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Exhibit 10.27
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION SHALL NO LONGER BE REQUIRED.
7% CONVERTIBLE DEBENTURE DUE MARCH 27, 2005
$1,600,000 MARCH 27, 2000
NEW YORK, NEW YORK
1. CONSIDERATION. FOR VALUE RECEIVED, IBIZ TECHNOLOGY CORP., a
Florida corporation (the "undersigned" or the "Company"), hereby promises to pay
to the order of Lites Trading Co. at its offices located at c/o Laufer &
Halberstam, 39 Broadway, 14th Floor, NY, NY 10006 or at such other place as the
holder hereof (the "holder" or the "Registered Holder") shall designate to the
undersigned in writing, in lawful money of the United States of America or in
New York Clearing House Funds, the principal amount of One Million Six Hundred
Thousand Dollars, and to pay interest (computed on the basis of a 360-day year
and the actual number of days elapsed) on the unpaid principal amount hereof at
the rate of seven (7%) percent per annum. The undersigned promises to pay the
said principal sum and interest in accordance with the terms of this Debenture.
2. PAYMENT. Until this Debenture is completely retired the
undersigned shall make payments of accrued interest on this Debenture on the
first day of May and December in each year (commencing with May 1, 2000),
computed at the rate of 7% per annum on the unpaid principal balance of this
Debenture for the period from the date of this Debenture until the date of such
interest payment. On March 25, 2005 (the "Maturity Date") the undersigned shall
pay the holder all unpaid principal and interest on this Debenture.
Principal and interest shall be payable at the most recent
address as the Registered Holder shall have designated to the Company in
writing. No payment of the principal of the Debenture may be made prior to the
Maturity Date by the Company without the consent of the Registered Holder,
except as otherwise provided herein. At the Registered Holder's option, any
interest payments on this Debenture may be made in the form of the issuance to
the holder of the Company's common stock, par value $.001 per share (the "Common
Stock"), with the number of shares of such Common Stock to be payable in respect
of such interest payments to be determined in accordance with the provisions of
Section 6, as if such interest payment were a
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portion of the principal amount of the Debenture to be converted into Common
Stock.
3. OVERDUE INTEREST PAYMENTS. Interest on the indebtedness
evidenced by this Debenture after default or maturity accelerated or otherwise
shall be due and payable at the rate of eighteen (18%) percent per annum,
subject to the limitations of applicable law.
4. HOLIDAYS. If this Debenture or any installment hereof
becomes due and payable on a Saturday, Sunday or public holiday under the laws
of the State of New York, the due date hereof shall be extended to the next
succeeding business day and interest shall be payable at the rate of seven (7%)
percent per annum during such extension. All payments received by the holder
shall be applied first to the payment of all accrued interest payable hereunder.
5. ISSUANCE OF DEBENTURES. This Debenture has been issued by
the Company pursuant to the authorization of the Board of Directors of the
Company (the "Board") and issued pursuant to a Securities Purchase Agreement,
dated as of the date hereof, by and between the Company and the Purchasers
identified therein (the "Securities Purchase Agreement"). Pursuant to the
Securities Purchase Agreement, the Company issued an aggregate of $1,600,000
principal amount of the Debentures and warrants to purchase 300,000 shares of
Common Stock (the "Warrants"). The Securities Purchase Agreement contains
certain additional terms that are binding upon the Company and each Registered
Holder of the Debentures. A copy of the Securities Purchase Agreement may be
obtained by any registered holder of the Debentures from the Company upon
written request. Capitalized terms used but not defined herein shall have the
meanings set forth in the Securities Purchase Agreement. The Debentures,
together with any debentures from time to time issued in replacement thereof,
whether pursuant to transfer and assignment, partial conversion thereof or
otherwise, are collectively referred to herein as the "Debentures."
