Exhibit 4.2
Form of 8%Convertible Debenture issued to Messrs. Howland and Hoops(1)
NEITHER THIS DEBENTURE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS DEBENTURE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT OR STATE LAW OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.
NA- New York, New York
$ ,000 January , 1999
TECHNICAL VENTURES INC.
8% CONVERTIBLE DEBENTURE DUE JANUARY 31, 2002
FOR VALUE RECEIVED, Technical Ventures Inc., a New York corporation (the
"Company"), hereby promises to pay to the order of , the principal amount of
thousand dollars ($ ,000) on January 31, 2002. Interest on this Debenture shall
be payable quarterly, on the last day of April, July, October and January of
each year to the holder of record of this Debenture on the 15th day of April,
July, October and January, respectively, with the first interest payment being
due on April 15, 1999. Interest shall be payable at the rate of eight percent
(8%) per annum, computed on the basis of a 360-day year, using the number of
days actually elapsed. Interest shall be payable, to the extent permitted by
law, at the rate equal to the lesser of (i) eighteen percent (18%) per annum or
(ii) the maximum rate permitted by law, on the entire unpaid principal amount of
this Debenture from and after the time that such principal amount shall have
become due and payable (whether at maturity or by acceleration). In no event
shall the rate of interest exceed the maximum interest rate which may legally be
charged, and any payments which would result in an interest payment being in
excess of such legal rate shall be treated for all purposes as payments of
principal. This Debenture is one of the Company's 8% Convertible Debentures due
January 31, 2002 (collectively, the "Debentures"), which were issued in the
aggregate maximum principal amount of two hundred thirty thousand dollars
($230,000). The Debentures were issued pursuant to subscription agreements
(collectively, the "Subscription Agreements" and each, a "Subscription
Agreement"). As used in this Debenture, the term "Closing Date" shall mean the
"First Closing Date," as defined in the Subscription Agreements.
ARTICLE 1
Covenants of the Company
Until the principal of and interest on the Debentures shall have been paid
in full:
(a)Continued Organization; Good Standing. Each of the Company and each of
its present or future subsidiaries (each, a "Subsidiary") will continue its
corporate existences and good standing in the state or province of its
organization and in each other state or province in which it owns or leases real
property.
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(b) Filings under the Securities Exchange Act of 1934. The Company's common
stock, par value $.01 per share ("Common Stock"), has been registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company shall file all reports required by Section 12 of
the Exchange Act not later than the date that such reports are due.
(c) Comply with Obligations under Subscription Agreement. The Company shall
comply with and perform in a timely manner all of its obligations pursuant to
the Subscription Agreements.
ARTICLE 2
Events of Default and Acceleration
(a) Events of Default Defined. The entire unpaid principal amount of this
Debenture, together with interest thereon shall, at the option of the holder
this Debenture, exercised by written notice to the Company, forthwith become and
be due and payable if any one or more the following events ("Events of Default")
shall have occurred (for any reason whatsoever and whether such happening shall
be voluntary or involuntary or be affected or come about by operation of law
pursuant to or in compliance with any judgment, decree, or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing. An Event of Default shall occur:
(i) if failure shall be made in the payment of the principal of this
Debenture when and as the same shall become due; or
(ii) if failure shall be made in the payment of any installment of
interest on this Debenture when and as the same shall become due and
payable whether at maturity or otherwise and such failure shall continue
for ten (10) days after the date such payment is due; or
(iii) if the Company shall violate or breach any of the covenants set
forth in this Debenture and such violation or breach shall continue for
fifteen (15) days thereafter; or
(iv) if the Company shall violate or breach any of the
representations, warranties, covenants or agreements contained in any of
the Subscription Agreements, and such violation or breach shall continue
for fifteen (15) days thereafter; or
(v) if the Company or any Subsidiary shall consent to the appointment
of a receiver, trustee or liquidator of itself or of a substantial part of
its property, or shall admit in writing its inability to pay its debts
generally as they become due, or shall make a general assignment for the
benefit of creditors, or shall file a voluntary petition in bankruptcy, or
an answer seeking reorganization in a proceeding under any bankruptcy law
(as now or hereafter in effect) or an answer admitting the material
