CD98-001
CONVERTIBLE DEBENTURE
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$100,000 July __, 1998
FOR VALUE RECEIVED, the undersigned, Medical Dynamics, Inc., a Colorado
corporation (the "Company"), promises to pay to the order of The Tail Wind Fund,
Ltd., or the holder hereof, on July __, 2003 ("Due Date"), the principal sum of
One Hundred Thousand Dollars ($100,000), or, if less, the unpaid principal
amount outstanding at such time, in either case together with all accrued and
unpaid interest thereon.
The Company also promises to pay interest semi-annually from the date
hereof on the principal amount hereof unpaid during such period (including
amounts converted during the period for the time such was outstanding) at a rate
of eight percent (8%) per annum. Interest on this Debenture shall be computed on
the basis of a 360-day year. Interest through the last day of the preceding
calendar semi-annual period shall be payable on or before the fifth day of each
January and July, commencing in January 1999.
This Debenture is one of the Debentures referred to in and issued pursuant
to the Purchase Agreement dated July __, 1998, between the Company and the
Investor named therein (the "Purchase Agreement"), and is entitled to the
benefits of, and subject to the terms and provisions of the Purchase Agreement.
Capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to them in the Purchase Agreement.
1. Payments
All payments by the Company hereunder shall be payable in lawful money of
the United States in immediately available funds by wire transfer to an account
designated in writing by the Investor, or in the case of conversion of principal
and, at the option of the Company, payment of interest, in shares of common
stock of the Company, par value $.001 per share (the "Common Stock"), valued at
the Conversion Price (for the conversion of principal) and at the Market Price
(for the payment of interest), not later than 5:00 p.m., Mountain time on the
day when due to the holder at the following address:
The Tail Wind Fund, Ltd.
c/o Mees Pierson Fund Services
Fourth Floor Xxxxxxx House
Dublin 2 IRELAND 1M14LE
United Kingdom
or at such other place as the holder hereof may from time to time designate in
writing to the Company. Whenever any payment to be made pursuant to this
Debenture shall be stated to be due on a public holiday, Saturday or Sunday,
such payment may be made on the next succeeding business day. Such extension of
time shall not in such case be included in computing interest, if any, in
connection with such payment.
2. Conversion of Debenture
(a) From time to time, until all unpaid principal and accrued and
unpaid interest under this Debenture is paid, the holder of this Debenture shall
have the right to convert (i) at any time from and after one hundred twenty
(120) days after the original issuance hereof, up to one-third of the principal
amount of this Debenture, (ii) at any time from and after one hundred eighty
(180) days after the original issuance hereof, up to an aggregate of two-thirds
of the principal amount of this Debenture, and (iii) at any time from and after
two hundred forty (240) days after the original issuance hereof, all of the
principal amount of this Debenture, in whole or in part, into an amount of duly
authorized, fully-paid and non-assessable shares of Common Stock determined by
dividing such principal amount to be so converted by the Conversion Price (as
hereinafter defined), and upon the terms and subject to the conditions
hereinafter specified in this Section 2. Any unpaid principal amount of this
Debenture outstanding on the Due Date, together with any accrued and unpaid
interest thereon, shall automatically convert to Common Stock at the Conversion
Price (defined below).
(b) In order to convert this Debenture into shares of Common Stock,
the holder shall: (i) fax a copy of the fully executed notice of conversion in
the form attached hereto ("Notice of Conversion") to the Company at the office
of the Company or its designated transfer agent, if any, for the Debentures,
which notice shall specify the amount of the Debenture to be converted, the
applicable Conversion Price, and a calculation of the number of shares of Common
Stock issuable upon such conversion (together with a copy of the first page of
this Debenture) prior to 5:00 p.m., Mountain time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion; and
(ii) surrender the original Debenture being converted, along with a copy of the
Notice of Conversion as soon as practicable thereafter to the office of the
Company or the transfer agent, if any, for the Debentures; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless either the Debenture
is delivered to the Company or its transfer agent as provided above, or the
holder notifies the Company or its transfer agent that such original Debenture
has been lost, stolen or destroyed. In the case of a dispute as to the
calculation of the Conversion Price, the Company shall promptly issue such
number of shares of Common Stock that are not disputed in accordance with
subparagraph (c) below. The Company shall submit the disputed calculations to
its outside accountant via facsimile within two (2) business days of receipt of
the Notice of Conversion. The accountant shall audit the calculations and notify
the Company and the holder of the results no later than 48 hours from the time
it receives the disputed calculations. The accountant's calculation shall be
deemed conclusive absent manifest error.
