Exhibit 10.4
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
TILE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING TILE FOREGOING, THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES, PROVIDED THAT ANY EXERCISE OF
ANY RIGHTS BY ANY SECURED PARTY SHALL COMPLY WITH THESE LEGEND REQUIREMENTS.
No. __ $______
Date: __________
GURUNET CORPORATION
8% SENIOR SECURED CONVERTIBLE NOTE DUE
JANUARY 30, 2005
THIS NOTE is one of a series of duly authorized and issued Notes of
GuruNet Corporation, a Delaware corporation (the "COMPANY"), designated as its
8% Senior Secured Convertible Notes due on the earlier to occur of (a) January
30, 2005 and (b) the IPO Event, in the aggregate principal amount of $5,000,000
(the "NOTES").
FOR VALUE RECEIVED, the Company promises to pay to the order of
_________ or its registered assigns (the "HOLDER"), the principal sum of
___________ ($______), on the earlier to occur of (a) January 30, 2005 and (b)
the IPO Event (the "MATURITY DATE"), or such earlier date as the Notes are
required or permitted to be repaid as provided hereunder, and to pay interest to
the Holder on the aggregate unconverted and then outstanding principal amount of
this Note in accordance with the provisions hereof. This Note is subject to the
following additional provisions.
1. DEFINITIONS. In addition to the terms defined elsewhere in this
Note, (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Securities Purchase Agreement, dated as of
January 30, 2004, among the Company and the Purchasers identified therein (the
"PURCHASE AGREEMENT"), and (b) the following terms have the meanings indicated:
"CONVERSION DATE" means the date a Conversion Notice is
delivered, to the Company together with the Conversion Schedule
pursuant to Section 5(a).
"CONVERSION NOTICE" means a written notice in the form
attached hereto as EXHIBIT A.
"CONVERSION PRICE" means the product of (i) 0.75 and (ii) the
IPO Price; provided, however, that (a) if in connection with the IPO
Event, any governmental agency or self-regulatory organization requires
contractual restrictions on sales by the Purchasers of the Underlying
Shares that are more stringent than the contractual restrictions
contained in the Purchaser Lock-up Letter, then the Conversion Price
shall equal the product of (i) 0.50 and (ii) the IPO Price; or (b) if
there is an Offering Termination, then the Conversion Price shall equal
$4.50. The Conversion Price is subject to adjustment from time to time
as provided in Section 11.
"EQUITY CONDITIONS" means, with respect to a specified
issuance of Common Stock, that each of the following conditions is
satisfied: (i) the number of authorized but unissued and otherwise
unreserved shares of Common Stock is sufficient for such issuance; (ii)
such shares of Common Stock are included in the Registration Statement
filed in connection with the IPO Event or another Registration
Statement; (iii) such issuance would be permitted in full without
violating SECTION 12 hereof; (iv) no Bankruptcy Event has occurred; (v)
the Company is not in default (after giving effect to any applicable
notice requirements and cure periods) with respect to any material
obligation hereunder or under any other Transaction Document; and (vi)
no public announcement of a pending or proposed Change of Control
transaction has occurred that has not been consummated.
"EVENT EQUITY VALUE" means 115% of either (A) if the Common
Stock is not then listed or quoted on an Eligible Market, the fair
market value of such Underlying Shares as of the date of delivery of
the notice requiring payment of the Equity Event Value, as determined
by an independent investment bank selected by both the Company and the
Lead Purchaser, or (B) if Common Stock is then listed or quoted on an
Eligible Market, the average of the Closing Prices for the five
Business Days preceding the date of delivery of the notice requiring
payment of the Event Equity Value, PROVIDED, HOWEVER, that if the
Company does not make such required payment (together with any other
payments, expenses and liquidated damages then due and payable under
the Transaction Documents) when due or, in the event the Company
disputes in good faith the occurrence of the Triggering Event pursuant
to which such notice relates, does not instead deposit such required
payment (together with such other payments, expenses and liquidated
damages then due and payable under the Transaction Documents) in escrow
with an independent third-party escrow agent within five Business Days
of the date such required payment is due, then the Event Equity Value
shall be 115% of either (A) if Common Stock is not then listed or
quoted on an Eligible Market, the fair market value of such Underlying
Shares either (1) as of the date of delivery of the notice requiring
the payment of Event Equity Value or (II) as of the date on which such
required payment (together with such other payments, expenses and
liquidated damages then due and payable under the Transaction
Documents) is paid in full, whichever is greater, and in either case,
as determined by an independent investment bank selected by both the
Company and the Lead Purchaser, or (B) if Common Stock is then listed
or quoted on an Eligible Market, the average of the Closing Prices for
the five Business Days preceding
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either (1) the xxxx of delivery of the notice requiring the payment of
Event Equity Value or (II) the date on which such required payment
(together with such other payments, expenses and liquidated damages
then due and payable under the Transaction Documents) is paid in full,
whichever is greater.