allegations of a petition filed against the Company or any Subsidiary, in
any such proceeding, or shall by voluntary petition, answer or consent,
seek relief under the provisions of any other now existing or future
bankruptcy or other similar law providing for the reorganization or winding
up of corporations, or an arrangement, composition, extension or adjustment
with its or their creditors, or shall, in a petition in bankruptcy filed
against it or them be adjudicated a bankrupt, or the Company or any
Subsidiary or their directors or a majority of its
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stockholders shall vote to dissolve or liquidate the Company or any
Subsidiary other than a liquidation involving a transfer of assets from a
Subsidiary to the Company or another Subsidiary; or
(vi) if an involuntary petition shall be filed against the Company or
any Subsidiary seeking relief against the Company or any Subsidiary under
any now existing or future bankruptcy, insolvency or other similar law
providing for the reorganization or winding up of corporations, or an
arrangement, composition, extension or adjustment with its or their
creditors, and such petition shall not be vacated or set aside within sixty
(60) days from the filing thereof; or
(vii) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without consent of the Company or any
Subsidiary, a receiver, trustee or liquidator of the Company or any
Subsidiary, or of all or any substantial part of the property of the
Company or any Subsidiary, or approving a petition filed against the
Company or any Subsidiary seeking a reorganization or arrangement of the
Company or any Subsidiary under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any State
thereof, or any substantial part of the property of the Company or any
Subsidiary shall be sequestered; and such order, judgment or decree shall
not be vacated or set aside within sixty (60) days from the date of the
entry thereof, or
(viii) if, under the provisions of any law for the relief or aid of
debtors, any court of competent jurisdiction shall assume custody or
control of the Company or any Subsidiary or of all or any substantial part
of the property of the Company or any Subsidiary and such custody or
control shall not be terminated within sixty (60) days from the date of
assumption of such custody or control.
(b) Rights of Debenture Holder. Nothing in this Debenture shall be
construed to modify, amend or limit in any way the right of the holder of this
Debenture to bring an action against the Company.
ARTICLE 3
Conversion
(a) Right of Conversion.
(i) At any time on or after the Initial Conversion Date, as
hereinafter defined, the holder of this Debenture shall have the right, in
whole at any time and in part from time to time, to convert all or any part
of the principal amount of this Debenture outstanding from time to time and
any accrued interest and any accrued Registration Payment, as hereinafter
defined, into such number of shares of Common Stock as is determined by
dividing the amount of principal and interest and Registration Payment
being converted by the Conversion Price, as hereinafter defined; provided,
that the right to convert this Debenture shall terminate at 5:00 P.M. New
York City time on the business day prior to the maturity date of this
Debenture.
(ii) The "Initial Conversion Date" shall mean the first to occur of:
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(A) One year from the Closing Date, or
(B) The effective date of the Registration Statement, as
hereinafter defined.
(b) Exercise of Conversion Right. In order to exercise the conversion
right, the holder of this Debenture shall surrender this Debenture at the office
of the Company together with written instructions specifying the portion of the
principal amount of and accrued interest on this Debenture and any accrued
Registration Payment which the holder elects to convert and the registration and
delivery of certificates for shares of Common Stock issuable upon such
conversion. The shares of Common Stock issuable upon conversion of this
Debenture are referred to as the "Conversion Shares." The number of Conversion
Shares shall be determined by dividing the amount of principal and interest
being converted by the Conversion Price in effect on the date of such
conversion, which shall be the date this Debenture is presented to the Company
for conversion. The holder shall thereupon be deemed the holder of the shares of
Common Stock so issued and the principal amount of and interest on the
Debenture, to the extent so converted, shall be deemed to have been paid in
full. If this Debenture shall have been converted in part, the holder of this
Debenture shall be entitled to a new Debenture representing the unpaid principal
balance of such Debenture remaining after deducting the principal amount of the
Debenture converted. Any accrued interest or Registration Payment not converted
into Common Stock pursuant to this Paragraph 3 shall be paid to the holder in
cash at the time of conversion.
