and
have happened in due and strict compliance with all applicable laws.
13. Descriptive Headings. The descriptive headings appearing herein are
for convenience of reference only and shall not alter, limit or define the
provisions herein.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed in its corporate name by the manual signature of a duly authorized
signatory, as attested to by another duly authorized signatory of the Company.
Dated: March 20, 2000
SOCRATES TECHNOLOGIES CORPORATION
By:________________________________
Name:
Title:
ATTEST:
By:__________________________________
Name:
Title:
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<PAGE>
EXHIBIT 1
CONVERSION NOTICE
The undersigned hereby elects to have Socrates Technologies Corporation (the
"Company") convert the Aggregate Principal Amount of 4.0% Convertible Debentures
due 2005 (the "Debentures") of the Company, indicated below into shares of
Common Stock, par value $.01 per share (the "Common Stock"), of the Company as
of the date specified below.
Date of Conversion: ________________________________________________
Aggregate Principal Amount of Debentures to be converted:__________________
Please confirm the following information:
Conversion Price: ________________________________________________
Number of shares of Common Stock to be issued:_____________________________
Please issue the Common Stock into which the Debentures are being converted and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:
Issue to:___________________________________________________________
___________________________________________________________
___________________________________________________________
Facsimile Number:_______________________________
Authorization:___________________________________
By:
Title:
Dated:__________________________________________
Account Number (if electronic book entry transfer):__________________
Transaction Code Number (if electronic book entry transfer):__________________