"IPO PRICE" means the offering price in connection with the
initial public offering of units consisting of a share of the Company
Common Stock and a warrant to purchase a share of the Company Common
Stock as set forth in the final prospectus Registration Statement filed
relating to the IPO Event, and which shall be $6.00 unless otherwise
set forth in an effective Registration Statement.
"OFFERING TERMINATION" has the meaning set forth in that
certain letter agreement between the Company and EarlyBirdCapital,
Inc., dated as of November 26, 2003
"ORIGINAL ISSUE DATE" means the date of the first issuance of
any Notes, regardless of the number of transfers of any particular
Note.
"TRIGGERING EVENT" means any of the following events: (a) the
occurrence of any Bankruptcy Event; (b) suspension of the exercise or
conversion rights of the Holders pursuant to the Transaction Documents
for any reason other than pursuant to Section 5(C) or Section 12; (c)
the Company fails to have available a sufficient number of authorized
but unissued and otherwise unreserved shares of Common Stock available
to issue Underlying Shares upon any exercise of the Warrants or any
conversion of the Notes; (d) the Company fails to make any cash payment
required under the Transaction Documents and such failure is not cured
within five days after notice of such default is first given to the
Company by a Purchaser; or (e) any Event occurs and remains uncured for
60 days.
2. PRINCIPAL AND INTEREST.
(a) The Company shall pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this
Note at the rate of 8% per annum, payable in cash, upon the Maturity
Date; provided, however, that if the IPO Event does not occur on or
prior to July 1, 2004, then all accrued and unpaid interest on this
Note shall be payable on such date and shall be payable on each one
month anniversary thereafter. Interest shall be calculated on the basis
of a 360-day year and shall accrue daily and be compounded monthly
commencing on the Original Issue Date.
(b) The Company shall pay the outstanding principal
amount of the Note to the Holder on the Maturity Date.
(c) Following an Offering Termination, the Company
may prepay without penalty or premium all or any portion of the
outstanding principal amount and any accrued but unpaid interest
thereon under this Note upon not less than 10 days prior written
notice.
3. REGISTRATION OF NOTES. The Company shall register the Notes upon
records to be maintained by the Company for that purpose (the "NOTE REGISTER")
in the name of each record holder thereof from time to time. The Company may
deem and treat the registered Holder of this
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Note as the absolute owner hereof for the purpose of any conversion hereof or
any payment of interest hereon, and for all other purposes, absent actual notice
to the contrary.
4. REGISTRATION OF TRANSFERS AND EXCHANGES. No transfer of any portion
of this Note shall be effected without complying with the legend requirements
set forth in Section 4.1 of the Purchase Agreement. The Company shall register
the transfer of any portion of this Note in the Note Register upon surrender of
this Note to the Company at its address for notice set forth herein. Upon any
such registration or transfer, a new Note, in substantially the forth of this
Note (any such new Note, a "NEW NOTE"), evidencing the portion of this Note so
transferred shall be issued to the transferee and a New Note evidencing the
remaining portion of this Note not so transferred, if any, shall be issued to
the transferring Holder. The acceptance of the New Note by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Note. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge or other fee
will be imposed in connection with any such registration of transfer or
exchange.
