FORM OF SENIOR SUBORDINATED UNSECURED CONVERTIBLE NOTE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO THE
SENIOR SUBORDINATED UNSECURED CONVERTIBLE NOTES (THE "NOTES") PURCHASE AGREEMENT
BETWEEN OFFICELAND INC. AND THE PURCHASERS OF THE NOTES, DATED NOVEMBER 10,
1998, AND MAY BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF ONLY IN ACCORDANCE
WITH THE TERMS THEREOF.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") , OR ANY STATE SECURITIES
LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR (2) THE ISSUER RECEIVES AN OPINION OF COUNSEL TO THE HOLDER
OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE
ISSUER, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR
TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
U.S.$o November 10, 1998
FOR VALUE RECEIVED, OFFICELAND INC., a corporation amalgamated under
the laws of the Province of Ontario (the "Company"), promises to pay to o (the
"Holder"), the principal amount of o U.S. Dollars (US$o) in lawful money of the
United States of America together with interest in the amounts and at the times
set out below:
(i) interest from and including the 10th day of November,
1998 on the principal amount shall be paid at the
rate of twelve percent (12%) per annum payable in
arrears on November 10, 1999 and in arrears on
December 10th and June 10th in the two years
subsequent to November 10, 1999 with the last
interest payment to be paid on November 10, 2001,
both before and after demand, default and judgment;
and
(ii) the principal amount of o U.S. Dollars (US$o) (or the
balance then outstanding) together with all accrued
and unpaid interest thereon shall be paid on November
10, 2001.
The Company will pay or cause to be paid to the Holder all sums
becoming due as principal of and premium, if any, and interest (including
interest on amounts in default) on this Note, at the address set forth on the
books of the Company (or at such other place as the Holder may designate for
such purpose from time to time by written notice to the Company), without
presentation of this Note or making any notation thereon. Such payments shall be
made either by
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cheque or bank draft or other means acceptable to Holder payable at par in New
York at the office of the Holder as hereinafter set forth or at such other place
as shall be designated in writing for such purpose.
Upon any receivership, bankruptcy, assignment for the benefit of
creditors, sale of all or substantially all of the assets of the Company,
dissolution or liquidation of the Company, or in the event that this Note shall
become due and payable upon the occurrence of an Event of Default (as defined
herein) the Company and the Holder, by its acceptance hereof, agree that the
payment of the principal of and interest on this Note shall be subordinated to,
and rank behind, the indebtedness of the Company (whether on account of
principal, interest or otherwise) pursuant to a loan agreement dated July 23,
1997, as amended from time to time (the "Loan Agreement") between the Company
and the Toronto Dominion Bank (the "Bank") and all indebtedness of the Company
under the Loan Agreement and all purchase money security interests of the
Company. The Holder by its acceptance hereof, agrees to enter into from time to
time such agreement or agreements with the Bank as may be necessary to give
effect to the subordination above described.
The principal amount of this Note is convertible, in whole, into units
(collectively the "Units"), each Unit comprised of one fully paid and
non-assessable Class "B" Special Share of the Company (a "Class B Share") and
two warrants, namely, one Dollar Fifty Warrant and one Two Dollar Warrant (each
of which is herein referred to as a "Warrant"), entitling the holder of each
Warrant to purchase one Common Share of the Company (a "Common Share") at an
exercise price of $1.50 per Common Share and $2.00 per Common Share,
respectively. The Warrants of the Holder to be in the form of Exhibits F1 and F2
to that certain Senior Subordinated Unsecured Convertible Notes Purchase
Agreement dated of even date hereof between the Company and the Holder et al.
(the "Restructured Purchase Agreement"), in the manner specified herein and
subject to adjustment as set forth below. The Company and the Holder hereby
acknowledge and agree that twenty per cent (20%) of all Warrants issuable
hereunder shall be issued to ICP Investments, Inc. in lieu of the Holder and any
further reference herein to the issuance of the Warrants shall be deemed to
incorporate such issuance to ICP Investments, Inc. Should this Note be converted
as provided for herein, no interest shall accrue or be payable in respect of the
principal amount of this Note. Conversion of this Note shall be determined as
follows:
(i) If the Performance Ratio (as hereinafter defined) is
not less than ninety per cent 90%, this Note shall be
automatically into Units on the date (the "Conversion
Date") which is fifteen (15) days after delivery to
the Company of its audited financial statements for
the fiscal year ending November 30, 1998, at a
conversion price of Three Dollars and Forty Cents
U.S. (US$3.40) of principal hereof per Unit.