6. CONVERSION. (a) Subject to and in compliance with the
provisions hereof, the holder shall have the right to convert all or a portion
of the outstanding principal amount of this Debenture together with any accrued
but unpaid interest thereon into such number of shares of Common Stock (the
shares of Common Stock issuable upon conversion of, and issuable in respect of
interest payments on, this Debenture are hereinafter referred to as the
"Conversion Shares") as shall equal the quotient obtained by dividing (x) the
principal amount of this Debenture to be converted by (y) the Applicable
Conversion Price (as hereinafter defined) and by surrender of this Debenture,
such surrender to be made in the manner provided herein.
(b) For purposes hereof the term "Applicable Conversion Price"
shall mean the lesser of (i) $1.45 (the "Fixed Price") or (ii) the product
obtained by multiplying (x) the Average Closing Price (as hereinafter defined)
by (y) .80.
For purposes hereof the "Average Closing Price" with respect
to any conversion elected to be made by the holder shall be the average of the
daily closing bid prices (each such price is referred to individually as a
"Floating Reference Price" and, collectively, as the "Floating Reference
Prices") for any three trading days, as selected by the holder, out of the
twenty trading
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days immediately preceding the date on which the holder gives the Company a
written notice of the holder's election to convert outstanding principal of this
Debenture. The closing bid price on any trading day shall be (a) if the Common
Stock is then listed or quoted on either the NASD Bulletin Board, the NASDAQ
SmallCap Market or the NASDAQ National Market, the reported closing bid price
for the Common Stock as reported by Bloomberg, L.P. ("Bloomberg") or The Wall
Street Journal (the "Journal") on such day (or, if not so reported, as otherwise
reported by The Nasdaq Small Cap Market), (b) if the Common Stock is listed on
either the American Stock Exchange or New York Stock Exchange, the last reported
sales price for the Common Stock on such exchange on such day as reported by
Bloomberg or the Journal or (c) if no such prices are reported for the Common
Stock by Bloomberg or the Journal, then the average of such prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the prices of the Common Stock cannot be calculated on
such date on any of the foregoing bases, such prices on such date shall be the
fair market value as determined by an unaffiliated investment bank selected by
Registered Holder for which the calculation is required in order to determine
the Applicable Conversion Price. "Trading day" shall mean any day on which the
Company's Common Stock is traded for any period on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.
(c) If, during any period following the issuance of this
Debenture, as a result of the occurrence of any of the events set forth in
Section 3(f) or 3(g) of the Registration Rights Agreement, dated as of the date
hereof, by and between the Company and the purchasers set forth therein (the
"Registration Rights Agreement"), the Purchasers set forth therein are not able
to sell shares of Common Stock issuable upon conversion of, or in lieu of
interest payments on, this Debenture pursuant to a registration statement filed
pursuant to such agreement, the Registered Holder shall have the right, for any
purpose under this Debenture during such period and thereafter, to designate as
the Applicable Conversion Price any Conversion Price that would have been
applicable during such period had the Registered Holder delivered a Notice of
Conversion with respect to any portion of this Debenture. "Conversion Date"
shall have the meaning given such term in Section 5(b) of the Securities
Purchase Agreement.
(d) The Registered Holder shall convert this Debenture in
accordance with Section 5 of the Securities Purchase Agreement. If the Company
fails to deliver to the holder a certificate or certificates for shares of
Common Stock in the period set forth in the Securities Purchase Agreement, the
Company shall pay a penalty to the Registered Holder as set forth in Section
5(e) of the Securities Purchase Agreement.
(e) If the entire outstanding principal amount of this
Debenture is not converted, the Company shall also issue and deliver to such
holder a new Debenture of like tenor in the principal amount equal to the
principal which was not converted and dated the effective date of conversion.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which a Notice of Conversion shall have been
delivered as aforesaid, and the person or persons in whose name or names any
certificate of certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date.
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(f) All shares of Common Stock delivered upon conversion of
this Debenture will, upon delivery, be duly authorized, validly issued and fully
paid and nonassessable.
(g) No fractional shares of Common Stock shall be issued upon
conversion of this Debenture. Instead of any fractional share of Common Stock
which would otherwise be deliverable upon the conversion of a principal of this
Debenture the Company shall pay to the holder an amount in cash (computed to the
nearest cent) equal to the Average Closing Price multiplied by the fraction of a
share of Common Stock represented by such fractional interest.