5. CONVERSION.
(a) AT THE OPTION OF THE HOLDER. All or any portion
of the principal amount of this Note then outstanding shall be
convertible into shares of Common Stock at the Conversion Price
(subject to limitations set forth in Section 5(c)), at the option of
the Holder, at any time and from time to time from and after the
Original Issue Date. The Holder shall effect conversions under this
Section 5(a), by delivering to the Company a Conversion Notice together
with a schedule in the form of SCHEDULE I attached hereto (the
"CONVERSION SCHEDULE"). The number, of Underlying Shares issuable upon
any conversion hereunder shall (subject to limitations set forth in
Section 5(c)) equal the outstanding principal amount of this Note to be
converted divided by the Conversion Price. If the Holder is converting
less than all of the principal amount represented by this Note, or if a
conversion hereunder may not be effected in full due to the application
of Section 5(c), the Company shall honor such conversion to the extent
permissible hereunder and shall promptly deliver to the Holder a
Conversion Schedule indicating the principal amount which has not been
converted. If, in connection with the consummation of the IP0 Event, a
Holder desires to convert any principal amount of this Note in excess
of the principal amount subject to an Automatic Conversion (as defined
below), then the Holder must notify the Company of such conversion in
accordance with the terms hereof by no later than 10 Business Days
after delivery of notice from the Company that it has received the
initial comments on the Registration Statement from the Commission or
has received notice that the Commission will not be reviewing the
Registration Statement. Any such conversion election by a Holder will
be irrevocable and will be deemed an Automatic Conversion and shall
occur on the Automatic Conversion Date (as defined below).
(b) AT THE OPTION OF THE COMPANY. Upon the earlier to
occur of (1) the consummation of the IPO Event and (2) the Effective
Date, the Company may cause 50% of the principal amount of this Note
then outstanding to be automatically converted into fully paid
non-assessable shares of Common Stock (such conversion, an "AUTOMATIC
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CONVERSION") at the Conversion Price (subject to the limitations set
forth in Sections 5(c) and 12), by delivery of a notice (the "AUTOMATIC
CONVERSION Notice") to the Holder, which notice shall describe the
Automatic Conversion; provided, however, that the Company may not cause
an Automatic Conversion unless as of the "Automatic Conversion Date"
(as defined below), the Equity Conditions are satisfied with respect to
all of the Underlying Shares then issuable under the Transaction
Documents. Upon an Automatic Conversion in accordance with the
procedures specified in this Section 5(b), and effective as of the
close of business on the Automatic Conversion Date, this Note shall be
converted into fully paid and non-assessable shares of Common Stock
automatically without the need for any further action by the Holder.
Upon the occurrence of such Automatic Conversion of this Note, there
shall be issued and delivered to the Holder a certificate or
certificates for the number of shares of Common Stock into which this
Note were convertible on the Automatic Conversion Date. For purposes of
this Section 5(b), the "AUTOMATIC CONVERSION DATE" shall mean the date
of the IPO Event.
(c) Certain Conversion Restrictions. Notwithstanding
anything to the contrary contained herein, the number of shares of
Common Stock that may be acquired by a Holder upon any conversion of
Notes (or otherwise in respect hereof) shall be limited to the extent
necessary to insure that, following such conversion (or other
issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with such
Holder's for purposes of Section 13(d) of the Exchange Act, does not
exceed 9.999% (the "PERCENTAGE CAP") of the total number of issued and
outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such conversion). For such
purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Additionally, by written notice to the Company,
the Holder may waive the provisions of this Section 5(c) or increase or
decrease the Percentage Cap to any other percentage specified in such
notice, but (i) any such waiver or increase will not be effective until
the 61st day after such notice is delivered to the Company, and (ii)
any such waiver or increase or decrease will apply only to the Holder
and not to any other holder of Warrants. The Company shall have no
obligation to determine the beneficial ownership of any Holder and its
Affiliates and any other Persons whose beneficial ownership of Common
Stock would be aggregated with the Holder's for purposes of Sections
13(d) and 16 of the Exchange Act. This provision shall not restrict the
number of shares of Common Stock which a Holder may receive or
beneficially own in order to determine the amount of securities or
other consideration that such Holder may receive in the event of a
merger, sale or other business combination or reclassification
involving the Company as contemplated herein.