(ii) If the Performance Ratio is not less than seventy per
cent (70%) but less than ninety per cent (90%), this
Note shall be automatically converted into
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Units on the Conversion Date at a conversion price of
Three Dollars and Forty Cents U.S. (US$3.40) of
principal per Unit less a reduction to be applied
thereto on a pro rata basis in accordance with the
percentage by which the Performance Ratio is less
than ninety per cent (90%).
(iii) If the Performance Ratio is less than seventy per
cent (70%), the Holder shall have the option,
exercisable within twenty (20) days of the Conversion
Date, of:
a) converting this Note into Units at a
conversion price of Two Dollars and
Seventy-two Cents U.S. (US$2.72) of
principal per Unit; or
b) retaining this Note and receiving two
five-year warrants (one exercisable at One
Dollar and Fifty Cents U.S. (US$1.50) per
Common Share and the other at Two Dollars
U.S. (US$2.00) per Common Share)per Ten
Dollars U.S. (US$10.00) principal amount
hereof (the number of warrants to be rounded
to the nearest whole number).
For the purposes hereof, "Performance Ratio" means, for the
Company's fiscal year ending November 30, 1998, with reference
to the Company's audited financial statements for the year
then ending, the percentage, calculated by the Company's
auditors, calculated by multiplying one hundred per cent
(100%) by a fraction, the numerator of which is the actual
amount of the gross profit of the Company and the denominator
of which is the forecast amount of the gross profit of the
Company contained in the New Projections (as defined and
included in the Restructured Purchase Agreement).
In the event that this Note is converted as specified herein, the
Holder shall surrender this Note to the Company at its registered office,
together with the conversion form attached hereto, duly executed by the Holder
in form and executed in a manner satisfactory to the Company. Thereupon the
Holder shall be entitled to be entered into the books of the Company, on the
Conversion Date, as the holder of the number of Units into which the principal
amount of this Note is converted into in accordance with the provisions hereof
and, as soon as practicable thereafter, the Company shall deliver to the Holder
certificates for such Units. The Class B Shares received by the Holder as part
of the Units upon any conversion of this Note shall qualify to receive dividends
declared in favour of shareholders of record on and after the Conversion Date
and from such date such Class B Shares will for all purposes be and be deemed to
be issued and outstanding as fully paid and non-assessable Class B Shares. The
Company shall not be required to issue fractional Class B Shares or Warrants
upon the conversion of this Note pursuant hereto. The Company covenants with the
Holder that it will at all times reserve and keep available out of its
authorized Class B Shares and Common Shares, solely for the purpose of
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issue upon conversion of this Note as provided herein, and conditionally allot
to the Holder who may exercise its conversion rights hereunder, such number of
Class B Shares as shall then be issuable upon the conversion of the principal
amount of this Note and such number of Common Shares as would be issued upon the
exercise of the Warrants. The Company covenants with the Holder that all Class B
Shares and Common Shares which shall be so issuable shall be duly and validly
issued as fully paid and non-assessable.
The price at which this Note is convertible and the number of Units
deliverable upon the conversion of the Note will be subject to adjustment in the
events and in the manner following:
(1) If and whenever at any time prior to the Conversion Date, the Company:
(i) subdivides or redivides the outstanding Common Shares into a
greater number of Common Shares;
(ii) reduces, combines or consolidates the outstanding Common
Shares into a smaller number of Common Shares; or
(iii) issues Common Shares or securities exchangeable for or
convertible into Common Shares to the holders of all or
substantially all of the outstanding Common Shares by way of a
stock dividend (other than the issue of Common Shares to
holders of Common Shares pursuant to their exercise of options
or other entitlement to receive dividends in the form of
Common Shares in lieu of dividends paid in the ordinary course
on the Common Shares),
(any of such events being called a "Share Reorganization") the number
of Units to be issued will be adjusted by multiplying such number by a
fraction, the denominator of which is the number of Common Shares
outstanding on such date before giving effect to such Share
Reorganization and the numerator of which is the total number of Common
Shares outstanding immediately after the effective date, in the case of
subsections (i) and (ii) above and the record date in the case of
subsection (iii), including in the case where securities exchangeable
for or convertible into Common Shares are distributed, the number of
Common Shares that would have been outstanding had such securities been
exchanged for or converted into Common Shares on such record or
effective date. Such adjustment will be made successively whenever any
event referred to in this subsection (1) occurs.