(h) The issuance of certificates for shares of Common Stock
upon any conversion of this Debenture shall be made without charge to the payee
hereof for any tax or other expense in respect to the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued only in the name of the registered holder of
this Debenture.
7. REDEMPTION BY COMPANY. (a) If while this Debenture is
outstanding there shall occur a Change in Control of the Company (as defined
below), then, at the option of the Registered Holder, the Company shall, on the
effective date of and subject to the consummation of such Change in Control,
redeem this Debenture for cash from the Registered Holder at a redemption price
equal to 125% of the aggregate principal and accrued interest outstanding under
this Debenture. Nothing in this subsection shall limit the Registered Holder's
right to convert this Debenture on or prior to such Change in Control. For
purposes hereof, a "Change in Control" shall be deemed to have occurred if (A)
any person or group (as defined for purposes of Regulation 13D of the Securities
Exchange Act of 1934, as amended) (excluding persons who on the date hereof are
beneficial owners of shares of the Company's voting stock and affiliates of such
persons) shall have become the beneficial owner or owners of more than 50% of
the outstanding voting stock of the Company; (B) there shall have occurred a
merger or consolidation in which the Company or an affiliate of the Company is
not the survivor or in which holders of the Common Stock of the Company shall
have become entitled to receive cash, securities of the Company other than
voting common stock or securities of any other person; (C) at any time persons
constituting the Existing Board of Directors cease for any reason whatsoever to
constitute at least a majority of the members of the Board of Directors of the
Company; or (D) there shall have occurred a sale of all or substantially all the
assets of the Company. For purposes hereof, the term "Existing Board of
Directors" shall mean the persons constituting the Board of Directors of the
Company on the date hereof, together with each new director whose election, or
nomination for election by the Company's stockholders is approved by a vote of
the majority of the members of the Existing Board of Directors who are in office
immediately prior to the election or nomination of such director.
(b) At any time that the number of shares of Common Stock
issued upon conversion of the Debentures and in respect of interest payments on
the Debentures, shall equal 4,750,000 (a "Redemption Event"), the Corporation
shall, at its election, either (x) redeem all of the principal amount then
outstanding under this Debenture for cash in an amount equal to (A) the
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quotient of (i) the aggregate principal and accrued interest outstanding under
this Debenture and (ii) the Applicable Conversion Price as if this Debenture had
been converted on the Debenture Redemption Date multiplied by (B) the Average
Closing Price of shares of Common Stock for the five (5) trading days
immediately preceding the Debenture Redemption Date, or (y) if required, call a
special meeting of its stockholders for the purpose of approving the
transactions contemplated by the Securities Purchase Agreement, including the
issuance of the Debenture on the terms set forth therein, together with any
other approvals that shall be required so as to cause the transactions
contemplated by the Securities Purchase Agreement to remain in compliance with
the Rules and Regulations of The Nasdaq Stock Market (including Rules 4300 and
4310 of Nasdaq's Non-Qualitative Designation Criteria in connection with
conversions of Debentures; such approvals are referred to herein as the
"Required Approvals"). The Corporation shall determine within five (5) business
days following the receipt of a Notice of Conversion which of such actions it
shall take, and shall promptly furnish notice to each of the holders of
Debenture as to such determination, including, if applicable, a notice of
redemption.
(c) If the Corporation elects to call a special meeting of its
stockholders pursuant to Subsection 7(b) of this Debenture to obtain the
Required Approvals, the Corporation shall use its best efforts to obtain such
Required Approvals within forty five (45) days (or 75 days if the information
statement is reviewed by the Commission) of the Initial Closing Date (such forty
five (45) day (or seventy five (75) day) period is referred to herein as an
"Approval Period"). If the Corporation does not obtain the Required Approvals
within the Approval Period and the Corporation receives a Notice of Conversion
after the termination of the Approval Period, the Corporation must redeem, in
accordance with this Section 7 of this Debenture, any principal amount of
Debentures outstanding after the Corporation has issued in excess of 4,750,000
shares of Common Stock in connection with conversions of this Debenture.