(c) Upon the surrender of the Debenture as described above accompanied
by the Notice of Conversion, the Company shall issue and, within two (2)
business days (the "Delivery Period") after such surrender (or, in the case of
lost, stolen or destroyed Debenture, after provision of an agreement and
indemnification by the holder to the Company), direct its transfer agent to
deliver to or upon the order of the holder (i) that number of shares of Common
Stock for the portion of the Debenture converted as shall be determined in
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accordance herewith and (ii) a new Debenture representing the balance of the
principal amount of the Debenture surrendered but not converted, if any. In
addition to any other remedies available to the holder, including actual damages
and/or equitable relief, the Company shall pay to the holder $250 in cash for
the third day beyond such Delivery Period that the Company fails to deliver
Common Stock issuable upon surrender of the Debenture with a Notice of
Conversion, and $500 per day in cash for each day thereafter, until such time as
the earlier of the date that the Company has delivered all such Common Stock and
the tenth day beyond such Delivery Period. Such cash amount shall be paid to
such holder by the fifth day of the month following the month in which it has
accrued. In the event the Company fails to deliver such Common Stock prior to
the expiration of five (5) business days after the Delivery Period for any
reason (whether due to a requirement of law or a stock exchange or otherwise),
the holder shall be entitled to a 1% discount on the Conversion Price for the
next conversion noticed by such holder to the Company. In the event the Company
fails to deliver such Common Stock prior to the expiration of the ten (10)
business day period after the Delivery Period for any reason (whether due to a
requirement of law or a stock exchange or otherwise), such holder shall be
entitled to (in addition to any other remedies available to the holder)
Conversion Default Payments in accordance with Section 2(h) hereof beginning on
the expiration of such ten (10) business day period.
(d) If any conversion of this Debenture would result in a fractional
share of Common Stock or the right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded.
(e) The "Conversion Date" shall be the date specified in the Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
faxed to the Company before 5:00 p.m., Mountain time, on the Conversion Date,
and (ii) that the original Debenture is surrendered along with a copy of the
Notice of Conversion as soon as practicable thereafter to the office of the
Company or the transfer agent for the Debentures. The person or persons entitled
to received the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such securities as of the
Conversion Date and all rights with respect to the Debenture fully surrendered
shall forthwith terminate except the right to receive the shares of Common Stock
or other securities or property issuable on such conversion.
(f) The Conversion Price per share ( "Conversion Price") at which
shares of Common Stock shall be issuable upon conversion of this Debenture shall
be equal to 100% of the Market Price on the business day immediately preceding
the Conversion Date; provided, however, that the Conversion Price shall not
exceed the Ceiling Price (defined below). "Market Price" shall mean the average
of the two lowest closing bid prices of the Common Stock as reported by The
Nasdaq Stock Market over the sixty trading day period ending on the date in
question. The "Ceiling Price" shall mean 120% of the average closing bid price
of the Common Stock for the twenty trading days prior to the effective date of
the registration statement contemplated by the Registration Rights Agreement
entered into by and between the parties on July __, 1998; provided, however,
that the Ceiling Price shall be adjusted effective upon the second anniversary
of the Purchase Agreement to 120% of the Market Price on such date, if such
adjustment would result in a lower price, but in no event shall the Ceiling
Price be adjusted to an amount less than $2.25.
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(g) In order to prevent dilution of the conversion rights granted
under this Section 2, the Conversion Price shall be subject to adjustment from
time to time as follows:
(i) If the Common Stock shall be changed into the same or a
different number of shares of any class or classes of capital stock, whether by
capital reorganization, recapitalization, reclassification or otherwise or in
the event of a merger or consolidation of the Company with or into another
corporation or the sale of substantially all of the Company's assets to any
other person, then and in each such event the holder of this Debenture shall
have the right thereafter to convert this Debenture or any portion thereof into
the kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification, merger,
consolidation, sale or other change by a holder of the number of shares of
Common Stock into which this Debenture might have been converted immediately
prior to such reorganization, recapitalization, reclassification, merger,
consolidation, sale or change.
(ii) If any event occurs of the type contemplated by the
provisions of this Section 2(g) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holder of this Debenture;
provided that no such adjustment shall increase the Conversion Price as
otherwise determined pursuant to this Section 2(g) or decrease the number of
shares of Common Stock issuable upon conversion of this Debenture.
(iii) Immediately upon any adjustment of the Conversion Price,
the Company shall give written notice thereof to the holder of this Debenture,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(h) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
effecting the conversion of this Debenture, such number of shares of Common
Stock as shall from time to time be issuable upon the conversion of this
Debenture; and if at any time the number of authorized but unissued and issued
but not outstanding shares of the Common Stock, on a fully diluted basis, shall
not be sufficient to effect the conversion of this Debenture at the Conversion
Price then in effect, the Company will take such corporate action as may be
necessary to increase its authorized but unissued or issued but not outstanding
shares of the Common Stock to such number of shares as shall be sufficient for
such purpose. The Company covenants that all shares of Common Stock which shall
be so issuable, when issued upon conversion of this Debenture, shall be duly and
validly issued, fully-paid and non-assessable. If at any time a holder submits a
Conversion Notice, the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Section 2 (a "Conversion Default"), the Company shall
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issue to the holder all of the shares of Common Stock which are available to
effect such conversion. The number of shares included in the Notice of
Conversion which exceeds the amount which is then convertible into available
shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock in
accordance with the terms hereof until (and at the holder's option at any time
after) the date additional shares of Common Stock are authorized by the Company
to permit such conversion, at which time the Conversion Price in respect thereof
shall be the lesser of (i) the Conversion Price on the Conversion Default Date
(as defined below) and (ii) the Conversion Price on the Conversion Date elected
by the holder in respect thereof. The Company shall pay to the holder payments
("Conversion Default Payments") for a Conversion Default in the amount of
(N/365), multiplied by the sum of the principal amount of the Debenture sought
to be converted, multiplied by the Excess Amount on the first day of the
Conversion Default (the "Conversion Default Date"), multiplied by .36, where N =
the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of shares
of Common Stock to effect conversion of the full amount of the Debenture. The
Company shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default Payments for
each calendar month shall be paid in cash or shall be convertible into Common
Stock at the Conversion Price, at the holder's option, as follows:
(i) In the event holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
(ii) In the event holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Section 2.
Nothing herein shall limit the holder's right to pursue actual damages for the
Company's failure to maintain a sufficient number of authorized shares of Common
Stock, and each holder shall have the right to pursue all remedies available at
law or in equity (including a decree of specific performance and/or injunctive
relief).
(i) Notwithstanding anything to the contrary herein, conversion of
this Debenture shall not be permitted, and the Company shall not pay any amounts
due to the holder of this Debenture in the form of shares of Common Stock, if
such conversion or payments would result in the holder of this Debenture owning
more than 4.99% of the issued and outstanding shares of Common Stock following
conversion or payment (such percentage to be calculated in accordance with Rule
13d-3 promulgated under the Securities Exchange Act of 1934).
(j) The issuance of certificates for shares of the Common Stock upon
the conversion of this Debenture shall be made without charge to the holder
hereof for any issuance tax in respect of the issuance of such certificates or
other cost incurred by the Company in connection with such conversion and the
related issuance of shares of Common Stock.
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3. Covenant. The Company agrees at all times that it will not, by any
amendment of the Company's Articles of Incorporation, or through any
consolidation, merger, reorganization, transfer of assets, dissolution, issue or
sale of securities or any other voluntary action, seek to avoid the observance
or performance hereof, but will at all times take such actions as are necessary
or appropriate in order to protect the rights of the holder of this Debenture.