6. MECHANICS OF CONVERSION.
(a) The number of Underlying Shares issuable upon any
conversion hereunder shall equal (i) the outstanding principal amount
of this Note to be converted, divided by the
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Conversion Price on the Conversion Date, plus (ii) the amount of any
accrued but unpaid interest on this Note through the Conversion Date,
divided by the Conversion Price on the Conversion Date, unless such
interest is paid in cash by the Company on the Conversion Date.
(b) Upon conversion of this Note and receipt of the
Conversion Notice, the Company shall promptly (but in no event later
than three Business Days after the Conversion Date or the tenth
Business Day after a Conversion Date that is on or following the IP0
Event) issue or cause to be issued and cause to be delivered to or upon
the written order of the Holder and in such name or names as the Holder
may designate a certificate for the Underlying Shares issuable upon
such conversion, free of restrictive legends, unless required by the
Purchase Agreement. The Holder, or any Person so designated by the
Holder to receive Underlying Shares, shall be deemed to have become
holder of record of such Underlying Shares as of the Conversion Date.
The Company shall, upon request of the Holder, use its commercially
reasonable efforts to deliver Underlying Shares hereunder
electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions.
(c) The Holder shall not be required to deliver the
original Note in order to effect a conversion hereunder. The Holder
agrees to use reasonable efforts to deliver the original Note to the
Company for cancellation within 5 Business Days of such conversion.
Automatic Conversion pursuant -to Section 5(b) and any conversion
effected in accordance with the last two sentences of Section 5(a)
shall have the same effect as cancellation of the original Note and, if
applicable, issuance of a New Note representing the remaining
outstanding principal amount. Upon surrender of this Note following one
or more partial conversions, the Company shall promptly deliver to the
Holder a New Note representing the remaining outstanding principal
amount.
(d) The Company's obligations to issue and deliver
Underlying Shares upon conversion of this Note in accordance with the
terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Underlying Shares.
(e) If by (x) the third Business Day after a
Conversion Date that is prior to the IP0 Event, or (y) the tenth
Business Day after a Conversion Date that is on or following the IP0
Event, the Company fails to deliver to the Holder such Underlying
Shares in such amounts and in the manner required pursuant to Section
6, then the Holder will have the right to rescind such conversion. .
(f) If by the third Business Day after a Conversion
Date the Company fails to deliver to the Holder such Underlying Shares
in such amounts and in the manner required pursuant to Section 6, and
if after such third Business Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
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satisfaction of a sale by such Holder of the Underlying Shares which
the Holder anticipated receiving upon such conversion (a "BUY-IN"),
then the Company shall either (i) pay cash to such Purchaser in an
amount equal to such Purchaser's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so
purchased (the "BUY-IN Price"), at which point the Company's obligation
to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to such
Purchaser a certificate or certificates representing such Common Stock
and pay cash to such Purchaser in an amount equal to the excess (if
any) of the Buy-In Price over the product of (A) such number of shares
of Common Stock, times (B) the Closing Price on the date of the event
giving rise to the Company's obligation to deliver such certificate.
7. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT" means any one of the following
events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
(i) any default in the payment (free of any claim of
subordination) of principal, interest or liquidated damages in respect
of any Notes, as and when the same becomes due and payable (whether on
a Conversion Date or the Maturity Date or by acceleration or prepayment
or otherwise);
(ii) the Company or any Subsidiary defaults in any of
its obligations under any other note or any mortgage, credit agreement
or other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Company or
any Subsidiary in an amount exceeding $100,000, whether such
indebtedness now exists or is hereafter created, and such default
results in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable;
(iii) the occurrence of a Triggering Event other than
as a result of an occurrence described in clause (e) of the definition
thereof;
(iv) the occurrence of a Change of Control;
(v) the Company breaches Section 4.9 of the Purchase
Agreement;
(vi) the occurrence of an Offering Termination;
(vii) following the Effective Date, the effectiveness
of the Registration Statement lapses for any reason, or the Company
fails to deliver a certificate evidencing any Securities to a Purchaser
within 10 days after delivery of such certificate is required pursuant
to any Transaction Document, or the Holder is not permitted to resell
the
7
Securities under the Registration Statement or under Rule 144, in any
case, for more than 20 Business Days (which need not be consecutive
Business Days); or
(viii) the Company defaults in the timely performance
of any other obligation under the Transaction Documents that is not
subject to a good faith dispute by the Company and such default
continues uncured for a period of twenty Business Days after the date
on which notice of such default is first given to the Company by the
Holder (it being understood that no prior notice need be given in the
case of a default that cannot reasonably be cured within twenty
Business Days).
(b) At any time or times following the occurrence of
an Event of Default, the Holder shall have the option to elect, by
notice to the Company (an "EVENT NOTICE"), to require the Company to
repurchase all or any portion of (i) the outstanding principal amount
of this Note, at a repurchase price equal to the greater of (A) 115% of
such outstanding principal amount, plus all accrued but unpaid interest
thereon through the date of payment, or (B) the Event Equity Value of
the Underlying Shares issuable upon conversion of such principal
amount, plus all accrued but unpaid interest thereon through the date
of payment, and (ii) solely in the case of an Event of Default
described in Section 7(a)(vii), any Underlying Shares issued to such
Holder upon conversion of Notes, at a price per share equal to the
Event Equity Value of such Underlying Shares. The aggregate amount
payable pursuant to the preceding sentence is referred to as the "EVENT
PRICE." The Company shall pay the aggregate Event Price to the Holder
no later than the third Business Day following the date of delivery of
the Event Notice, and upon receipt thereof the Holder shall deliver the
original Note and original certificates evidencing any Underlying
Shares so repurchased to the Company (to the extent such documents have
been delivered to the Holder).
(c) Upon the occurrence of any Bankruptcy Event, all
outstanding principal and accrued but unpaid interest on this Note
shall immediately become due and payable in full in cash, without any
further action by the Holder, and the Company shall immediately be
obligated to repurchase this Note and all such Underlying Shares at the
Event Price pursuant to the preceding paragraph as if the Holder had
delivered an Event Notice immediately prior to the occurrence of such
Bankruptcy Event.
(d) In connection with any Event of Default, the
Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and
all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Any such declaration may be
rescinded and annulled by the Holder at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereto.
8. RANKING. No indebtedness of the Company is senior to or pari passu with this
Note (and the other Notes) in right of payment, whether with respect of
interest, damages or upon liquidation or dissolution or otherwise. The Company
will not, and will not permit any Subsidiary to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness for borrowed
money, on or with respect to any of its property or assets now owned
8
or hereafter acquired or any interest therein or any income or profits
therefrom, that is senior or pari passu in any respect to the Company's
obligations under the Notes. So long as any Notes are outstanding, (i) neither
the Company nor any Subsidiary shall, directly or indirectly, redeem, purchase
or otherwise acquire any capital stock or set aside any monies for such a
redemption, purchase or other acquisition, and (ii) the Company shall not pay or
declare any dividend or make any distribution on any capital stock, except stock
dividends on the Common Stock payable in additional shares of Common Stock.
9. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Underlying
Shares upon conversion of (or otherwise in respect of) this Note shall be made
without charge to the Holder for any issue or transfer tax, withholding tax,
transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid by the
Company; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Underlying Shares or Notes in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Note or receiving Underlying
Shares in respect hereof.
10. RESERVATION OF UNDERLYING SHARES. The Company covenants that it
will at all times reserve and keep available out of the aggregate of its
authorized but unissued and otherwise unreserved Common Stock, solely for the
purpose of enabling it to issue Underlying Shares as required hereunder, the
number of Underlying Shares which are then issuable and deliverable upon the
conversion of (and otherwise in respect of) this entire Note (taking into
account any adjustments that may be required by SECTION 11), free from
preemptive rights or any other contingent purchase rights of persons other than
the Holder. The Company covenants that all Underlying Shares so issuable and
deliverable shall, upon issuance in accordance with the terms hereof, be duly
and validly authorized, issued and fully paid and nonassessable. The Company
covenants that it shall keep the Registration Statement continuously effective
until the Maturity Date.
11. CERTAIN ADJUSTMENTS. The Conversion Price is subject to adjustment
from time to time as set forth in this SECTION 11.