(2) If and whenever at any time prior to the Conversion Date there is a
reclassification or change of outstanding Common Shares, other than a
subdivision or consolidation described above, or a consolidation,
merger, reorganization or amalgamation of the Company with or into
another body corporate, or a sale of all or substantially all of the
assets of the Company followed immediately by a liquidation or
winding-up of the Company and distribution of its assets to its
shareholders, the Holder will be entitled to
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receive and will accept, upon any conversion hereunder at any time
after the effective date thereof, in lieu of the number of Units to
which it was theretofore entitled on conversion, the kind and number of
Units or other securities or money or other property that such Holder
would have been entitled to receive as a result of such
reclassification, change, consolidation, merger, reorganization,
amalgamation or winding-up, if, on the effective date thereof it had
been the registered holder of the number of Units to which it was
theretofore entitled upon conversion, subject to adjustment thereafter
in accordance with provisions which are the same, as nearly as
possible, to those contained above.
(3) In any case in which these provisions require an adjustment which shall
become effective immediately after a record date for an event referred
to herein, the Company may defer, until the occurrence of such event,
issuing to the Holder converting after such record date and before the
occurrence of such event, the additional Units issuable upon such
conversion by reason of the adjustment required by such event before
giving effect to such adjustment; provided, however, that the Company
will deliver to the Holder an appropriate instrument evidencing the
Holder's right to receive such additional Units upon the occurrence of
the event requiring such adjustment and the right to receive any
distributions made on such additional Units declared in favour of
holders of record of Class B Shares on and after the Conversion Date or
such later date as the Holder would, but for the provisions of this
subsection (3) have become the holder of record of such additional
Units hereunder.
(4) The adjustments provided for herein are cumulative and will apply to
successive subdivisions, redivisions, reductions, combinations,
consolidations, distributions, issues or other events resulting in any
adjustment under the provisions hereof.
(5) In the event of any question arising with respect to the adjustments
provided herein, such question will be conclusively determined by a
firm of chartered accountants appointed by the Company and acceptable
to the Holder, and such accountants will have access to all necessary
records of the Company and such determination will be binding upon the
Company and the Holder.
(6) At any time prior to the Conversion Date, the Company will give at
least fourteen (14) days' prior written notice of any subdivision,
redivision, reduction, combination, consolidation, distribution, issue
or other events resulting in any adjustment under the provisions hereof
and will not during the period of such notice close the transfer books
for its Class B Shares so as to prevent the Class B Shares resulting
from the conversion of this Note to be voted.
(7) If any of the events referred to in subsections (1) or (2) hereof
occurs, the Company will promptly file with the Holder a certificate of
the Company, setting forth a brief statement of the facts and the
consequent adjustment required to be made by the provisions of this
Note with respect to conversion of this Note.
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This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company, duly endorsed
or accompanied by a written instrument of transfer duly executed by the Holder
of this Note. Payment of or on account of principal and interest on this Note
shall be made only to or upon the order in writing of the Holder.
Upon reasonable request by the Holder and without expense to the
Holder, the Company will exchange the Note held by the Holder for other Notes of
different denominations.
If this Note is placed in the hands of an attorney for collection, or
is collected through court proceedings, or through other legal proceedings, the
Company promises to pay an additional reasonable amount as attorneys' fees.
The Company hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note.
No delay or failure on the part of the Holder hereof to exercise any
power or right shall operate as a waiver hereof, and such rights and powers
shall be deemed continuous, nor shall a partial exercise preclude full exercise
thereof; and no right or remedy of the holder hereof shall be deemed abridged or
modified by any source of conduct, and no waiver thereof shall be predicated
thereon, nor shall failure to exercise any such power or right subject the
holder hereof to any liability.