(c) Conversion Price.
(i) The Conversion Price shall be the lesser of the Maximum Conversion
Price, as hereinafter defined, or the Current Conversion Price, as
hereinafter defined, which shall be subject to adjustment as hereinafter
provided.
(ii) The Maximum Conversion Price shall mean 1 and /100 dollars ($ .
).
(iii) The Current Conversion Price shall mean seventy five percent
(75%) of the average closing bid price of the Common Stock for the ten (10)
trading days prior to the date on which this Debenture is presented for
conversion on the principal stock exchange or market on which the Common
Stock is traded. If there is more than one reported closing bid price on
any day, the lowest closing bid price shall be used for the closing bid
price on such day. If this Debenture is being converted in part only, then
the Current Conversion Price shall relate to the Debenture to the extent
that principal and interest is converted, and the Current Conversion Price
for any subsequent conversion shall be determined in accordance with this
Paragraph 3(c)(iii) at the time of such subsequent conversion.
(iv) The date that this Debenture is presented to the Company for
conversion shall mean the date on which this Debenture is either (A)
physically delivered to Company by the holder -------- 1 The Maximum
Conversion Price shall be the average of the closing bid prices for the
Company's common stock for the ten (10) trading days prior to the Closing
Date.
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of this Debenture or such holder's representative, (B) deposited in
the mail, with proper postage affixed addressed to the Company at its
address as hereinafter provided or (C) delivered to a domestic or
international, as the case may be, delivery service that provides for
evidence of delivery.
(v) The Maximum Conversion Price shall be subject to adjustment as
follows:
(A) If the Company shall, subsequent to the Closing Date, (A) pay
a dividend or make a distribution on its shares of Common Stock in
shares of Common Stock, (B) subdivide or reclassify its outstanding
Common Stock into a greater number of shares, or (C) combine or
reclassify its outstanding Common Stock into a smaller number of
shares or otherwise effect a reverse split, the Maximum Conversion
Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted upward or
downward, as the case may be. Such adjustment shall be made
successively whenever any event listed in this Paragraph 3(c)(v)(A)
shall occur.
(B) In case the Company shall, subsequent to the Closing Date,
issue rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (or having a
conversion price per share) less than the current market price of the
Common Stock (as defined in Paragraph 3(c)(v)(D) of this Debenture) on
the record date mentioned below, the Maximum Conversion Price shall be
adjusted so that the Maximum Conversion Price shall equal the price
determined by multiplying the Maximum Conversion Price in effect
immediately prior to the date of such issuance by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered)
would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the number of shares of
Common Stock outstanding on such record date plus the maximum number
of additional shares of Common Stock offered for subscription or
purchased (or into which the convertible securities so offered are
convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled
to receive such rights or warrants; and to the extent that shares of
Common Stock or securities convertible into Common Stock are not
delivered after the expiration of such rights or warrants, the Maximum
Conversion Price shall be readjusted to the Maximum Conversion Price
which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(C) In case the Company shall, subsequent to the Closing Date,
distribute to all holders of Common Stock evidences of its
indebtedness or assets (excluding cash dividends or distributions paid
out of current earnings and dividends or distributions referred to in
Paragraph 3(c)(v)(A) of this Debenture) or subscription rights or
warrants (excluding those referred to in Paragraph 3(c)(v)(B) of this
Debenture), then in each such case the Maximum Conversion Price in
effect thereafter shall be determined by multiplying the Maximum
Conversion Price in effect immediately prior thereto by a fraction, of
which the numerator shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share of
Common Stock
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(as defined in Paragraph 3(c)(v)(D) of this Debenture), less the
fair market value (as determined in good faith by the Company's Board
of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and of which the
denominator shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such distribution.
(D) For the purpose of any computation under Paragraphs
3(c)(v)(B) and (C) of this Debenture, the current market price per
share of Common Stock at any date shall be deemed to be the average of
the daily closing prices for ten (10) consecutive trading days
commencing twenty (20) trading days before such date. The closing
price for each day shall be the reported closing price on the
principal national securities exchange or market on which the Common
Stock is admitted to trading or listed, or if not listed or admitted
to trading on any such exchange or such market or if there is no
trading on any day in the computation period, the closing low bid
price as reported by the Nasdaq Stock Market ("Nasdaq"), the National
Quotation Bureau, Inc. or other similar organization, shall be used,
or if such prices are not available, the fair market price as
determined in good faith by the Board of Directors.
(vi) In the event that, during any ten (10) trading day period during
which a computation of the Current Market Price is being made, there is a
record date for an event described in Paragraph 3(c)(v)(A), (B) or (C) of
this Debenture, the closing bid price of the Common Stock for each day in
such period which is prior to such record date shall be adjusted in the
same manner as the Maximum Conversion Price.
(vii) No adjustment in the Conversion Price shall be made: (A) upon
the issuance or sale of shares of Common Stock upon the exercise of
warrants and options outstanding as of the date hereof; or (B) upon the
issuance of options granted prior to the date hereof pursuant to any of the
Company's stock option plans (collectively, the "Plans"); or (C) upon the
issuance of warrants to purchase Common Stock, with an exercise price equal
to not less than the fair market value of the Common Stock on the date the
options were granted pursuant to the Plans subsequent to the date hereof or
the sale of any shares of Common Stock pursuant to the exercise of any such
warrants; or (D) upon the issuance of any shares of capital stock to the
Company by any of its subsidiaries.
(d) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a Subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock or the class issuable upon conversion of this
Debenture) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
holder of this Debenture shall have the right thereafter by converting this
Debenture, to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been
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purchased upon conversion of this Debenture immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Any such
provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Debenture. The foregoing provisions of this Paragraph 3(d) shall similarly apply
to successive reclassifications, capital reorganizations and changes of shares
of Common Stock and to successive consolidations, mergers, sales or conveyances.
In the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole in part, for a security of the Company other than Common
Stock, such transaction shall be treated as a reclassification or reorganization
pursuant to this Paragraph 3(d).
(e) Fractional Shares. No fractional shares or script representing
fractional shares shall be issued upon the conversion of any Debentures. If,
upon any full or partial conversion of this Debenture, the holder would, except
for the provisions of this Paragraph 3(e), be entitled to receive a fractional
share of Common Stock, then the number of shares of Common Stock to be issued on
such conversion shall be rounded up to the next higher integral number of
shares.
ARTICLE 4
Filing of S-3 Registration Statement; Payment for Failure to Register.
(a) As provided in the Subscription Agreement, the Company shall file a
registration statement (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act") on Form S-3 covering the sale of the
Conversion Shares by the holders thereof, and the Company will use its best
efforts to have such registration statement declared effective as soon as
possible thereafter. The Company shall take such steps to insure that the
Registration Statement is current and effective until all of the Conversion
Shares shall have been sold or until such time as all of the Conversion Shares
issuable upon all of the Debentures may be sold without registration pursuant to
Rule 144 of the Securities and Exchange Commission (the "Commission") or any
similar subsequent rule without regard to volume limitations and filing
requirements.
(b) The Company recognizes that its agreement to have the Conversion Shares
and the Warrant Shares, as defined in the Subscription Agreement, registered
pursuant to the Securities Act in a timely manner (with time being of the
essence) was a material inducement for the holder of this Debenture to purchase
this Debenture, and that the failure of the Company to have such Conversion
Shares and Warrant Shares so registered would cause damage to the holder of this
Debenture. Accordingly, if the Registration Statement is not declared effective
by the Commission by the Registration Date, the Company shall pay the holder of
this Debenture, as liquidated damages for such failure and not as a penalty, the
Registration Payment, as hereinafter defined.
(c) The Registration Payment shall mean the Applicable Percentage, as
hereinafter defined, multiplied by the number of days between Registration Date
and the date on which the Registration Statement is declared effective by the
Commission. In making such computation, the Registration Date shall not be
counted, and the date on which the Registration Statement is declared effective
shall be counted.
(d) The Registration Date shall be the one hundred twentieth (120th) day
following the
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Closing Date.
(e) The Applicable Percentage shall mean one-fifteenth of one percent (.066
2/3%) for each day after the Registration Date that the Registration Statement
has not been declared effective by the Commission.
(f) Payment of the Registration Payment shall be made on the first day of
each calendar month following the Registration Date, based on the amount accrued
to the day prior to the date of such payment, except that the last payment shall
be made within two (2) business days after the effective date of the
Registration Statement.
(g) The holder of this Debenture may convert any portion of the
Registration Payment as provided in Paragraph 3(b) of this Debenture.
ARTICLE 5
Miscellaneous
(a) Transferability. This Debenture shall not be transferred except in a
transaction exempt from registration pursuant to the Securities Act and
applicable state securities law. The Company shall treat as the owner of this
Debenture the person shown as the owner on its books and records.
(b) No Right of Prepayment. Without the prior written consent of the holder
of this Debenture, the Company shall have no right to prepay or redeem this
Debenture.
(c) WAIVER OF TRIAL BY JURY. IN ANY LEGAL PROCEEDING TO ENFORCE PAYMENT OF
THIS DEBENTURE, THE COMPANY WAIVES TRIAL BY JURY, CLAIMS FOR OFFSET AND
COUNTERCLAIMS, IF ANY.
(d) Legal Fees. In the event that the holder of this Debenture engages
counsel in connection with the administration or enforcement of this Debenture,
the Company shall pay all reasonable legal fees and expenses incurred by the
holder, regardless of whether an action has been commenced.
(e) Governing Law. This Debenture shall be governed by the laws of the
State of New York applicable to agreement executed and to be performed wholly
within such State without regard to principles of conflict of laws.
(f) Court Jurisdiction. The Company hereby (i) consents to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York and Supreme Court of the State of New York in the County of New York in
any action relating to or arising out of this Debenture, (ii) agrees that any
process in any such action may be served upon it, in addition to any other
method of service permitted by law, by certified or registered mail, return
receipt requested, or by an overnight courier service which obtains evidence of
delivery, with the same full force and
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effect as if personally served upon him in New York City, and (iii) waives any
claim that the jurisdiction of any such tribunal is not a convenient forum for
any such action and any defense of lack of in personam jurisdiction with respect
thereto.
(g) Notices. Notice to the Company shall be given to the Company at 3411
McNicoll Avenue, Unit 11, Scarborough, Ontario, Canada, M1V 2V6, telecopier
(416) 299-9545, Attention of Mr. Frank Mortimer, President, or to the holder at
the address set forth on the Company's records, or to such other address as the
Company or the holder may advise by hand delivery, certified or registered mail,
return receipt requested, overnight courier service, or by telecopier if
confirmation of receipt is given or of confirmation of transmission is sent by
mail as herein provided.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the
date and year first aforesaid.
TECHNICAL VENTURES INC.
By:
Frank Mortimer, President
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NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Debentures]
TECHNICAL VENTURES INC.
The undersigned, the holder of the foregoing Debenture, hereby surrenders
such Debenture for conversion into shares of Common Stock of IAS Communications,
Inc. to the extent of $ * unpaid principal amount of and interest due on such
Debenture, and requests that the certificates for such shares be issued in the
name of , and delivered to , whose address is .
DATED:
(Signature)
(Signature must conform in all respects to name of holder as specified on
the face of the Debenture.)
* Insert here the unpaid principal amount of the Debenture (or, in the
case of a partial conversion, the portion thereof as to which the
Debenture is being converted). In the case of a partial conversion, a
new Debenture will be issued and delivered, representing the
unconverted portion of the unpaid principal amount of this Debenture,
to or upon the order of the holder surrendering such Debenture.
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