(d) If the Corporation elects, pursuant to this Section 7, to
redeem this Debenture on the occurrence of a Debenture Redemption Event, it
shall redeem such Debenture at the price determined in accordance with
Subsection 7(b) of this Debenture. If the Corporation shall have elected,
pursuant to this Subsection 7(b), to obtain the Required Approvals but shall not
have done so by the later of the occurrence of the Debenture Redemption Event or
the expiration of the Approval Period, it shall furnish a redemption notice to
the Purchasers within three (3) business days after the expiration of the
Approval Period.
(e) If the Company elects to redeem the Debentures pursuant to
any of the terms or conditions set forth in this Section 7, the Company shall
remit the redemption price to the Registered Holder thereof immediately upon
such redemption.
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8. COVENANTS.
(a) The Company will pay all taxes, assessments and
governmental charges lawfully levied or assessed upon it, its property and any
part thereof, and upon its income for profits, and any part thereof, before the
same shall become delinquent; and will duly observe, and conform to, all lawful
requirements of any governmental authority relative to any of its property, and
all covenants, terms and conditions upon or under which any of its property is
held; provided that nothing in this Section shall require the Company to observe
or conform to any requirement of governmental authority or to pay any such tax,
assessment or governmental charges so long as the validity thereof shall be
contested in good faith.
(b) Subject to the other provisions of this Debenture, the
Company at all times will maintain its corporate existence and right to carry on
its business and will duly procure all necessary renewals and extensions thereof
and use its best efforts to maintain, preserve and renew all of its rights,
powers, privileges and franchises; provided, however, that nothing herein
contained shall be construed to prevent the Company from ceasing or omitting to
exercise any rights, powers, privileges or franchises which, in the judgment of
the Board, can no longer be profitably exercised, nor to prevent the
consolidation, merger or liquidation of any subsidiary or subsidiaries of the
Company with or into the Company.
(c) The Company will at no time close its stock transfer books
against the transfer of any shares of Common Stock issued or issuable upon the
conversion of, or in lieu of payments on, the Debentures, in any manner which
interferes with the timely conversion of such Debentures.
(d) As used in this Debenture, the term "Common Stock" shall
mean the Company's authorized common stock, par value $0.001 per share. The
Company shall not, without the prior written consent of the Registered Holder of
this Debenture, issue any shares of its capital stock, other than as permitted
by the Securities Purchase Agreement or in exchange for Debentures as provided
hereunder. The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized on or after the date hereof, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which shall ordinarily be entitled to
vote for the election of the directors of the Company.
(e) As used in this Debenture, the term "Primary Documents"
shall have the meaning set forth in the Securities Purchase Agreement. The
Company will not, by amendment of its Articles of Incorporation or By-laws or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder or pursuant to any of the Primary Documents by
the Company, and will at all times assist in good faith in the carrying out of
all the provisions of this Debenture and the Primary Documents and in the taking
of all such action as may be necessary or appropriate in order to protect the
conversion rights of the Registered Holders of the Debentures against
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impairment.
(f) In the event of any taking by the Company of a record of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company shall mail to each
Registered Holder of the Debentures, at least ten (10) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
9. LIMITATION ON CERTAIN CORPORATE ACTS. The Company hereby
covenants and agrees that upon any consolidation or merger or upon the transfer
of all or substantially all of the property or assets of the Company, the due
and punctual payment of the principal and interest on all the Debentures
according to their tenor and the due and punctual performance and observance of
all the terms, covenants and conditions of the Debentures and the Primary
Documents to be kept and performed by the Company shall be expressly assumed by
the corporation formed by such consolidation, or into which the Company shall
have merged or by the purchaser of such property or assets; and such assumption
shall be an express condition of such merger or consolidation agreement or
agreement for the transfer of property or assets.