Any one or more of the following shall constitute an "Event of Default"
as the term is used herein:
(a) default occurring in the payment of interest on this Note when
the same shall become due and such default continues for more
than fifteen (15) days; or
(b) default occurring in any payment of principal of this Note at
the expressed or any accelerated maturity date or at any date
fixed for prepayment and such default continues for more than
fifteen (15) days; or
(c) default is made in the payment of the principal of or interest
on any indebtedness of the Company for borrowed money as and
when the same shall become due and payable by the lapse of
time, by declaration, by call for redemption or otherwise, and
such default continues beyond the period of grace, if any,
allowed with respect thereto; or
(d) default or the happening of any event occurring under any
indenture, agreement or other instrument under which the
Company has borrowed money and such default or event continues
for a period of time sufficient to permit the acceleration of
the
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maturity of any indebtedness of the Company outstanding
thereunder; or
(e) if any representation or warranty made by the Company in any
statement or certificate furnished by the Company to the
Holder at the time of the making of this Note or at any time
in respect of this Note is untrue or misleading in any
material respect as of the date of the issuance or making
thereof; or
(f) default is made in the performance of any of other covenant,
agreement or condition herein contained or in any other
agreement to which the Holder and the Company are a party and
such default shall continue for fifteen (15) days after
written notice thereof to the Company by the Holder; or
(g) the Company ceases or threatens to cease to carry on the
business currently being carried on by it or a substantial
portion thereof or makes or agrees to make an assignment,
disposition or conveyance, whether by way of sale or
otherwise, of its assets in bulk or an order is made for the
winding-up of the Company; or
(h) the Company becomes insolvent or admits in writing its
inability to pay its debts as they mature or makes an
assignment for the benefit of creditors, or the Company
applies for or consents to the appointment of a trustee or
receiver for the Company or for any part of its property or a
proposal is made by the Company or a petition is filed by or
against the Company or an authorized assignment is made by the
Company or an application is made under the Companies'
Creditors Arrangement Act or any successor or similar
legislation; or
(i) any one or more of a trustee, receiver and manager, custodian,
liquidator or other person with similar powers is appointed
for the Company or for any material part of its property and
is not discharged within thirty (30) days after such
appointment; or
(j) final judgment or judgments for the payment of money
aggregating in excess of Ten Thousand Dollars ($10,000) is or
are outstanding against the Company or against any property or
assets of the Company and any one of such judgments has
remained unpaid, unvacated, unbonded or unstayed by appeal or
otherwise for a period of thirty (30) days from the date of
its entry; or
(k) any material part of the property of the Company is seized or
otherwise attached by anyone pursuant to any legal process or
other means, including distress, execution or any other step
or proceeding with similar effect, and the same is not
released, bonded, satisfied, discharged or vacated within the
period of ten (10) days less than such period as would permit
such property or any part thereof to be sold pursuant thereto;
or
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(l) bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief of debtors are
instituted by or against the Company and, if instituted
against the Company, are consented to or are not dismissed or
stayed pending the resolution of the matters in dispute within
sixty (60) days after such institution; or
(m) the Company takes any corporate proceedings for its
dissolution or liquidation or amalgamation with another
company or if the corporate existence of the Company shall be
terminated by expiration, forfeiture or otherwise.
When any Event of Default has occurred, or if the holder of any note or
of any other evidence of indebtedness of the Company gives any notice or takes
any other action with respect to a claimed default, the Company shall give
written notice within five (5) business days of such event to the Holder.
When any Event of Default described in subsections (a) through (j)
inclusive has happened and is continuing, the Holder may, by notice in writing
sent by registered or certified mail to the Company, declare the entire
principal and all interest accrued on this Note to be and this Note shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived.
When any Event of Default described in subsection (k) has occurred, then this
Note shall immediately become due and payable without presentment, demand or
notice of any kind.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered by hand, by facsimile, by overnight
mail or mailed by first class certified or registered mail, return receipt
requested, posted prepaid, as follows:
Company: Officeland Inc.
312 Dolomite Drive
Suite 212
Toronto, Ontario
M3J 2N2
Attention: Mr. Marvyn Budd, President
Facsimile No.: (416) 736-8445
Holder:
Attention:
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Facsimile No.: ( )
(or at such other address as may have been furnished in writing by either party
to the other), and such notices, requests, consents or other communications
shall be deemed to have been received when delivered, on the business day after
the date of the facsimile (with receipt confirmed), on the fifth day after being
mailed by overnight mail or on the third day after being mailed by first class
certified or registered mail, as the case may be.
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For all purposes, "Holder" shall include the Holder's successors,
assigns or other nominees or attorneys duly appointed by instrument in writing.
IN WITNESS WHEREOF the Company has executed and delivered this
Note on the date first set out above.
OFFICELAND INC.
Per:
Name
Title
Per:
Name
Title
CONVERSION FORM
TO:
The undersigned registered holder of the Note to which this Conversion
Form is attached hereby irrevocably elects to convert such Note into Units of
Officeland Inc. in accordance with the terms of such Note and directs that the
Units issuable and deliverable upon the conversion be issued and delivered to
the person indicated below other than twenty per cent (20%) of the Warrants
issuable hereunder which shall be issued to ICP Investments, Inc. or ICP
Investments, Inc. (If Units are to be issued in the name of a person other than
the Holder, all requisite transfer taxes must be tendered by the undersigned.)
Dated:
(Signature of Registered Holder)
NOTE: If Units are to be issued in the name of a person other than the Holder
or ICP Investments, Inc., the signature must be guaranteed by a
Canadian chartered bank or a trust company.
(Print name in which Units issued on conversion are to be issued, delivered and
registered)
Name
(Address) (City, Province, and Postal Code)
Name of guarantor:
Authorized signature: