EXHIBIT 1.1A
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
No. ---- $---------
ZITEL CORPORATION
3% CONVERTIBLE SUBORDINATED DEBENTURE DUE JUNE 15, 1999
THIS DEBENTURE ("Debenture") is one of a duly authorized issue of
Debentures of ZITEL CORPORATION, a corporation duly organized and existing
under the laws of the State of California (the "Company"), designated as the
Company's 3% Convertible Subordinated Debentures Due June 15, 1999, in an
aggregate principal amount not exceeding TEN MILLION U.S. DOLLARS
(U.S.$10,000,000) (the "Debenture").
FOR VALUE RECEIVED, the Company promises to pay to --------------------,
the initial holder hereof, or its order (including successors-in-interest, the
"Holder"), the principal sum of ---------------- U.S. DOLLARS (U.S.$--------)
on June 15, 1999 (the "Maturity Date") in the manner and amount and subject to
the terms and conditions of Section 6 hereof and to pay interest on the
principal sum outstanding under this Debenture ("Outstanding Principal
Amount"), at the rate of 3% per annum due and payable quarterly in arrears on
the first day of September, December, March and June of each year (each an
"Interest Payment Date"), with the first such payment due on September 1, 1998.
Interest shall accrue daily and compound quarterly commencing on the date
hereof and shall continue until payment in full of all amounts due under this
Debenture. The interest so payable will be paid to the person in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of the Debenture (the "Debenture Register").
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Convertible Subordinated Debenture Purchase Agreement dated as
of June 16, 1998 between the Company and the Holder and the other parties
thereto (the "Purchase Agreement") or the Registration Rights Agreement dated
as of June 16, 1998 between the Company and the Holder and the other parties
thereto (the "Registration Rights Agreement").
The principal of, interest on, and default payments (referred to below)
in respect of this Debenture are payable in such coin or currency of the United
States as of the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder hereof from time to time;
PROVIDED, HOWEVER, that, in lieu of paying such interest in coin or currency,
the Company may, at its option (provided it gives at least fifteen (15)
business days notice prior to an Interest Payment Date), pay interest on this
Debenture for any Interest Payment Date in registered Common Stock of the
Company, if and only if such stock is subject to Effective Registration (as
defined in the Purchase Agreement), with the number of shares of Common Stock
determined by dividing (x) the amount of interest due for such payment period
by (y) the Conversion Price determined as if the Interest Payment Date were a
Holder Conversion Date ("Common Stock Interest"), pursuant to a revocable
statement in the form of Exhibit 2 hereto ("Common Stock Statement") delivered
at least fifteen (15) business days prior
to the Interest Payment Date on which the Company plans to pay such Common
Stock Interest and effective for such Interest Payment Date only. If neither
the cash interest due hereunder is paid, nor the Common Stock Statement
delivered, to the Holder as provided above, the Company shall no longer have
the right to choose the Common Stock Interest option on that Interest Payment
Date or any future Interest Payment Dates and the Holder may elect either cash
interest or Common Stock Interest hereunder at its option, or may choose to add
such amounts to the Outstanding Principal Amount. Any Common Stock Interest or
cash interest when so added to the Outstanding Principal Amount due under this
Debenture shall, for all purposes of this Debenture, be deemed to have been
part of the principal indebtedness originally evidenced by this Debenture
including, without limitation, for purposes of determining interest payable
hereunder after the applicable Interest Payment Date for which such Common
Stock Statement is delivered by the Company and amounts convertible into Common
Shares hereunder after the applicable Interest Payment Date for which such
Common Stock Statement is delivered by the Company.
The Company will pay any principal due and all accrued and unpaid
interest due upon this Debenture to the person that is the Holder of this
Debenture on the records of the Company as of the applicable Interest Payment
Date and addressed to such Holder at the last address appearing on the
Debenture Register.
The Outstanding Principal Amount and interest due hereunder shall bear
interest, from and after the 31st day following the occurrence and during the
continuance of an Event of Default hereunder, at the rate equal to the lower of
the Citibank Prime Rate per annum plus 7% or the highest rate permitted by law.
Additional cash payments (referred to as "default payments") may be
required pursuant to the Registration Rights Agreement if there occurs an
"Interfering Event" (as defined therein). Such default payments, if not paid
in cash when due, may be treated by the Holder in its sole discretion as being
added to the Outstanding Principal Amount due under this Debenture.
Subject to applicable law, any interest otherwise payable that is not
paid for any applicable period because it would exceed the highest rate
permitted by law shall become payable whenever the payment thereof, together
with other interest due for any such subsequent period would not exceed such
highest legal rate.
The Holder of this Debenture is entitled to certain rights and remedies
pursuant to the Purchase Agreement and Registration Rights Agreement, including
without limitation provisions requiring mandatory redemption of the Debenture.
This Debenture does not provide voting rights to the Holder.
This Debenture is subject to the following additional provisions:
1. DENOMINATION. The Debentures are exchangeable for an equal
aggregate principal amount of Debentures of different denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration or transfer or exchange.
2. TRANSFERS. This Debenture may be transferred or exchanged in the
United States only in compliance with the Securities Act of 1933, as amended
(the "Act") and applicable state securities laws, or applicable exemptions
therefrom. Prior to due presentment for transfer of this Debenture, the
Company may treat the person in whose name this Debenture is duly registered on
the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided, whether or not this Debenture is overdue.
3. DEFINITIONS. For purposes hereof the following definitions shall
apply:
"CHANGE IN CONTROL TRANSACTION" shall mean the occurrence of (x)
any consolidation or merger of the Company with or into any other corporation
or other entity or person (whether or not the Company is the surviving
corporation), or any other corporate reorganization or transaction or series of
related transactions in which in excess of 50% of the Company's voting power is
transferred through a merger, consolidation, tender offer or similar
transaction, or (y) any person (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), together with its
affiliates and associates (as such terms are defined in Rule 405 under the
Securities Act of 1933, as amended (the "Act")), beneficially owns or is deemed
to beneficially own (as described in Rule 13d-3 under the Exchange Act without
regard to the 60-day exercise period) in excess of 50% of the Company's voting
power.
"CLOSING BID PRICE" shall mean the last closing bid price on the
principal Approved Market (as defined in the Purchase Agreement) as reported by
Bloomberg Financial Market or an equivalent reliable reporting service selected
by the Holder and the Company.
"CLOSING DATE" shall mean the date of original issuance of this
Debenture.
"COMMON STOCK" shall mean the common stock, no par value, of the
Company.
"CONVERSION NOTICE" shall have the meaning set forth in Paragraph
5(g).
"CONVERSION PRICE" shall have the meaning set forth in Paragraph
5(c).
"CONVERSION RATE" shall have the meaning set forth in Paragraph
5(b).
"FORCED CONVERSION DATE" shall mean the Maturity Date, without
taking into consideration any acceleration thereof by reason of default,
required redemption, or otherwise. The Forced Conversion Date shall be subject
to deferral as provided for herein and in the Registration Rights Agreement.
"HOLDER CONVERSION DATE" shall have the meaning set forth in
Paragraph 5(g).
"MARKET PRICE FOR SHARES OF COMMON STOCK" shall mean the price of
one share of Common Stock determined as follows:
(i) If the Common Stock is listed on an Approved
Market, the Closing Bid Price;
(ii) If (i) does not apply but the Common Stock is
quoted in the over-the-counter market, another recognized
exchange, on the pink sheets or 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
(iii) If neither clause (i) nor (ii) 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.
"TRADING DAY" shall mean a day on which the Common Stock is traded
on the NASDAQ or principal exchange on which the Common Stock has been listed
(or any similar organization or agency succeeding such market or exchange's
functions of reporting prices).
4. CHANGE IN CONTROL, ETC. If a Change in Control Transaction occurs
before 30 days have elapsed after the date that the Registrable Securities (as
defined in the Registration Rights Agreement) have been registered as
contemplated therein (the "Effectiveness Date") (such 30 days to be extended
one (1) day for each day after such date on which there is a lack of Effective
Registration), or if the provisions of Section 7 have not been complied with,
then the Holder shall be entitled to have the Company redeem this Debenture in
whole or in part at a redemption price equal to 120% of the Outstanding
Principal Amount of this Debenture plus all accrued but unpaid interest and
penalties on this Debenture. Such Holder shall be entitled to make such
election at any time after commencement and up to 10 days after the effective
date of the Change in Control Transaction. For purposes of this Paragraph 4,
the commencement date shall be the day upon which the Change in Control
Transaction was publicly announced.
5. CONVERSION AT THE OPTION OF THE HOLDER. The Holder of this
Debenture shall have the following conversion rights.
(a) HOLDER'S RIGHT TO CONVERT. This Debenture shall be
convertible at any time, in whole or in part, at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common
Stock. If this Debenture is converted in part, the remaining portion of this
Debenture not so converted shall remain entitled to the conversion rights
provided herein.
(b) CONVERSION PRICE FOR HOLDER CONVERTED SHARES. The
Outstanding Principal Amount of this Debenture that is converted into shares of
Common Stock at the option of the Holder shall be convertible into the number
of shares of Common Stock which results from application of the following
formula:
P + I + D
--------------------------------
Conversion Price
P = Outstanding Principal Amount of this Debenture submitted for
conversion
I = accrued but unpaid interest (not previously added to
principal) on P as of the Holder Conversion Date
D = default payments (not previously added to principal) as of the
Holder Conversion Date
The number of shares of Common Stock into which each $1,000
principal amount of this Debenture hereto may be converted pursuant to this
paragraph hereof is hereafter referred to as the "Conversion Rate."
(c) INITIAL CONVERSION PRICE. Subject to adjustments pursuant to
Sections 5 and 7, this Debenture will have a conversion price (the "Conversion
Price") equal to 90.0% of the average of the Closing Bid Price for each of the
five (5) Trading Days immediately following, but not including, the Closing
Date (such five (5) Trading Day average being referred to as the "Closing
Price"). The Holder shall deliver a notice
to the Company on the sixth Trading Day immediately following the Closing Date
setting forth the calculation of the Conversion Price, which calculation shall
be binding upon the Company absent manifest error in such calculation.
(d) PERIODIC ADJUSTMENTS TO THE CONVERSION PRICE. If, at any
time prior to the later of (x) the Registration Statement being declared
effective by the SEC or (y) the 45 day anniversary of the Closing Date, the
Closing Bid Price is for five (5) consecutive Trading Days (the fifth of such
five (5) consecutive Trading Days being the "Periodic Reset Date") less than
50% of the Closing Price (such Closing Bid Price, multiplied by 90%, being
known as the "Periodic Reset Price"), THEN the Company will deliver into the
Holder's possession within three (3) Trading Days ("T+3") of the Periodic Reset
Date, such number of additional shares of Common Stock as, together with such
other shares of Common Stock as the Holder previously acquired as a result of
the conversion of this Debenture, would result in such Holder having acquired
in the aggregate a number of shares of Common Stock equal to the number that
would have been acquired if all prior conversions had been at the Periodic
Reset Price as the Conversion Price. Adjustments pursuant to this Section 5(d)
may occur multiple times. If at the Single Reset Date (defined below) the
Single Reset Price is greater than the Periodic Reset Price pursuant to which
shares of Common Stock were delivered to the Holder under this paragraph (d),
then the Holder will be required to return a portion of the shares previously
delivered, so that the number of shares delivered pursuant to paragraphs (d)
and (e) would be as determined at the Single Reset Price.
(e) ONE-TIME ADJUSTMENT TO THE CONVERSION PRICE. If the lesser
of (i) the average of the Closing Bid Prices of the Common Stock for the ten
(10) consecutive Trading Days prior to but excluding the day on which the
Registration Statement is declared effective by the SEC and (ii) the average of
the Closing Bid Prices of the Common Stock for the ten (10) consecutive Trading
Days prior to but excluding the 45 day anniversary of the Closing Date (such
lesser price, multiplied by 90%, being known as the "Single Reset Price" and
the date from which the Single Reset Price is calculated being known as the
"Single Reset Date"), is less than the Closing Price, THEN if and only if such
Single Reset Price is lower than the Conversion Price, (x) such Single Reset
Price will automatically become the Conversion Price (subject to further
adjustment) for all purposes of this Debenture, and (y) the Company will
deliver into the Holder's possession within T+3 of the Single Reset Date, such
number of additional shares of Common Stock (if any) as, together with such
other shares of Common Stock as the Holder previously acquired as a result of
the conversion of this Debenture would result in such Holder having acquired in
the aggregate a number of shares of Common Stock equal to the number that would
have been acquired if all prior Conversions had been at the Single Reset Price
as the Conversion Price. Adjustments pursuant to this Section 5(e) may occur
only once.
(f) ADJUSTMENTS TO CLOSING PRICE. In the event that subsequent
to the Closing Date and prior to or during any period of consecutive trading
days provided for above, the Company shall pay any dividend on the Common Stock
payable in Common Stock or in rights to acquire Common Stock, or shall effect a
stock split or reverse stock split, then the Closing Price shall be
proportionately decreased or increased, as appropriate, to give effect to such
event.
(g) MECHANICS OF CONVERSION. In order to convert this Debenture
(in whole or in part) into full shares of Common Stock, the Holder shall
surrender this Debenture, duly endorsed, by either overnight courier or 2-day
courier, to the principal office of the Company, and shall give written notice
in the form of EXHIBIT 1 hereto (the "Conversion Notice") by facsimile (with
the original of such notice forwarded with the foregoing courier) to the
Company at such office that the Holder elects to convert the principal amount
(plus accrued but unpaid interest and default payments) specified therein,
which such notice and
election shall be revocable by the Holder at any time prior to its receipt of
the Common Stock upon conversion; PROVIDED, HOWEVER, that the Company shall not
be obligated to issue certificates evidencing the shares of the Common Stock
issuable upon such conversion unless either the Debenture evidencing the
principal amount is delivered to the Company as provided above, or the Holder
notifies the Company that such Debenture(s) have been lost, stolen or destroyed
and promptly executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection with such
lost, stolen or destroyed Debentures.
The Company shall issue and deliver within T+3 after delivery
to the Company of such Conversion Notice, to such Holder of Debenture(s) at the
address of the Holder, or to its designee, a certificate or certificates for
the number of shares of Common Stock to which the Holder shall be entitled as
aforesaid, together with a calculation of the Conversion Rate and a Debenture
or Debentures for the principal amount of Debentures not submitted for
conversion. The date on which the Conversion Notice is given (the "Holder
Conversion Date") shall be deemed to be the date the Company received by
facsimile the Conversion Notice, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
In lieu of delivering physical certificates representing the
Common Shares issuable upon conversion of Debentures or the Warrant Shares (as
defined in the Purchase Agreement) deliverable upon exercise of Warrants (as
defined in the Purchase Agreement), provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the holder, the Company shall use
its best efforts to cause its transfer agent to electronically transmit the
Common Shares and Warrant Shares issuable upon conversion or exercise to the
Holder, by crediting the account of Holder's prime broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery described above shall apply to the electronic transmittals through the
DWAC system. The parties agree to coordinate with DTC to accomplish this
objective. The conversions pursuant to Sections 5 and 6 shall be deemed to
have been made immediately prior to the close of business on the Holder
Conversion Date. The person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Shares at the close of business on the Holder
Conversion Date.
6. CONVERSION UPON MATURITY.
(a) At the Forced Conversion Date, all Debentures outstanding at
such time shall be automatically converted into Common Stock of the Company in
accordance with the terms of this Debenture, the Purchase Agreement and the
Registration Rights Agreement, without notice; PROVIDED, however, that such
conversion will be subject to the limitations on a Holder's right to convert as
set forth in paragraph 12 below, and, provided further that the Forced
Conversion Date shall be deferred for such number of days as is equal to 1.5
times the number of days (A) there is not Effective Registration (as defined in
the Purchase Agreement), but not including the first 90 days after the Closing;
(B) there is not a sufficient amount of Common Shares available for conversion
of all outstanding Debentures; or (C) for any other reason there is a default
in, or failure of performance of, the obligations of the Company under this
Debenture, the Purchase Agreement or the Registration Rights Agreement which
interferes with the ability of the Holder to convert this Debenture or to
freely sell without restriction the shares of Common Stock available upon
conversion thereof. The portion of the Outstanding Principal Amount of the
Debenture that may not be converted by reason of such paragraph 12 limitation
will be paid to the Holder by the Company in cash in an amount equal to 110% of
the sum of (i)
the Outstanding Principal Amount and (ii) accrued but unpaid interest and
default payments ("Cash Payment").
The Company shall issue and deliver within T+3 after delivery to
the Company of this Debenture, or after receipt of the agreement and
indemnification described in paragraph 5(c) above, to the Holder of the
Debenture at the address of the Holder, or to its designee, a certificate or
certificates for the number of shares of Common Stock to which the Holder shall
be entitled hereunder, together with the Cash Payment and a calculation of the
Conversion Rate. The person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on the Forced
Conversion Date. The Forced Conversion Date shall be a "Holder Conversion
Date" for purposes of this Debenture.
(b) Notwithstanding the preceding subparagraph (6)(a), no holder
of Debentures shall be obligated to convert any Debentures held by such Holder
on the Forced Conversion Date unless and until each of the following conditions
has been satisfied or exists, each of which shall be a condition precedent to
any such automatic conversion:
(i) no material default or breach exists, and no event
shall have occurred which constitutes (or would constitute with
notice or the passage of time or both) a material default or breach
of the Purchase Agreement, the Registration Rights Agreement, any
Warrant or this Debenture (for purposes of this clause (i),
"material" shall mean materially affecting the business, affairs or
prospects of the Company or the market for its securities, or
having a material effect on the rights and benefits sought to be
obtained by the Holders in acquiring the Debentures).
(ii) none of the events described in clauses (i) through
(iv) of Section 2(b) of the Registration Rights Agreement shall
have occurred and be continuing;
(iii) Effective Registration (as defined in the Purchase
Agreement) has occurred and is continuing and has continuously
existed for the prior 60 consecutive trading days;
(iv) the Company and its direct and indirect subsidiaries on
a consolidated basis has assets with a net realizable fair market
value exceeding its liabilities and is able to pay all its debts as
they become due in the ordinary course of business, and the Company
is not and has not been subject to any liquidation, dissolution or
winding up of its affairs; and
(v) each Holder of Debentures shall have received a
certificate from an appropriate executive officer of the Company
certifying that each of the foregoing conditions precedent exist or
have been satisfied.
The Company shall be given the opportunity after the Forced
Conversion Date to cure the above conditions, and shall after effecting such
cure give each Holder of Debentures ten (10) Trading Days' notice prior to an
automatic conversion of such Holder's Debentures. Such automatic conversion
shall be subject to and governed by all the provisions relating to voluntary
conversion of the Debentures contained herein.
If the Company is not able to cure the above conditions, then (i)
the Company has the right
upon 60 days' prior written notice to the Holders, provided that such notice
shall be effective if and only if the Company has had unrestricted freely
trading Common Stock available for conversion by the Holders for the duration
of the 60-day notice period and the Holders shall have had the opportunity to
convert their Debentures during that period, and (ii) each Holder has the right
to cause the Company, to redeem all Debentures outstanding at such time at a
redemption price per Debenture equal to 120% of the sum of the Outstanding
Principal Amount of the Debenture plus accrued but unpaid interest and default
payments on the Debenture.
(c) The Company has no right to prepay this Debenture in whole or
in part, or to pay this Debenture, except as set forth in this Section 6.
7. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS; REORGANIZATIONS;
PAYMENTS IN LIEU OF CONVERSIONS.
(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 outstanding Common Shares into a larger number of shares, (iv)
combine outstanding Common Stock into a smaller number of shares, the
Conversion Price 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 7(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 a subdivision or
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 current employee or director
option plans or stock purchase plans as amended consistent with the practice in
the high-technology sector, at prices consistent with past practice or shares
issued upon exercise of options, warrants or rights outstanding on the date of
the Purchase Agreement and listed in Section 2.1(c) of the Disclosure Schedule)
at an effective purchase price per share which is less than the greater of the
Conversion Price then in effect or the Market Price for Shares of the Common
Stock on the trading day next preceding such issue or sale, then in each such
case, the Conversion 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 the Conversion 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 Market Price for
shares of Common Stock or Conversion Price, as the case may be, 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.
In the event of any such issuance for a consideration which is less
than such Market Price for Shares of Common Stock and also less than the
Conversion Price then in effect, than there shall be only one such adjustment
by reason of such issuance, such adjustment to be that which results in the
greatest reduction of the Purchase Price computed as aforesaid.
(c) If the Company, at any time while the Debentures are
outstanding, shall distribute to all holders of Common Shares evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 7(b) above) then in each such
case the Conversion Price at which the Debenture shall thereafter be
convertible shall be determined by multiplying the Conversion 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 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 evidence of
indebtedness so distributed applicable to one outstanding Common Stock as
determined by the Board of Directors 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 at the Company's expense by a
nationally recognized or major regional 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 of Directors 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 Common Share. Such adjustment shall be
made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(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 7), then and as a condition to each such event provision shall be
made 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 Conversion
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 7), 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, appropriate adjustment shall be made
in the application of the provisions of this Paragraph 7 with respect to the
rights of the Holders of the Debentures after the reorganization to the end
that the provisions of this Paragraph 7 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) Whenever the Conversion Price is adjusted pursuant to Section
7(a), (b), (c) or (d), the Company shall promptly mail to each Holder of the
Debentures, a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) 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 Common Shares, 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.
(g) In no event shall the Company issue more than the Maximum
Share Amount (as defined below and subject to adjustment as provided herein)
upon conversion of this Debenture, unless the Company shall have obtained
Stockholder Approval (as defined below) or a waiver of such requirement by
NASDAQ. As used herein, Stockholder Approval means approval by the
stockholders of the Company in accordance with Rule 4460(i) of the rules of
NASDAQ. Once the Maximum Share Amount has been issued (the date of which is
ereinafter referred to as the "Maximum Conversion Date"), unless the Company
shall have obtained Stockholder Approval or a waiver of such requirement by
NASDAQ, in lieu of any further right to convert this Debenture, and in full
satisfaction of the Company's obligations under this Debenture, the Company
shall pay to the Holder, within three (3) business days of the Maximum
Conversion Date, an amount equal to the greater of (i) 120% TIMES the sum of
(a) the then outstanding principal amount of this Debenture immediately
following the Maximum Conversion Date PLUS (b) accrued and unpaid interest on
such principal amount plus (c) accrued and unpaid default payments and
interest, if any, PLUS (d) any optional amounts that may be added thereto at
the Maximum Conversion Date by the Holder in accordance with the terms hereof
(the then outstanding principal amount of this Debenture immediately following
the Maximum Conversion Date PLUS the amounts referred to in clauses (b), (c)
and (d) above shall collectively be referred to as the "Remaining Convertible
Amount"), or (ii) the Remaining Convertible Amount DIVIDED BY the Conversion
Price (based on the five (5) consecutive Trading Days ending on the date which
is two (2) trading days prior to the date of payment) MULTIPLIED BY the Closing
Bid Price of the Common Stock on the Approved Market on the Trading Day
immediately preceding the date of payment. The Maximum Share Amount shall mean
an aggregate of 3,381,575 shares of Common Stock (19.9% of the Company's
outstanding shares of Common Stock as of June 10, 1998 minus 150,000 shares
reserved for issuance upon exercise of the Warrants), subject to equitable
adjustments from time to time for stock splits, stock dividends, combinations,
capital reorganizations and similar events relating to the Common Stock
occurring after the date hereof. With respect to each Holder of Debentures,
the Maximum Share Amount shall refer to such Holder's PRO RATA share thereof.
In the event that the Company obtains Stockholder Approval, the approval of
NASDAQ or otherwise
concludes that it is able to increase the number of shares to be issued above
the Maximum Share Amount (such increased number being the "New Maximum Share
Amount"), the references to Maximum Share Amount, above, shall be deemed to be,
instead, references to the greater New Maximum Share Amount. In the event that
Stockholder Approval is not obtained or a registration statement covering the
additional shares of Common Stock which constitute the New Maximum Share Amount
is not effective prior to the Maximum Share Amount being issued (if such
registration statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged; provided,
however, that the Holder may grant an extension of the effective date of such
registration statement. In the event that (a) the aggregate number of shares
of Common Stock issued pursuant to this Debenture and the other Debentures
issued on the Closing Date represents at least fifty percent (50%) of the
Maximum Share Amount and (b) the sum of (x) the aggregate number of share of
Common Stock issued pursuant to this Debenture and the other Debentures issued
on the Closing Date PLUS (y) the aggregate number of shares of Common Stock
that remain issuable pursuant to this Debenture and the otherDebentures issued
on the Closing Date and Warrants issued pursuant to the Purchase Agreement,
represents at least one hundred percent (100%) of the Maximum Share Amount
(the "Triggering Event"), the Company will use its best efforts to seek and
obtain Stockholder Approval (or obtain such other relief as will allow
conversions hereunder in excess of the Maximum Share Amount) as soon as
practicable following the Triggering Event and before the Maximum Conversion
Date.
8. FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder.
The number of shares of Common Stock that are issuable upon any conversion
shall be rounded up to the nearest whole share.
9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
(a) Reservation Requirement. So long as any Debentures remain
outstanding the Company agrees to reserve and at all times keep available
solely for purposes of conversion of Debentures such number of authorized but
unissued shares of Common Stock that is set forth in Section 3.10 of the
Purchase Agreement.
(b) DEFICIENCY. If the Company does not have a sufficient number
of shares of Common Stock available to satisfy the Company's obligations to a
Holder of Debentures upon receipt of a Conversion Notice or is otherwise unable
to issue such shares of Common Stock in accordance with the terms of this
Agreement such Holder shall be entitled to the rights and remedies set forth in
the Registration Rights Agreement.
10. NO REISSUANCE OF THE DEBENTURE. No Debentures acquired by the
Company by reason of redemption, purchase, exchange or otherwise shall be
reissued, and all such Debentures shall be retired.
11. NO IMPAIRMENT. The Company shall not intentionally take any action
which would impair the rights and privileges of the Debentures set forth herein
or the Holders thereof.
12. LIMITATIONS ON HOLDER'S RIGHT TO CONVERT.
(a) Notwithstanding anything to the contrary contained herein, no
Debenture may be converted to the extent that, after giving effect to Common
Shares to be issued pursuant to a Conversion Notice, the total number of shares
of Common Stock deemed beneficially owned by such Holder (other than by virtue
of the ownership of Debentures or ownership of other securities that have
limitations on a Holder's
rights to exchange, convert or exercise similar to those limitations set forth
herein), together with all shares of Common Stock deemed beneficially owned by
the holder's "affiliates" (as defined in Rule 144 of the Act) that would be
aggregated for purposes of determining whether a group under Section 13(d) of
the Securities Exchange Act of 1934, as amended, exists, would exceed 4.9%
(the "Restricted Ownership Percentage") of the total issued and outstanding
shares of the Company's Common Stock; provided that (w) each holder shall have
the right at any time and from time to time to reduce its Restricted Ownership
Percentage immediately upon notice to the Company, (x) each Holder shall have
the right at any time and from time to time, to increase its Restricted
Ownership Percentage and otherwise waive in whole or in part the restrictions
of this Section 12(a) upon 61 days' prior notice to the Company or immediately
in the event of the announcement of a pending or proposed Change in Control
Transaction, (y) each holder can make subsequent adjustments pursuant to (w) or
(x) any number of times from time to time (which adjustment shall be effective
immediately if it results in a decrease in the percentage or shall be effective
upon 61 days' prior written notice or immediately in the event of the
announcement of a pending or proposed Change in Control Transaction if it
results in an increase in the percentage) and (z) each Holder may eliminate
or reinstate this limitation at any time and from time to time (which
elimination will be effective upon 61 days' prior notice and which
reinstatement will be effective immediately). Without limiting the foregoing,
in the event of the announcement of a pending or proposed Change in Control
Transaction, any Holder may reinstate immediately (in whole or in part) the
requirement that any increase in its Restricted Ownership Percentage be subject
to 61 days' prior written notice, notwithstanding such Change in Control
Transaction, without imposing such requirement on, or otherwise changing such
Holder's rights with respect to, any other Change in Control Transaction. For
this purpose, any material modification of the terms of a Change in Control
Transaction will be deemed to result in a new Change in Control Transaction.
The term "deemed beneficially owned" as used in this Debenture shall exclude
shares that might otherwise be deemed beneficially owned by reason of the
convertibility of the Debentures. The Company shall provide all Holders with
the earlier of (i) 20 days' prior written notice of any such Change in Control
Transaction, to the extent the Company has prior knowledge of a Change in
Control Transaction; or (ii) notice on the day immediately following the
Company's learning of any such transaction, but only after, in the case of (i)
and (ii), such Change in Control Transaction has been publicly disclosed.
(b) Under certain circumstances specified in Section 3.15 of the
Purchase Agreement, certain Debentures that are the subject of a Conversion
Notice must be converted for cash.
13. SUBORDINATION.
(a) AGREEMENT TO SUBORDINATE. Notwithstanding anything in this
Debenture to the contrary, the Company agrees, and by accepting this Debenture
the Holder agrees, that the indebtedness evidenced by this Debenture, solely to
the extent that same is payable in cash and not in shares of Common Stock, is
subordinate and subject in right of payment, to the extent and in the manner
expressly provided in this Section 13, to the prior payment in full of all
Senior Debt, and that the subordination is for the benefit of and enforceable
by the holders of Senior Debt. This Debenture shall in all respects rank
senior to all other present and future obligations of the Company (other than
trade debt), and only Senior Debt shall rank senior to this Debenture.
(b) INSOLVENCY, BANKRUPTCY, DISSOLUTION OF COMPANY. Upon any
payment or distribution (whether in cash, securities or other property) to
creditors of the Company upon any Insolvency Event:
(i) all Senior Debt shall first be paid in full before the
Holder shall be entitled to receive any payment or other
distribution on or in respect of this Debenture; and
(ii) until all Senior Debt is paid in full, any payment or
distribution to which the Holder of this Debenture would be
entitled but for this Section 13 shall be made to holders of Senior
Debt as their interests may appear, except that the Holder may
receive shares of the Company as reorganized or readjusted or
securities of the Company or any other corporation if the payment
of such securities is subordinate to Senior Debt to at least the
same extent as this Debenture is subordinate to Senior Debt.