10. EVENTS OF DEFAULT. In case one or more of the following
events of default shall have occurred:
(a) default in the due and punctual payment of interest upon
or principal of any of the Debentures as and when the same becomes due and
payable either at maturity or otherwise; or
(b) failure to deliver the shares of Common Stock required to
be delivered upon conversion of Debentures or exercise of the Warrants in the
manner and at the time required by Section 5 of the Securities Purchase
Agreement; or
(c) failure of the Company to have authorized the number of
shares of Common Stock issuable upon conversion of the Debentures or exercise of
the Warrants; or
(d) failure on the part of the Company to duly observe or
perform any of its other covenants or agreements contained in the Debentures or
in the Primary Documents, or to cure any material breach in a material
representation or covenant contained in the Primary Documents for a period of
ten (10) days after the date on which written notice of such failure or breach
requiring the same to be remedied has been given by a Registered Holder to the
Company; or
(e) a decree or order by a court having jurisdiction has been
entered adjudging the Company (or any Material Subsidiary)a bankrupt or
insolvent, or approving a petition seeking reorganization of the Company (or any
Material Subsidiary) under any applicable bankruptcy law
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and such decree or order has continued undischarged or unstayed for a period of
thirty (30) days; or a decree or order of a court having jurisdiction for the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company (or any Material Subsidiary) or of all or
substantially all of its property, or for the winding-up or liquidation of its
affairs, has been entered, and has remained in force undischarged or unstayed
for a period of thirty (30) days; or
(f) the Company (or any Material Subsidiary) institutes
proceedings to be adjudicated a voluntary bankrupt, or consents to the filing of
a bankruptcy proceeding against it, or files a petition or answer or consent
seeking reorganization under applicable law, or consents to the filing of any
such petition or to the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of it or of all or substantially all of its
property, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they become due; or if the
Company (or any Material Subsidiary) shall suffer any writ of attachment or
execution or any similar process to be issued or levied against it or any
significant part of its property which is not released, stayed, bonded or
vacated within thirty (30) days after its issue or levy; or if the Company (or
any Material Subsidiary) takes corporate action in furtherance of any of the
aforesaid purposes or conditions; or
(g) if any default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is at the
time outstanding any indebtedness of the Company (or a Material Subsidiary, as
hereinafter defined), in excess of $25,000, or which results in such
indebtedness, in an aggregate amount (with other defaulted indebtedness) in
excess of $25,000 becoming due and payable prior to its due date and if such
indenture or instrument so requires, the holder or holders thereof (or a trustee
on their behalf) shall have declared such indebtedness due and payable; or
(h) if any of the Company or its subsidiaries shall default in
the observance or performance of any material term or provision of a material
agreement to which it is a party or by which it is bound, and such default is
not waived or cured within the applicable grace period; or
(i) if a final judgment which, either alone or together with
other outstanding final judgments against the Company and its subsidiaries,
exceeds an aggregate of $25,000 shall be rendered against the Company (or any
Material Subsidiary) and such judgment shall have continued undischarged or
unstayed for thirty (30) days after entry thereof;
then, and in each and every such case, so long as such event
of default has not been remedied and unless the principal of all the Debentures
has already become due and payable, the holders of not less than fifty-one
percent (51%) in principal amount of the Debentures then outstanding, by notice
in writing to the Company, may declare the principal of all the Debentures then
outstanding and the interest accrued thereof, if not already due and payable, to
be due and payable immediately, and upon any such declaration the same shall
become and shall be immediately due and payable, anything herein contained to
the contrary notwithstanding.
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For purposes of this Section 10, "Material Subsidiary" means
any subsidiary with respect to which the Company has directly or indirectly
invested, loaned, advanced or guaranteed the obligations of, an aggregate amount
exceeding fifteen percent (15%) of the Company's gross assets, or the Company's
proportionate share of the assets or net income of which (based on the
subsidiary's most recent financial statements) exceed fifteen percent (15%) of
the Company's gross assets or net income, respectively, or the gross revenues of
which exceed fifteen percent (15%) of the gross revenues of the Company based
upon the most recent financial statements of such subsidiary and the Company.
11. TRANSFERABILITY. This Debenture is transferable, in whole
or in part, only in accordance with the terms of the Securities Purchase
Agreement. The Registered Holder may submit a written request, in person or by
his duly authorized attorney, for a transfer of the Debenture on the register of
the Company maintained at its principal offices. The Company may deem and treat
the person in whose name this Debenture is registered as the absolute owner
hereof, for the purpose of receiving payment of the principal thereof and
interest hereon, whether or not the same shall be overdue, and for all other
purposes whatsoever, including but without limitation, the giving of any written
notices required hereunder, and the Company shall not be affected by any notice
to the contrary.
12. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS; REORGANIZATIONS.
(a) If the Company, at any time while the Debentures are
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including investments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (ii) issue any securities payable in shares of Common Stock, (iii)
subdivide the outstanding shares of Common Stock into a larger number of shares,
(iv) combine outstanding shares of Common Stock into a smaller number of shares,
the Fixed Price and each Floating Reference Price prior to the date of any such
occurrence (collectively, the "Reference Prices") shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
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 12(a) shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of an issuance, a subdivision or a combination.
(b) In the event that the Company issues or sells any Common
Stock or securities which are convertible into or exchangeable for its Common
Stock or any convertible or exchangeable securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible or exchangeable securities (other than
shares or options issued pursuant to the Company's employee or director option
plans or shares issued upon exercise of options, warrants or rights outstanding
on the date of the Securities Purchase Agreement and listed in the Company's
most recent periodic report filed under
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the Exchange Act) at an effective purchase price per share which is less than
the Fixed Price then in effect, then the Fixed Price in effect immediately prior
to such issue or sale shall be reduced effective concurrently with such issue or
sale to an amount determined by multiplying such Fixed Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale, plus
(2) the number of shares of Common Stock which the aggregate consideration
received by the Company for such additional shares would purchase at such Fixed
Price then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such issue
or sale.
For the purposes of the foregoing adjustment, in the case of
the issuance of any convertible or exchangeable securities, warrants, options or
other rights to subscribe for or to purchase or exchange for, shares of Common
Stock ("Exchangeable Securities"), the maximum number of shares of Common Stock
issuable upon exercise, conversion or exchange of such Exchangeable Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Exchangeable Securities.
(c) If the Company, at any time while the Debentures are
outstanding, shall distribute to all holders of Shares of Common Stock evidences
of its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in Section 12(b) above) then in each
such case the Fixed Price thereafter shall be determined by multiplying the
Fixed Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction of which the denominator shall be the Market Price for Shares of Common
Stock (as defined below) determined as of the record date mentioned above, and
of which the numerator shall be such Market Price for Shares of Common Stock on
such record date less the then fair market value at such record date of the
portion of such assets or evidences of indebtedness so distributed applicable to
one outstanding share of Common Stock as determined by the Board in good faith;
provided, however that in the event of a distribution exceeding 25% of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized investment banking firm or firm of independent chartered
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the Board and holders of a majority in interest of the Debentures.
In either case the adjustments shall be described in a statement provided to all
holders of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one outstanding 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.
"Market Price for Shares of Common Stock" shall mean the price
of one share of Common Stock determined as follows:
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(i) If the Common Stock is listed on NASDAQ, the
closing bid price on the date of valuation;
(ii) If the Common Stock is listed on the New York
Stock Exchange or the American Stock Exchange, the closing bid price on such
exchange on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common
Stock is quoted in the over-the-counter market, another recognized exchange, on
the pink sheets or the OTC Bulletin Board, the lesser of (A) the lowest sales
price or (B) the mean between the last reported "bid" and "asked" prices thereof
on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii) above
applies, the market value as determined by a nationally recognized investment
banking firm or other nationally recognized financial advisor retained by the
Company for such purpose, taking into consideration, among other factors, the
earnings history, book value and prospects for the Company, and the prices at
which shares of Common Stock recently have been traded. Such determination shall
be conclusive and binding on all persons.
(d) (1) In the event that at any time or from time to time
after the Closing Date, the Common Stock issuable upon the conversion of the
Debentures is changed into the same or a different number of shares of any class
or classes of stock, whether by merger, consolidation, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or reorganization provided for elsewhere in this Paragraph
12), then and as a condition to each such event provision shall be made in a
manner reasonably acceptable to the holders of Debentures so that each holder of
Debentures shall have the right thereafter to convert such Debenture into the
kind of stock receivable upon such recapitalization, reclassification or other
change by holders of shares of Common Stock, all subject to further adjustment
as provided herein. In such event, the formulae set forth herein for conversion
and redemption shall be equitably adjusted to reflect such change in number of
shares or, if shares of a new class of stock are issued, to reflect the market
price of the class or classes of stock (applying the same factors used in
determining the Fixed Price) issued in connection with the above described
transaction.
(2) If at any time or from time to time after the Closing Date
there is a capital reorganization of the Common Stock, including by way of a
sale of all or substantially all of the assets of the Company (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Paragraph 12), then, as a part of and a
condition to such reorganization, provision shall be made in a manner reasonably
acceptable to the holders of the Debentures so that the holders of the
Debentures shall thereafter be entitled to receive upon conversion of the
Debentures the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization. In any such
case,
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appropriate adjustment shall be made in the application of the provisions of
this Paragraph 12 with respect to the rights of the holders of the Debentures
after the reorganization to the end that the provisions of this Paragraph 12
shall be applicable after that event and be as nearly equivalent as may be
practicable, including, by way of illustration and not limitation, by equitably
adjusting the formulae set forth herein for conversion and redemption to reflect
the market price of the securities or property (applying the same factors used
in determining the Market Price for Shares of Common Stock) issued in connection
with the above described transaction.
(e) If at any time during the period ending twelve (12) months
after the Closing Date, the Company sells or agrees to sell (including pursuant
to a letter of intent, term sheet, or similar means) shares of Common Stock or
securities or options convertible into, exercisable for, or exchangeable for,
shares of Common Stock (other than (i) a sale pursuant to a bona fide registered
public offering of shares of Common Stock by the Company conducted on the basis
of a firm commitment underwriting raising at least $10,000,000 or (ii) shares or
options issued pursuant to the Company's employee, director or consultant stock
option plans) then, if the effective or maximum sales price of the shares of
Common Stock with respect to such transaction (including the effective or
maximum conversion exercise or exchange price) ("Other Price") is less than the
Fixed Price of the Debentures at such time, the Company, at the option of a
holder exercised by written notice to the Company, shall adjust the Fixed Price
applicable to the Debentures of such holder not yet converted in form and
substance reasonably satisfactory to such holder of Debentures so that the
conversion price applicable to those Debentures shall, in no event, be greater,
after giving effect to all other adjustments contained therein, than the Other
Price.
(f) Whenever any element of the Applicable Conversion Price is
adjusted pursuant to Section 12(a), (b), (c), (d) or (e), the Company shall
promptly mail to each holder of the Debentures, a notice setting forth the
Applicable Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(g) In the event of any taking by the Company of a record date
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
any security or right convertible or exchangeable into or entitling the holder
thereof to receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company, shall
deliver to each holder of Debentures at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution, security or right and
the amount and character of such dividend, distribution, security or right.
13. REMEDIES CUMULATIVE. The rights, powers and remedies given
to the payee under this Debenture shall be in addition to all rights, powers and
remedies given to it by virtue of the Purchase Agreement, any document or
instrument executed in connection therewith,
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or any statute or rule of law.
14. NON-WAIVER. Any forbearance, failure or delay by the payee
in exercising any right, power or remedy under this Debenture, the Primary
Documents, any documents or instruments executed in connection therewith or
otherwise available to the payee shall not be deemed to be a waiver of such
right, power or remedy, nor shall any single or partial exercise of any right,
power or remedy preclude the further exercise thereof.