(a) STOCK DIVIDENDS AND SPLITS. If the Company, at
any time while this Note is outstanding, (i) pays a stock dividend on
its Common Stock or otherwise makes a distribution on any class of
capital stock that is payable in shares of Common Stock, (ii)
subdivides outstanding shares of Common Stock into a larger number of
shares, or (iii) combines outstanding shares of Common Stock into a
smaller number of shares, then in each such case the Conversion Price
shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding immediately before such
event and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event. Any adjustment
made pursuant to clause (i) of this paragraph shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become,
effective immediately after the effective date of such subdivision or
combination.
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(b) PRO RATA DISTRIBUTIONS. If the Company, at any
time while this Note is outstanding, distributes to all holders of
Common Stock (i) evidences of its indebtedness, (ii) any security
(other than a distribution of Common Stock covered by the preceding
paragraph), (iii) rights or warrants to subscribe for or purchase any
security, or (iv) any other asset (in each case, "DISTRIBUTED
PROPERTY"), then, at the request of the Holder delivered before the
90th day after the record date fixed for determination of stockholders
entitled to receive such distribution, the Company will deliver to the
Holder, within five Business Days after such request (or, if later, on
the effective date of such distribution), the Distributed Property that
the Holder would have been entitled to receive in respect of the
Underlying Shares for which this Note could have been converted
immediately prior to such record date. If such Distributed Property is
not delivered to the Holder pursuant to the preceding sentence, then
upon any conversion of this Note that occurs after such record date,
the Holder shall be entitled to receive, in addition to the Underlying
Shares otherwise issuable upon such conversion, the Distributed
Property that the Holder would have been entitled to receive in respect
of such number of Underlying Shares had the Holder been the record
holder of such Underlying Shares immediately prior to such record date.
(c) FUNDAMENTAL TRANSACTIONS. If, at any time while
this Note is outstanding, (i) the Company effects any merger or
consolidation of the Company with or into another Person, (ii) the
Company effects any sale of all or substantially all of its assets in
one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (other than as a result of a subdivision or combination of
shares of Common Stock covered by Section 11(a) above) (in any such
case, a "FUNDAMENTAL Transaction"), then upon any subsequent conversion
of this Note, the Holder shall have the right to receive, for each
Underlying Share that would have been issuable upon such conversion
absent such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one
share of Common Stock (the "ALTERNATE CONSIDERATION"). If holders of
Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Note following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new Note consistent
with the foregoing provisions and evidencing the Holder's right to
convert such Note into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (c) and insuring that this
Note (or any such replacement security) will be similarly adjusted upon
any subsequent transaction analogous to a Fundamental Transaction.
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(d) SUBSEQUENT EQUITY SALES. The provisions of this
SECTION 11(D) shall only apply prior to the IPO Event.
(i) If, at any time while this Note is outstanding,
the Company or any Subsidiary issues additional shares of Common Stock
or rights, warrants, options or other securities or debt convertible,
exercisable or exchangeable for shares of Common Stock or otherwise
entitling any Person to acquire shares of Common Stock (collectively,
"COMMON STOCK EQUIVALENTS") at an effective net price to the Company
per share of Common Stock (the "EFFECTIVE PRICE") less than the
Conversion Price (as adjusted hereunder to such date), then the
Conversion Price shall be reduced to equal the Effective Price. If, at
any time while this Note is outstanding, the Company or any Subsidiary
issues Common Stock or Common Stock Equivalents at an Effective Price
greater than the Conversion Price (as adjusted hereunder to such date)
but less than the average Closing Price over the five Business Days
prior to such issuance (the "ADJUSTMENT PRICE"), then the Conversion
Price shall be reduced to equal the product of (A) the Conversion Price
in effect immediately prior to such issuance of Common Stock or Common
Stock Equivalents times (B) a fraction, the numerator of which is the
sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issuance, plus (2) the number of shares of Common Stock
which the aggregate Effective Price of the Common Stock issued (or
deemed to be issued) would purchase at the Adjustment Price, and the
denominator of which is the aggregate number of shares of Common Stock
outstanding or deemed to be outstanding immediately after such
issuance. For purposes of this paragraph, in connection with any
issuance of any Common Stock Equivalents, (A) the maximum number of
shares of Common Stock potentially issuable at any time upon
conversion, exercise or exchange of such Common Stock Equivalents (the
"DEEMED NUMBER") shall be deemed to be outstanding upon issuance of
such Common Stock Equivalents, (B) the Effective Price applicable to
such Common Stock shall equal the minimum dollar value of consideration
payable to the Company to purchase such Common Stock Equivalents and to
convert, exercise or exchange them into Common Stock (net of any
discounts, fees, commissions and other expenses), divided by the Deemed
Number, and (C) no further adjustment shall be made to the Conversion
Price upon the actual issuance of Common Stock upon conversion,
exercise or exchange of such Common Stock Equivalents.
(ii) If, at any time while this Note is outstanding,
the Company or any Subsidiary issues Common Stock Equivalents with an
Effective Price or, a number of underlying shares that floats or resets
or otherwise varies or is subject to adjustment based (directly or
indirectly) on market prices of the Common Stock (a "FLOATING PRICE
SECURITY"), then for purposes of applying the preceding paragraph in
connection with any subsequent conversion, the Effective Price will be
determined separately on each Conversion Date and will be deemed to
equal the lowest Effective Price at which any holder of such Floating
Price Security is entitled to acquire Common Stock on such Conversion
Date (regardless of whether any such holder actually acquires any
shares on such date).
(iii) Notwithstanding the foregoing, no adjustment
will be made under this paragraph (d) in respect of the issuance of
Excluded Stock.
11
(e) RECLASSIFICATIONS: SHARE EXCHANGES. In case of
any reclassification of the Common Stock, or any compulsory share
exchange pursuant to which the Common Stock is converted into other
securities, cash or property (other than compulsory share exchanges
which constitute Change of Control transactions), the Holders of the
Notes then outstanding shall have the right thereafter to convert such
shares only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common
Stock following such reclassification or share exchange, and the
Holders shall be entitled upon such event to receive such amount of
securities, cash or property as a holder of the number of shares of
Common Stock of the Company into which such shares of Notes could have
been converted immediately prior to such reclassification or share
exchange would have been entitled. This provision shall similarly apply
to successive reclassifications or share exchanges.
(f) CALCULATIONS. All calculations under this SECTION
11 shall be made to the nearest cent or the nearest 1/100th of a share,
as applicable. The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(g) NOTICE OF ADJUSTMENTS. Upon the occurrence of
each adjustment pursuant to this SECTION 11, the Company at its expense
will promptly compute such adjustment in accordance with the terms
hereof and prepare a certificate describing in reasonable detail such
adjustment and the transactions giving rise thereto, including all
facts upon which such adjustment is based. Upon written request, the
Company will promptly deliver a copy of each such certificate to the
Holder.
(h) NOTICE OF CORPORATE EVENTS. If the Company (i)
declares a dividend or any other distribution of cash, securities or
other property in respect of its Common Stock, including without
limitation any granting of rights or warrants to subscribe for or
purchase any capital stock of the Company or any Subsidiary, (ii)
authorizes or approves, enters into any agreement contemplating or
solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the
affairs of the Company, then the Company shall deliver to the Holder a
notice describing the material terms and conditions of such
transaction, at least 20 calendar days prior to the applicable record
or effective date on which a Person would need to hold Common Stock in
order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure
that the Holder is given the practical opportunity to convert this Note
prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice
or any defect therein shall not affect the validity of the corporate
action required to be described in such notice.
12. LIMITATION ON CONVERSION. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any conversion of this Note (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such
conversion (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
12
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the
"MAXIMUM PERCENTAGE") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such conversion). For such purposes, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. Each delivery of a Conversion Notice by
the Holder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Underlying Shares requested in such Conversion Notice is
permitted under this paragraph. By written notice to the Company, the Holder may
waive the provisions of this Section or increase or decrease the Maximum
Percentage to any other percentage specified in such notice, but (i) any such
waiver or increase will not be effective until the 61st day after such notice is
delivered to the Company, and (ii) any such waiver or increase or decrease will
apply only to the Holder and not to any other holder of Notes.
13. FRACTIONAL SHARES. The Company shall not be required to issue or
cause to be issued fractional Underlying Shares on conversion of this Note. If
any fraction of an Underlying Share would, except for the provisions of this
Section, be issuable upon conversion of this Note, the number of Underlying
Shares to be issued will be rounded up to the nearest whole share.
14. NOTICES. Any and all notices or other communications or deliveries
hereunder (including without limitation any Conversion Notice) shall be in
writing and shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day, (ii) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Business Day
or later than 6:30 p.m. (New York City time) on any Business Day, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, do Guru Technologies Israel Ltd., Building 98, Jerusalem
Technology Park, -P.O. Box 48253, Jerusalem 91481, ISRAEL, facsimile: (845)
818-3974, attention Chief Financial Officer, or (ii) if to the Holder, to the
address or facsimile number appearing on the Company's stockholder records or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section.
15. MISCELLANEOUS.
(a) This Note shall be binding on and inure to the
benefit of the parties hereto and their respective successors and
assigns. This Note may be amended only in writing signed by the Company
and the Holder and their successors and assigns.
(b) Subject to SECTION 15(A), above, nothing in this
Note shall be construed to give to any person or corporation other than
the Company and the Holder any legal or equitable right, remedy or
cause under this Note. This Note shall inure to the sole and exclusive
benefit of the Company and the Holder.
13
(c) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH
PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF
MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF
THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WANES, AND AGREES
NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS
NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT SUCH
SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED
IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA
REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF
DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT
UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED
HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS
IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO
A TRIAL BY JURY.
(d) The headings herein are for convenience only, do
not constitute a part of this Note and shall not be deemed to limit or
affect any of the provisions hereof.
(e) In case any one or more of the provisions of this
Note shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Note shall
not in any way be affected or impaired thereby and the parties will
attempt in good faith to agree upon a valid and enforceable provision,
which shall be a commercially reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Note.
(f) In the event of any stock split, subdivision,
dividend or distribution payable in shares of Common Stock (or other
securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination
or other similar recapitalization or event occurring after the date
hereof, each reference in this Note to a price shall be amended to
appropriately account for such event.
(g) No provision of this Note may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and the Holder
or, or, in the case of a waiver, by the Holder. No waiver of any default with
respect to any provision, condition or requirement of this Note shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default or
a waiver of any other provision, condition or requirement hereof nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
14
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a
duly authorized officer as of the date first above indicated.
GURUNET CORPORATION
By:
-----------------------------------------------
Name: Xxxxxx X. Xxxxxxxxxxx
Title: President and Chief Executive Officer
15
FORM OF CONVERSION NOTICE
(To be executed by the registered Holder
in order to convert Note)
The undersigned hereby elects to convert the specified principal amount of 8%
Senior Secured Convertible Notes (the "Notes") into shares of common stock, par
value $0.00 1 per share (the "Common Stock"), of GuruNet Corporation, a Delaware
corporation (the "Company"), according to the conditions hereof, as of the date
written below.
-------------------------------------------------------------
Date to Effect Conversion
-------------------------------------------------------------
Principal amount of Notes owned prior to conversion
-------------------------------------------------------------
Principal amount of Notes to be Converted
-------------------------------------------------------------
Number of shares of Common Stock to be Issued
-------------------------------------------------------------
Applicable Conversion Price
-------------------------------------------------------------
Principal amount of Notes owned subsequent to Conversion
-------------------------------------------------------------
Name of Holder
By:
----------------------------------------------------------
Name:
--------------------------------------------------------
Title:
-------------------------------------------------------
16
SCHEDULE 1
CONVERSION SCHEDULE
8% Senior Secured Convertible Notes due on the 12-month anniversary of the
Original Issue Date in the aggregate principal amount of $______ issued by
GuruNet Corporation. This Conversion Schedule reflects conversions made under
the above referenced Notes.
Dated:
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Date of Conversion Amount of Conversion Aggregate Principal Applicable Conversion Price
Amount Remaining
Subsequent to
Conversion
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17