4. Events of Default
(a) In addition to the Default provisions provided above in respect of
Conversion, an "Event of Default" shall exist if any of the following occurs and
is continuing:
(i) Failure to make any payment of principal or interest on the
Debenture when such payment is due, other than the final payment due on the Due
Date;
(ii) Failure to make payment of all outstanding principal and
interest on the Debenture on the Due Date;
(iii) Failure to comply with any other provision of this
Debenture and such failure continues for more than five (5) business days after
the holder hereof has given written notice of such failure to the Company;
(iv) The Common Stock is not listed or included for quotation on
The Nasdaq SmallCap Market System, The Nasdaq National Market System, the New
York Stock Exchange or the American Stock Exchange;
(v) Any levy, seizure, attachment, execution or similar process
shall be levied on a material portion of the Company's property; or
(vi) A receiver, custodian, liquidator or trustee of the Company,
or of any of the property of the Company, is appointed by court order; or the
Company is adjudicated bankrupt or insolvent; or any of the property of the
Company is sequestered by court order; or a petition to reorganize the Company
under any bankruptcy, reorganization or insolvency law is filed against the
Company and is not dismissed within sixty (60) days after such filing; or the
Company files a voluntary bankruptcy petition or requesting reorganization or
arrangement under any provision of any bankruptcy, reorganization or insolvency
law, or consents to the filing of any petition against it under any such law; or
the Company makes a general assignment for the benefit of its creditors, or
admits in writing its inability to pay its debts generally as they become due,
or consents to the appointment of a receiver, trustee or liquidator of the
Company or of all or any part of the property of the Company.
(b) If an Event of Default specified in Section 4(a)(i) exists, then
this Debenture shall accrue additional interest on all unpaid amounts of
principal and interest from the date of the Event of Default at a rate equal to
the greater of (i) fifteen percent (15%) per annum or (ii) the highest amount
allowable by law.
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(c) If an Event of Default other than an Event of Default specified in
Section 4(a)(i) exists, then the holder of this Debenture may exercise any
right, power or remedy conferred upon it by law, and shall have the right to
declare by written notice the entire principal and all interest accrued on such
Debenture to be, and such Debenture shall thereupon become, forthwith due and
payable without any declaration, presentment, demand, protest or notice of any
kind. The Company shall forthwith pay to the holder of this Debenture the entire
principal and interest accrued on such Debenture.
5. Registration. The initial holder of this Debenture is entitled to the
benefit of certain registration rights in respect of the shares of Common Stock
into which this Debenture may be coverted pursuant to that Registration Rights
Agreement dated effective July __, 1998.
6. Miscellaneous
(a) Every maker, endorser and guarantor of this Debenture or the
obligation represented by this Debenture waives presentment, demand, notice,
protest and all other demands or notices, in connection with the delivery,
acceptance, endorsement, performance, default or enforcement of this Debenture,
assents to any and all extensions or postponements of the time of payment or any
other indulgences, including without limitation, the release or substitution of
collateral, and agrees to be bound by all of the terms contained in the
Debenture.
(b) No delay or omission by the holder hereof in exercising any right
or remedy hereunder shall constitute a waiver of any such right or remedy. A
waiver on one occasion shall not operate as a bar to or waiver of any such right
or remedy on any future occasion.
(c) The Company shall pay all reasonable costs and expenses of
collection, including attorney's fees, incurred or paid by the holder hereof in
enforcing this Debenture and the obligations evidenced hereby.
(d) This Debenture may be amended only by written agreement of the
Company and the holder hereof.
(e) This Debenture is governed by the laws of the State of Colorado
and is executed as a sealed instrument as of the date first above written.
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IN WITNESS WHEREOF, the Company has caused this Debenture to be executed
and delivered by its duly authorized officer as of the day and year first
written above.
MEDICAL DYNAMICS, INC.
By:__________________________________
Title:_______________________________
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MEDICAL DYNAMICS, INC.
CONVERTIBLE DEBENTURE
NOTICE OF CONVERSION
MEDICAL DYNAMICS, INC.
00 Xxxxxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
The undersigned hereby elects to convert $_______________ of the
Convertible Debenture represented by the within Convertible Debenture for, and
to acquire thereunder _______________ shares of Common Stock ("Conversion
Shares") as provided for therein, and requests that certificates for the
Conversion Shares be issued as follows:
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Name
--------------------------------
Address
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--------------------------------
--------------------------------
Federal Tax Identification No.
or Social Security No.
and, if the amount of the principal of the Convertible Debenture being converted
hereby shall not be all of the principal amount of such Convertible Debenture,
that a new Convertible Debenture or the balance of such Convertible Debenture be
issued forthwith to the holder or the undersigned's Assignee as below indicated
and delivered to the address stated below. The undersigned hereby represents and
warrants that sales of the Conversion Shares will be made only pursuant to the
Prospectus covering the registered resale of the Conversion Shares, and that it
will comply with all applicable prospectus delivery requirements.
Dated:___________________, ____
Signature:______________________________
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Name (please print)
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Address
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Federal Identification or Soc Sec #
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