15. MODIFICATIONS AND WAIVERS. No modification or waiver of
any provision of this Debenture, the Primary Documents or any documents or
instruments executed in connection therewith shall be effective unless it shall
be in writing and signed by the payee, and any such modification or waiver shall
apply only in the specific instance for which given.
16. ATTORNEY'S FEES. If this Debenture shall not be paid when
due and shall be placed by the Registered Holder hereof in the hands of an
attorney for collection, through legal proceedings or otherwise, or if this
Debenture shall not be converted into shares of Common Stock on the Conversion
Date, and an action is brought by the Registered Holder with respect thereto,
the Company shall pay attorney's fees to the Registered Holder hereof, together
with reasonable costs and expenses of collection or enforcement incurred in
connection with any such action.
17. ENFORCEMENT; SPECIFIC PERFORMANCE. (a) In case any one or
more Events of Default shall occur and be continuing, a Registered Holder of a
Debenture then outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law.
(b) The Company expressly agrees that each Registered
Holder may not have adequate remedies at law if the Company does not perform its
obligations under this Debenture. Upon a breach of the terms or covenants of
this Debenture by the Company, the Registered Holder shall, each in addition to
all other remedies, be entitled to obtain injunctive relief, and an order for
specific performance of the Company's obligations hereunder
18. This Debenture and the rights and obligations of the
parties hereto, shall be governed, construed and interpreted according to the
laws of the State of New York. The Company agrees that any final judgment after
exhaustion of all appeals or the expiration of time to appeal in any such action
or proceeding shall be conclusive and binding, and may be enforced in any
federal or state court in the United States by suit on the judgment or in any
other manner provided by law. Nothing contained in this Debenture shall affect
or limit the right of the Registered Holder to serve any process or notice or
motion or other application in any other manner permitted by law, or limit or
affect the right of the Registered Holder to bring any action
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or proceeding against the Company or any of its property in the courts of any
other jurisdiction. The Company hereby consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Debenture, and hereby waives, to
the maximum extent permitted by law, any objection, including any objections
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
19. PAYEE DEFINED. The term "payee" as used herein shall be
deemed to include the payee and its successors, endorsees and assigns.
20. WAIVER OF PRESENTMENT, ETC. The undersigned hereby waives
presentment, demand for payment, protest, notice of protest and notice of
non-payment hereof.
21. HEADINGS. The headings contained in this Debenture are for
reference purposes only and shall not affect the meaning of interpretation of
this Debenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be executed as of the date first written above.
By:
-----------------------------------------------------
Name: Kenneth W. Schilling
Title: President and Chief Executive Officer
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NOTICE OF CONVERSION
The conversion form appearing below should only be executed by
the Registered Holder desiring to convert all or part of the principal amount of
the Debenture attached hereto.
CONVERSION FORM
Date: ____________________________________________
TO: iBIZ TECHNOLOGY CORP.
1919 West Cactus Lane
Phoenix, Arizona 85027
The undersigned hereby exercises the conversion privilege upon
the terms and conditions set forth in the attached Debenture, to the extent of
the maximum number of shares of Common Stock issuable pursuant to the terms of
Section 6 of the Debenture, and accordingly, authorizes the Company to apply
$__________ principal amount of the attached Debenture to payment in full for
such shares of Common Stock. Please register such shares and make delivery
thereof as follows:
Registered in the Name of (Giving First or Middle Name in Full)
Name _________________________________________________________
(Please Print)
Address_______________________________________________________
DELIVERY INSTRUCTIONS
To be completed ONLY if Certificates are to be mailed to persons other
than the Registered Holder.
Name _________________________________________________________
(Please Print)
Address_______________________________________________________
Signature_____________________________________________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfer unto ___________________ ____________________________________ the
within Debenture and all rights thereunder, hereby irrevocably authorizing the
Company to transfer said Debenture on the books of the Company, with full power
of substitution in the premises.
Dated:________________________________________________________
Signature:____________________________________________________
Print Name:___________________________________________________
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