(c) Default on Senior Debt. i) The Company may not pay the
principal of, premium, if any, or interest on, this Debenture or make any
deposit in respect of this Debenture (not including any reservation of Common
Stock for purposes of the conversion of Debentures) and may not repurchase,
redeem or otherwise retire this Debenture (collectively, "pay this Debenture")
if (i) the principal of or interest on any Senior Debt is not paid when due or
(ii) any other default on Senior Debt occurs and (ii) the maturity of such
Senior Debt is accelerated in accordance with its terms unless, in each case,
the default has been cured or waived and any such acceleration has been
rescinded or such Senior Debt has been paid in full. During the continuance of
any default (other than a default described in clause (i) and (ii) of the
preceding sentence) with respect to any Senior Debt pursuant to which the
maturity thereof may be accelerated immediately without further notice (except
such notice as may be required to effect such acceleration) or the expiration
of any applicable grace periods, the Company may not pay this Debenture for a
period (a "Payment Blockage Period") commencing upon the receipt by the Company
and the Holder of written notice of such default from a representative of such
Senior Debt specifying an election to effect a Payment Blockage Period (a
"Payment Blockage Notice") and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Company from
the representative which gave such Payment Blockage Notice, (ii) by repayment in
full of such Senior Debt or (iii) because the default specified in such Payment
Blockage Notice is no longer continuing). Notwithstanding the immediately
preceding sentence (but subject to the provisions contained in the first
sentence of this Section), unless the holders of such Senior Debt or the
representative of such holders shall have accelerated the maturity of such
Senior Debt, the Company shall resume payments (including any missed payments)
on this Debenture after the end of such Payment Blockage Period unless such
payment is otherwise prohibited under this Section 13. Multiple Payment
Blockage Periods may be imposed so long as (x) the cumulative period covered by
all such Payment Blockage Periods does not exceed 179 days in any 365
consecutive day period and (y) no more than one Payment Blockage Period may
result from the same default.
ii) The failure to make a payment or distribution on this
Debenture by reason of this Section 13 shall not be construed or
deemed to prevent the occurrence of an event of default hereunder;
provided that any acceleration of payment of this Debenture
resulting therefrom shall be rescinded if and when the following
conditions shall be simultaneously satisfied: (x) each payment or
distribution which gave rise to such event of default shall be made
and (y) no other such event of default shall have occurred.
(d) SUBORDINATED ACCELERATION; STANDSTILL. The Holder agrees to
give the Company not less than 5 days' prior written notice of its intention to
accelerate the maturity of this Debenture pursuant to Section 4 hereof. The
Company will promptly notify holders of Senior Debt of any obligation to make
payments to be made under Section 7.
(e) PERMITTED PAYMENTS. So as to eliminate any doubt, except (as
to cash payments) as provided in Sections 13(b) and 13(c), payments under this
Debenture, and payments under the Registration Rights Agreement (whether in
cash or Common Stock (as applicable)) (collectively, "Permitted Payments")
shall be made by the Company on the terms of this Debenture and Registration
Rights Agreement, as the case may be.
(f) TURNOVER. If the Holder receives any cash payment or other
cash distribution on this Debenture (other than pursuant to a conversion) at a
time when such payment or distribution should not have been made to the Holder
by reason of this Section 13, such payment or distribution shall be deemed to
have been received and held in trust for the benefit of the holders of the
Senior Debt, and shall be segregated from other property of the Holder and be
paid and delivered as promptly as practicable to the holders of the Senior
Debt, as their interests may appear, for application to, or collateral for, the
payment or prepayment of the Senior Debt.
(g) RELATIVE RIGHTS. This Section 13 defines the relative rights
of the Holder and the holders of Senior Debt. Nothing herein shall:
(i) impair, as between the Company and the Holder, the
obligation of the Company, which is absolute and unconditional, to
pay principal of, premium, if any, and interest on this Debenture
in accordance with its terms and to fulfill its other obligations
hereunder; or
(ii) except as otherwise expressly provided herein, prevent
the Holder from exercising its available remedies upon a default,
subject to the rights of holders of Senior Debt to receive
distributions otherwise payable to the Holder.
(h) AGREEMENT TO COOPERATE. In the event that a payment may not
be made on the Debentures as a result of the provisions of this Section 13,
including without limitation, as a result of an Insolvency Event or a default
on any Senior Debt, the Company shall, if requested by the Holder, reasonably
assist the Holder in attempting to purchase such Senior Debt or otherwise cure
such default so that the payment may be made on the Debenture. Nothing in this
Section 13(h) shall obligate the Holder to purchase such Senior Debt or to
attempt to cure any such default.
(i) CONVERSION. Notwithstanding anything to the contrary
contained in this Section 13, nothing in this Section 13 shall restrict the
rights of the Holder (i) to convert the Debenture in accordance with its terms,
including, without limitation, after an Insolvency Event and during the pendency
of a default on Senior Debt or (ii) to receive shares of Common Stock on account
of interest payments due under this Debenture.
(j) DEFINITIONS.
(i) "Bank Credit Agreement" shall mean that certain credit
agreement by and between the Company and Comerica Bank, as the same
may be amended, supplemented or otherwise modified from time to
time, as well as any future credit agreement that may be executed
by the Company and Comerica Bank or another financial institution
that replaces Comerica Bank as the Company's primary commercial
bank or lending institution.
(ii) "Bankruptcy Code" means the Bankruptcy Reform Act of
1978, 11 U.S.C. Section 101 ET SEQ., or any successor statute
thereto.
(iii) "Insolvency Event" means (i) any winding-up,
insolvency, bankruptcy,
liquidation or reorganization of the Company, whether voluntary or
involuntary, (ii) any proceeding or case for reorganization,
liquidation, bankruptcy, dissolution or other winding-up of the
Company or its assets, whether or not involving insolvency or
bankruptcy, (iii) any assignment by the Company for the benefit of
creditors or (iv) any receivership or other similar proceeding or
any marshalling of assets of the Company.
(iv) "Senior Debt" means all obligations and liabilities of
the Company, whether for or on account of principal, reimbursement
obligations, accrued and unpaid interest (including without
limitation all interest accruing on and after an Insolvency Event),
fees, expenses, indemnities and other amounts payable under or in
connection with the Bank Credit Agreement and all documents or
instruments executed in connection therewith, whether outstanding
on the date of issuance of this Debenture or hereafter created,
assumed or incurred, not to exceed $4,000,000 in the aggregate,
provided that in the event of a Change in Control Transaction such
amount may be increased to $7,500,000.
14. WAIVERS OF DEMAND, ETC. The Company hereby expressly and
irrevocably waives demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of acceleration or
intent to accelerate, bringing of suit and diligence in taking any action to
collect amounts called for hereunder and will be directly and primarily liable
for the payment of all sums owing and to be owing hereon, regardless of and
without any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
15. REPLACEMENT DEBENTURE. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed, replacement
Debenture(s) identical in all respects to the original Debenture(s) (except for
registration number and Outstanding Principal Amount, if different than that
shown on the original Debenture(s)), shall be issued to the Holder, provided
that the Holder executes and delivers to the Company an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such Debenture.
16. PAYMENT OF EXPENSES; ISSUE TAXES. The prevailing party in any
litigation with respect to this Debenture shall be reimbursed by the losing
party for all debts and expenses, including attorneys' fees, which may be
incurred by such prevailing party in enforcing the provisions of this Debenture
and/or collecting any amount due under this Debenture, the Purchase Agreement,
any Warrant or the Registration Rights Agreement. The Company shall pay any
and all issue and other taxes (excluding any income, franchise or similar
taxes) that maybe payable in respect of any issue or delivery of Common Shares
on conversion of any Debenture pursuant hereto.
17. DEFAULTS. If one or more of the following described "Events of
Default" shall occur:
(a) The Company shall default in the payment of (i) interest on
this Debenture (subject to the Company's option to pay Common Stock Interest),
and such default shall continue for three (3) business days after the due date
thereof, or (ii) the principal of this Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Purchase Agreement, the Registration Rights Agreement, any
Warrant or in any certificate or financial or other statements heretofore or
hereafter furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture or such other documents shall be false
or
misleading in any material respect at the time made and the breach of which
has (or with the passage of time will have) a material adverse effect on the
rights of the Holder with respect to this Debenture, the Purchase Agreement or
the Registration Rights Agreement or such effect substantially diminishes the
value of the Holder's investment in the Company; or
(c) The Company shall fail in any material respect to perform or
observe any covenant or agreement in the Purchase Agreement, or any other
covenant, term, provision, condition, agreement or obligation of the Company
under this Debenture and such failure shall continue uncured for a period of
three (3) business days after notice from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing
its inability to pay its debts generally as they mature; (3) make an assignment
for the benefit of creditors or commence proceedings for its dissolution; or
(4) apply for or consent to the appointment of a trustee, liquidator or
receiver for it or for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within thirty (30) days after such
appointment; or
(f) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of the Company
and shall not be dismissed within thirty (30) days thereafter; or
(g) The Company shall sell or otherwise transfer all or
substantially all of its assets, if such sale or transfer is effected before
thirty (30) days have elapsed after the Effectiveness Date, such 30 days to be
extended one (1) day for each day after such date on which there is not
Effective Registration; or
(h) Bankruptcy, insolvency or liquidation proceedings or other
proceedings, under any bankruptcy law or any law for the relief of debt shall
be instituted by or against the Company and, if instituted against the Company
shall not be dismissed within thirty (30) days after such institution, or the
Company shall by any action or answer approve of, consent to, or acquiesce in
any such proceedings or admit to any material allegations of, or default in
answering a petition filed in any such proceeding; or
(i) The Company shall be in default of any of its indebtedness
that gives the holder thereof the right to accelerate $500,000 or more in such
indebtedness; or
(j) A "going private" transaction under Rule 13e-3 promulgated
pursuant to
the Exchange Act shall have been announced; or
(k) A tender offer by the Company under Rule 13e-4 promulgated
pursuant to the Exchange Act shall have been announced;
THEN, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider the
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein
or in any other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law. In such event, the Debenture shall be
redeemed at a redemption price per Debenture equal to 120% of the Outstanding
Principal Amount of the Debenture, plus accrued but unpaid interest and default
payments on the Debenture.
18. SAVINGS CLAUSE. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby, and such provision shall remain
effective in all other jurisdictions.
19. ENTIRE AGREEMENT. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
20. ASSIGNMENT, ETC. The Holder may transfer or assign this Debenture
or any interest herein and may mortgage, encumber or transfer any of its rights
or interest in and to this Debenture or any part hereof upon the consent of the
Company (such consent not to be unreasonably withheld), and, without
limitation, each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to transfer or assign its
interest. No such consent of the Company will be required for any transfer or
assignment to (i) an affiliate or affiliates of the Holder or (ii) any person
or entity whose investments are managed by an investment adviser that is the
same as, or an affiliate of, the investment manager of the Holder. Each such
assignee, transferee and mortgagee shall have all of the rights of the Holder
under this Debenture. The Company agrees that, subject to compliance with the
Purchase Agreement, after receipt by the Company of written notice of
assignment from the Holder or from the Holder's assignee, all principal,
interest and other amounts which are then and thereafter become due under this
Debenture shall be paid to such assignee at the place of payment designated in
such notice. This Debenture shall be binding upon the Company and its
successors and affiliates and shall inure to the benefit of the Holder and its
successors and assigns.
21. NO WAIVER. No failure on the part of the Holder to exercise, and
no delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
22. CERTIFICATE FOR CONVERSION PRICE ADJUSTMENT. The Company shall,
upon the written request at any time of any Holder of Debentures, furnish or
cause to be furnished to such Holder a certificate prepared by the chief
financial officer of Company setting forth any adjustments or readjustments of
the Conversion Price pursuant to this Debenture.
23. NOTICES. The Company shall distribute to the Holders of Debentures
copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed
generally to the holders of shares of Common Stock of the Company, at such
times and by such method as such documents are distributed to such holders of
such Common Stock, but shall not directly or indirectly provide material
non-public information to the Holder without such Holder's prior written
consent.
24. SPECIFIC ENFORCEMENT. The Company agrees that irreparable damage
would occur in the event that any of the provisions of this Debenture were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the Holders of Debentures shall be entitled to
swift specific performance, injunctive relief or other equitable remedies to
prevent or cure breaches of the provisions of this Debenture and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which any of them may be entitled under agreement, at law or in
equity.
25. MISCELLANEOUS. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered, facsimiled or mailed to said party by
certified mail, return receipt requested, at its address set forth herein or
such other address as either may designate for itself in such notice to the
other and communications shall be deemed to have been received when delivered
personally or, if sent by mail or facsimile, then when actually received by the
party to whom it is addressed. Whenever the sense of this Debenture requires,
words in the singular shall be deemed to include the plural and words in the
plural shall be deemed to include the singular. Paragraph headings are for
convenience only and shall not affect the meaning of this document.
26. GOVERNING LAW; CONSENT TO JURISDICTION. THIS DEBENTURE SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS TO BE EXECUTED AND PERFORMED ENTIRELY
WITHIN SUCH STATE. THE COMPANY (I) HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURT LOCATED IN NEW YORK COUNTY, NEW
YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATED TO THIS DEBENTURE AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN
ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY
SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING
IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER. THE COMPANY CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AS
PROVIDED IN AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT
OR LIMIT ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
DATED: ---------------------------------------
ZITEL CORPORATION
By: ------------------------------------------
Name:
Title:
Address: 47211 Bayside Parkway
Fremont, California 94538
[SIGNATURE PAGE TO 3% CONVERTIBLE SUBORDINATED DEBENTURE OF
ZITEL CORPORATION]
EXHIBIT 1
(To be Executed by Registered Holder
in order to Convert Debenture)
CONVERSION NOTICE
FOR
3% CONVERTIBLE SUBORDINATED DEBENTURE DUE JUNE 15, 1999
The undersigned, as Holder of the 3% Convertible Subordinated Debenture Due
June 15, 1999 of ZITEL CORPORATION (the "Company"), in the outstanding
principal amount of U.S.$------------- (the "Debenture"), hereby irrevocably
elects to convert that portion of the outstanding principal amount of the
Debenture shown on the next page into shares of Common Stock, no par value per
share (the "Common Stock"), of the Company according to the conditions of the
Debenture, as of the date written below. The undersigned hereby requests that
share certificates for the Common Stock to be issued to the undersigned
pursuant to this Conversion Notice be issued in the name of, and delivered to,
the undersigned or its designee as indicated below. If shares are to be issued
in the name of a person other than the undersigned, the undersigned will pay
all transfer taxes payable with respect thereto. No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any.
Holder acknowledges and confirms that the Common Stock issued pursuant to this
Notice of Conversion has been or will be sold in accordance with the prospectus
delivery requirements of the Securities Act of 1933, if applicable, or pursuant
to an exemption under such Act.
Conversion Information: NAME OF HOLDER:---------------------------
By: ---------------------------------------
Print Name: -------------------------------
Print Title: ------------------------------
Print Address of Holder:
-------------------------------------------
-------------------------------------------
Issue Common Stock to: --------------------
at: --------------------------------------
Electronically transmit and credit Common Stock
to: ---------------------------------------
at: ---------------------------------------
-------------------------------------------
Date of Conversion
-------------------------------------------
Applicable Conversion Rate
THE COMPUTATION OF THE NUMBER OF COMMON SHARES TO
BE RECEIVED IS SET FORTH ON THE ATTACHED PAGE
PAGE 2 TO CONVERSION NOTICE FOR: ---------------------------------------
(NAME OF HOLDER)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
A. Outstanding Principal Amount converted: $----------
B. Accrued, unpaid interest on Outstanding
Principal Amount converted: $----------
C. Default payments due Holder: $----------
-----------------
TOTAL DOLLAR AMOUNT CONVERTED (TOTAL OF A + B + C) $----------
-----------------
-----------------
EXCHANGE PRICE $----------
Number of Shares of Common Stock = TOTAL DOLLAR AMOUNT CONVERTED = $-----------
Conversion Price $-----------
NUMBER OF SHARES OF COMMON STOCK = -------------
If the conversion is not being settled by DTC, please issue and deliver ----
certificate(s) for shares of Common Stock in the following amount(s):
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- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
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Please issue and deliver ------ new Debenture(s) in the following amounts:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
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EXHIBIT 2
COMMON STOCK STATEMENT
Date:-------------
To: [NAME OF HOLDER OF DEBENTURE] ("Holder")
RE: 3% CONVERTIBLE SUBORDINATED DEBENTURE DUE JUNE 15, 1999 ("DEBENTURE") OF
ZITEL CORPORATION (THE "COMPANY"), IN THE FACE PRINCIPAL AMOUNT OF US$--------.
In lieu of paying interest on the above-referenced Debenture in
coin or currency, the Company hereby elects to pay interest on the Debenture,
for the Interest Payment Date indicated below, by issuing to the Holder
registered Common Stock of the Company, no par value per share. The Company
will issue certificates for the Common Stock to be issued pursuant to this
Common Stock Statement in the name of, and will deliver the same to, the Holder
or its designee. If shares are to be issued in the name of a person other than
the Holder, the Holder will pay all transfer taxes payable with respect
thereto. No other fee will be charged to Holder. The Company hereby certifies
to the Holder, its successors and assigns that the Common Shares due pursuant
to this Common Stock Statement equals the amount indicated below. Capitalized
terms used in this Common Stock Statement and not otherwise defined shall have
the meaning ascribed thereto in the Debenture.
Interest Payment Date: -------------------
Interest Due to Holder on
Number of Shares of Common Stock = Interest Payment $------------
--------------------------
Conversion Price $------------
(determined as if Interest Payment Date were a Holder Conversion Date)
NUMBER OF SHARES OF COMMON STOCK = -------------------------
IN WITNESS WHEREOF, this Common Stock Statement has been duly executed
and delivered on the date first written above.
ZITEL CORPORATION
By: ------------------------------------
Print Name:
Print Title: