CONVERTIBLE LOAN AGREEMENT
This Convertible Loan Agreement (the "Agreement") is made as of the 10th day of
October, 2001 BY AND BETWEEN
(1) Paradigm Geophysical Ltd., a public company whose shares are traded on
NASDAQ and the Tel-Aviv Stock Exchange (the "TASE"), organized under
the laws of the State of Israel and registered under No. 00-000000-0
("Paradigm" and, collectively with its Subsidiaries (as defined below),
the "Company") having its registered office at 0 Xxxxxxx Xxxxxx,
Xxxxxxxx, Xxxxxx; and
(2) The Israel Mezzanine Fund, L.P. a limited partnership formed under the
laws of the State of Delaware USA, The Israel Mezzanine Fund (In
Israel), Limited Partnership, a limited partnership formed under the
laws of the State of Israel, The Jordan (Bermuda) Investment Company
Ltd. (collectively with any investment vehicle under common control
therewith, the "Fund" or the "Investors").
RECITALS
WHEREAS:
A Paradigm and its Subsidiaries provide technical information solutions for
the oil and gas industry worldwide, consisting of software solutions and
services to companies involved in the exploration and production of oil
and gas and to oilfield service companies;
B Paradigm wishes to raise an aggregate amount of US $8,000,000 through the
issuance of convertible debentures to the Investors, upon the terms and
conditions set forth herein (the "Debentures"); and
C The Investors have agreed to make an investment of an aggregate amount of
US $8,000,000 by purchasing the Debentures pursuant to the terms of this
Agreement.
THEREFORE, in consideration of the foregoing, the parties, intending to be
legally bound, agree as follows:
1. LOAN AND ISSUANCE OF THE DEBENTURES
(a) Loan and Issuance of the Debentures. Upon the terms and subject to
the conditions set forth in this Agreement and on the basis of the
representations and warranties hereinafter set forth, the Investors agree to
make a loan in the aggregate amount of US $8,000,000 to Paradigm (the "Loan"),
in exchange for U.S. dollar denominated Debentures as specified below.
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The Debentures issued and delivered to each of the Investors pursuant
to this Agreement shall have the terms set forth in Section 5 below. The
Investors shall make the Loan in U.S. dollars.
(b) Definitions. In this Agreement where the context admits:
"Audited Financial Statements" means the audited consolidated financial
statements of Paradigm as of December 31, 2000, including its statements of
income, cash-flow and changes in shareholder equity for the periods ended
thereon, prepared in accordance with generally accepted accounting principles in
the United States by a recognized firm of independent certified public
accountants, including all notes and reports thereto.
"Applicable Law" means any provision of any law, ordinance, rule,
regulation, decree, order, grant, permit or license or other governmental
authorization or approval applicable to Paradigm or any of the Subsidiaries.
"Affiliate" means, with respect to Paradigm, an entity Controlling,
Controlled by or under common Control with Paradigm, and, with respect to the
Fund, any entity Controlled by or under common Control with the Fund and/or
First Israel Mezzanine Investors Ltd. ("FIMI"). For the avoidance of doubt,
Israel Discount Bank Ltd., Massachusetts Mutual Life Insurance Company, and Xx.
Xxxxxxx X. X Xxxxxxx shall not be Affiliates of the Fund or FIMI.
"Control" means the ability, to direct the activities of the relevant
entity and shall include the holding of more than 50% of the capital or the
voting rights of such entity or the ability to elect 50% of the directors of
such entity.
"Debt" means all (i) obligations of a Person for borrowed money or
which have been incurred in connection with the acquisition of property or
assets, (ii) obligations secured by any lien or other charge upon property or
assets owned by such Person,, (iii) obligations created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, (iv) amounts due under any
capitalized lease as reflected on the balance sheet, and (v) all Guaranties.
"Filings" shall have the meaning set out in Section 2(g) below.
"Financial Statements" means the Audited Financial Statements and the
Unaudited Financial Statements.
"Form 20-F" means the Form 20-F of Paradigm for the fiscal year ended
December 31, 2000 filed with the Securities and Exchange Commission Xxxxxxxxxx,
X.X 00000 on June 29, 2001.
"Guaranties" means all obligations (other than obligations incurred in
the ordinary course of business) of any Person guaranteeing or in effect
guaranteeing any Debt, or other obligation of any other Person in an aggregate
amount of not less than US
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$100,000 (the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, all obligations incurred not in the ordinary
course of business and incurred through an agreement, contingent or otherwise,
by such Person: (i) to purchase such Debt or obligation or any property or
assets constituting security therefore, (ii) to advance or supply funds (x) for
the purchase or payment of such Debt or obligation, (y) to maintain working
capital or other balance sheet condition or otherwise to advance or make
available funds for the purchase or payment of such Debt or obligation, or (iii)
to lease property or to purchase securities or other property or services
primarily for the purpose of assuring the owner of such Debt or obligation of
the ability of the primary obligor to make payment of the Debt or obligation, or
(iv) otherwise to assure the owner of the Debt or obligation of the primary
obligor against loss in respect thereof. For the purposes of all computations
made under this Agreement, a Guaranty in respect of any Debt for borrowed money
shall be deemed to be Debt equal to the principal amount of such Debt for
borrowed money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Debt equal to the
maximum aggregate amount of such obligation, liability or dividend.
"Person" means an individual or any type of entity whether incorporated
or not.
"Security Interest" means and includes any right, interest or equity of
any Person (including any right to acquire, option, or right of preemption) or
any mortgage, charge, pledge, lien, or assignment, or any other encumbrance or
security interest or arrangement of whatsoever nature over or in the relevant
property.
"Subsidiaries" shall mean the subsidiaries specified in the Form 20-F.
"Unaudited Financial Statements" means the unaudited financial
statements of Paradigm for the two quarters ended June 30, 2001 and its
statements of income and cash-flow for such six month period.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARADIGM
Paradigm, being aware that the Investors have agreed to enter into this
Agreement in reliance upon the representations and warranties contained in this
Agreement, including, inter alia, in this Section 2, hereby represents and
warrants to, and agrees with the Investors as of the date hereof and the Closing
Date, as follows:
(a) Organization. Paradigm is duly organized and validly existing under
the laws of the State of Israel. Paradigm has all requisite corporate power and
authority to carry on its business as currently conducted and to own its
properties. Each of the Subsidiaries is an entity duly formed and validly
existing under the laws of its respective jurisdiction.
(b) Organizational Documents. Attached hereto as EXHIBIT 2(b) is a
complete and correct copy of the Memorandum of Association and Articles of
Association of Paradigm, as amended to date. All of such organizational
documents are in full force and effect.
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(c) Capitalization.
(i) The authorized share capital of Paradigm immediately prior to
the Closing shall be NIS 10,000,000, divided into 18,000,000 Ordinary Shares,
par value NIS 0.5 each of which 14,891,902 are issued and outstanding (the
"Ordinary Shares") and 2,000,000 Special Preferred Shares, par value NIS 0.5
each of which none of which are issued and outstanding. The names of all
beneficial holders of more than 5% of the issued and outstanding share capital
of Paradigm and all beneficial holders of convertible or exchangeable securities
of Paradigm, which are actually known to Paradigm, are as set forth in the Form
20-F. Except as set forth in the Form 20-F, there are no outstanding or
authorized subscriptions, options, warrants, calls, rights, commitments,
convertible securities, or any other agreements of any character directly or
indirectly obligating Paradigm to issue any additional shares or any securities
convertible into, or exchangeable for, or evidencing the right to subscribe for,
any Ordinary Shares.
(ii) The Debentures, Additional Debentures (as defined below) and
the Ordinary Shares into which such Debentures and Additional Debentures are
convertible, when issued (and with respect to the Additional Debentures, if
issued) pursuant to the provisions of this Agreement, will be duly authorized,
validly issued and fully paid and shall not be subject to call or forfeiture,
and each of the Investors will have good title to the Debenture, the Additional
Debentures (or to the Ordinary Shares, following the conversion of the Debenture
or the Additional Debentures) issued to it, free and clear of any Security
Interest.
(d) Authority. Paradigm has the necessary corporate power and authority
to enter into this Agreement at or prior to Closing and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Paradigm and the consummation by
Paradigm of the transactions contemplated hereby shall have been, at the Closing
Date, duly and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of Paradigm shall be necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Paradigm and, assuming
the due authorization, execution and delivery by the Investors, constitutes a
legal, valid and binding obligation of Paradigm, enforceable in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally and by the
application of general principles of equity.
(e) Financial Statements.
(1) Subject, in the case of the Unaudited Financial Statements,
to year-end audit adjustments, the Financial Statements, attached as EXHIBIT
(2)(e)(1) hereto, provide a true, complete and fair view, in all material
respects of the assets, properties, liabilities and commitments of Paradigm as
of December 31, 2000 and June 30, 2001, respectively; and its statements of
income, cash-flow and changes in shareholders' equity for the periods ended at
those dates, have been prepared in
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accordance with generally accepted accounting principles consistently applied in
the United States and, except as stated therein, were not affected by any
extraordinary, exceptional, or non-recurring items. The Financial Statements
fairly reflect, in all material respects, the financial condition and results of
operation of Paradigm at December 31, 2000 and June 30, 2001, respectively.
(2) All (a) proper and necessary books of account, (b) minute
books of material decisions, and (c) material registers and records have been
maintained by Paradigm, are in its possession and contain accurate information
in all material respects relating to all material transactions to which the
Paradigm has been a party.
(3) A complete list of the Company's Debts and loan facilities in
excess of US$100,000 as of June 30, 2001, which are not included in the
Financial Statements, is set forth in EXHIBIT 2(e)(3).
(4) Since December 31, 2000 and except as specifically disclosed
in the Financial Statements, in Paradigm's Filings (as defined below) or in
EXHIBIT 2(E)(4):
(i) the Company has not entered into any material transaction
which was not in the ordinary course of its business;
(ii) there has been no material adverse change in the
Company's business, operations, assets, liabilities, debts, workforce or its
condition (financial or otherwise);
(iii) Paradigm has not declared or paid any cash dividend or
made any distribution on its shares;
(iv) there has been no sale, assignment, or transfer of any
tangible or intangible material asset of the Company, except in the ordinary
course of the Company's business.
(f) Consequences of Loan and Issuance of the Debentures.
Except as specifically set forth in EXHIBIT 2(f), this Agreement and the
consummation of the transaction contemplated herein do not require the consent
or agreement of any Person which has not already been obtained or which will not
have been obtained by the Closing, will not constitute a breach by Paradigm of
any material provision of any agreement to which it is party, will not cause
Paradigm to lose any interest in or the benefit of any asset, right, license, or
privilege it presently owns or enjoys or, to Paradigm' knowledge, cause anyone
who normally does business with Paradigm not to continue to do so on the same
basis as previously, will not result in any present or future indebtedness of
Paradigm becoming due prior to its stated maturity, and will not give rise to or
cause to become exercisable any option or right of preemption.
(g) Compliance with rules and regulations. Paradigm is, and at all
times has been, in all material respects, in compliance with all applicable
regulatory requirements, including without limitations, all filing requirements
stipulated by the U.S. Securities Act of 1933 or the U.S. Exchange Act of 1934
(as the case may be) or by the Israeli
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Securities Act, 1968 and the regulations promulgated thereunder (the "Filings").
The Filings (i) were prepared in accordance with applicable law and regulations,
and (ii) do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make statements
therein, under the circumstances in which they were made, not misleading.
(h) Litigation. Except as set forth in the Form 20-F and in the
Paradigm's Form 6K dated August 6, 2001, there are no claims, actions or
proceedings pending or, to Paradigm' knowledge, threatened against Paradigm and
its subsidiaries, any of their respective properties or any of their respective
officers or directors (in their capacity as such) before any court,
administrative, governmental, arbitral, mediation or regulatory authority or
body, domestic or foreign.
(i) Licenses and Permits; Compliance with Laws. To the Company's best
knowledge, the Company does not lack permits, licenses, authorizations or
approvals, and is not in material violation of Applicable Law (as defined
herein) or any permits, licenses, authorizations and approvals that have been
obtained by it, which the failure to obtain or such violation, as applicable,
would reasonably be likely to have a material adverse effect on the Company's
business.
(j) Properties and Assets. Except as disclosed in the notes to the
Financial Statements, the Company has good and marketable title to its material
assets, including without limitation those reflected in the Financial
Statements, free and clear of any Security Interest. With respect to the assets
that are leased, Paradigm and the Subsidiaries are in compliance with all
material provisions of such leases, such leases are valid and binding, and, to
Paradigm's knowledge, Paradigm and the Subsidiaries hold leasehold interests in
such assets free and clear of any Security Interest. (k) Taxation.
Paradigm has timely filed all necessary tax returns and notices, and has paid
all federal, state, county, local and foreign taxes of any nature whatsoever to
the extent such taxes have become due (including, without limitation, all tax
returns required under the laws of the State of Israel). Paradigm has no
knowledge, or any reasonable grounds to know, of any tax deficiencies which
might be assessed against Paradigm which, if so assessed, is reasonably likely
to have a material adverse effect on Paradigm, and subject to final tax audits,
has paid all taxes which have become due, whether pursuant to any assessments or
otherwise, and there is no further liability or assessments for any such taxes,
and no interest or penalties accrued or accruing with respect thereto, except as
may be set forth or adequately reserved for in Paradigm's Financial Statements
(in the case of the Unaudited Financial Statements, subject also to adjustments
in accordance with the annual operations of the Company for the fiscal year
2001). The Company has never had any tax audit or review by relevant income tax
authorities.
(l) Agreements and Trading.
(1) All the agreements that are material to the Company's business,
including instruments, leases, licenses, arrangements or undertakings of any
nature, written or oral (the "Material Agreements") are listed in the Filings.
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(2) All the Material Agreements are in full force and effect and
Paradigm has no knowledge of the invalidity of or grounds for rescission,
avoidance or repudiation of any of the Agreements and, except as set forth in
EXHIBIT 2(l), the Company has not received any notice of any intention to
terminate any such agreement.
(3) Other than as set forth on Exhibit 2(l), the Company and all
third parties with whom it has transacted business have performed in all
material respects all of their material obligations under the Material
Agreements, except for such non performance that, both individually and in the
aggregate, would not have a material adverse effect on the business of the
Company. Other than as set forth on Exhibit 2(l) and to Paradigm's knowledge, no
party to any of the Material Agreements is in breach or in default in any
respect of its obligations thereunder. No party to any of the Material
Agreements has made a claim to the effect that the Company has failed to perform
any obligation thereunder.
(m) Related Party Transactions.
All related party transactions since January 1, 2001 (other that related party
transactions that are reported in the Form 20-F) are set forth in EXHIBIT 2(m)
attached hereto.
(n) Insurance. Paradigm has the benefit of adequate insurance coverage
against such risks as are usually and reasonably insured against by companies
carrying on the same or similar business.
(o) Environmental Matters.
(a) The Company has been and is in compliance with all applicable
Environmental Laws, except for non-compliance which, individually or in the
aggregate, could not reasonably be expected to have a material adverse effect of
the business of the Company;
(b) The Company has obtained all permits, licenses and other
authorizations that are required under applicable Environmental Laws
("Environmental Permits") to conduct its business and has filed any reports,
notices, assessments, plans, inventories, and applications required by
Environmental Laws (collectively, "Filings"), except where the failure to
possess such Environmental Permits or make such Filings, individually or in the
aggregate, could not have a material adverse effect on the business of the
Company;
(c) neither the Company nor the operations or any real property
currently owned, operated or leased by the Company is the subject of any pending
state or local investigation evaluating whether any remedial action is needed or
required under applicable Environmental Laws; and
(d) there have been no environmental investigations, audits,
tests or reviews conducted by the Company in relation to any real property owned
or leased by the Company that have not been provided to the Investors.
For purposes of this Section 2, the term "Environmental Laws" shall mean any
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applicable law, judicial decision, regulation, rule, judgment, order, decree,
injunction, permit, restriction or requirement prescribed by governmental or
local authorities or any agreement with any governmental or local authority now
in effect relating to human health and safety, the environment or to pollutants,
contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials.
(p) No Finders' Fee. No Person or firm has, or will have, as a result
of any act or omission by Paradigm, or anyone acting on behalf of Paradigm, any
right, interest or valid claim against Paradigm for any commission, fee or other
compensation as a finder or broker or in any similar capacity pursuant to an
agreement to which Paradigm is a party in connection with the transactions
contemplated by this Agreement.
(r) All Material Information. The representations furnished to the
Investors in connection with this Agreement, when taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
2A. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTORS
Each of the Investors being aware that Paradigm has agreed to enter
into this Agreement in reliance on the representations and warranties contained
in this Section 2A, hereby represents with respect to itself and warrants to,
and agrees with, Paradigm as of the date hereof and the Closing Date, as
follows:
(a) Due Organization. It is an entity duly formed and validly existing
under the laws of its jurisdiction.
(b) Validity of Transaction. It has all requisite power and authority
to execute, deliver and perform this Agreement. All necessary proceedings under
its governing documents have been duly taken to authorize the execution,
delivery, and performance of this Agreement. This Agreement constitutes a legal,
valid, and binding obligation of such Investor enforceable against it in
accordance with its terms.
(c) Disclosure of Information. Each Investor has been given full access
to the Company's records, has had an opportunity to ask questions of management,
has received answers to questions that it has asked and has received materials
in response to its requests. The Investors had an opportunity to review the
documents provided to it by the Company, and have performed their independent
due diligence to their satisfaction
(d) Investment Experience. The Investors are experienced investors in
companies and have inspected all of the data and information provided to them by
the Company in connection with this Agreement. The Investors acknowledge that
they are able to fend for themselves, can bear the economic risk of their
investment, and have such knowledge and experience in financial or business
matters that they are capable of evaluating the merits and risks of investments
of this type.
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(e) Authority of FIMI. The Investors are under the common management of
First Israel Mezzanine Investors Ltd. ("FIMI"). FIMI has the full and exclusive
power to take any and all actions on behalf of the Investors and exercise all
rights of such entities with respect to their interests in Paradigm, in each
case, on a pro rata basis. The Investors hereby confirm that FIMI shall at all
times act as their exclusive representative for all purposes of this Agreement.
Nothing set forth in this Section 2A shall be deemed to detract from or
otherwise prejudice the Investors' reliance on Paradigm's representations and
warranties set forth in Section 2 above.
3. CLOSING
(a) Actions at the Closing. The delivery of the Debentures (the
"Closing") shall take place within 30 days from the date hereof at the offices
of Naschitz, Xxxxxxx & Co., 0 Xxxxx Xx. Xxx-Xxxx 00000, at 10:00 AM or at such
other date as Paradigm and the Investors shall agree (the "Closing Date"). At
the Closing, Paradigm shall deliver to the Investors validly executed
Debentures, each registered in the name of the respective Investor and having
the terms set forth in this Agreement, against the making of the respective
portion of the Loan to Paradigm, in the amount set forth opposite the name of
each such Investor in EXHIBIT 3(a) attached hereto, by wire transfer to
Paradigm's account no.________, at ________Bank branch no. ________.
(b) In addition, at the Closing, Paradigm shall deliver to the
Investors the following documents:
(1) Certified copies of resolutions of Paradigm's Board of
Directors (i) issuing the Debentures to the Investors (and reserving at all
times Ordinary Shares into which the Debentures are convertible) (ii) approving
the issuance of the Additional Debentures subject to the terms and conditions of
this Agreement (and, in the event that the Additional Debentures are issued,
reserving at all times following the issuance of the Additional Debentures,
Ordinary Shares into which the Additional Debentures shall be convertible); and
(2) A certificate duly executed by an officer of Paradigm dated
as of the Closing Date (the "Compliance Certificate") in the form attached
hereto as EXHIBIT 3(b)(2).
(c) The Investors' Conditions to the Closing. The obligation of
each of the Investors to consummate the transaction shall be subject to:
(1) the parties have executed a Registration Rights Agreement in the
form attached as EXHIBIT 3(c)(1) hereto;
(2) the condition that each of the representations and warranties of
Paradigm in this Agreement shall be true and correct in all material respects as
though made on the Closing Date, and an officer of Paradigm shall have delivered
the Compliance Certificate to the Investors;
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(3) the covenant set forth in Section 4(b) hereof shall not have been
violated prior to the Closing; and
(4) the Completion of a notice relating to the floating charge on all
of Paradigm's assets, which shall be filed by Paradigm with the Israeli
Registrar of Companies within seven days from the Closing.
(d) Paradigm's Conditions to the Closing. The obligation of
Paradigm to consummate the transaction shall be subject to:
(1) the condition that each of the representations and warranties of
each of the Investors in this Agreement shall be true and correct in all
material respects as though made on the Closing Date; and
(2) the receipt of an amount of US$ 8,000,000 from the Investors.
(e) If any of the conditions set forth in this Section 3 is not
satisfied by the Closing Date, each party for whose benefit such condition must
be satisfied may terminate this Agreement by notice to the other parties, in
which event it shall not have any further liability to the other parties under
this Agreement.
4. CERTAIN COVENANTS OF PARADIGM FOLLOWING THE CLOSING
(a) Filings. Paradigm agrees to file a floating charge on all of its
assets with the Israeli Registrar of Companies (which floating charge shall be
subordinated only to charges created for the benefit of banking or financial
institutions, which have loaned funds to Paradigm or to Paradigm's Subsidiaries
and/or provided credit or other facilities to Paradigm or to Paradigm's
Subsidiaries) within seven days of the Closing and deliver to the Investors a
certificate of the Registrar of Companies evidencing such filing within 14 days
from the Closing. The Fund undertakes to execute all documents that may be
required in connection with the foregoing.
Notwithstanding the foregoing, the Fund undertakes that in the event that
Paradigm removes all floating charges at that time applicable to its assets then
upon the removal of such floating charges, the Fund shall cooperate with
Paradigm so as to remove the floating charge created for the benefit of the Fund
pursuant to this Section 4(a) and the Fund hereby irrevocably nominates,
constitutes and appoints Efrati, Galili & Co. as the attorney of the Fund solely
for the purpose of removing such floating charge subject to the terms and
conditions of this Section 4(a) pursuant to the form of irrevocable power of
attorney attached as EXHIBIT 4(a) hereto; provided, however, that in the event
that during the period commencing on the date on which the floating charge
created for the benefit of the Fund is removed and terminating on the fifth
anniversary of the Closing Date, provided that, the Debentures and/or the
Additional Debentures (if issued) have not been redeemed, repurchased, repaid or
converted in full, Paradigm at any time registers one or more floating charges
on its assets (the "Additional Charges"), then simultaneously with such
registration Paradigm shall create and register a floating charge unlimited in
amount for the benefit of the Fund (which floating charge shall be subordinated
only to floating charges created for the benefit of banking or financial
institutions, which have loaned funds to Paradigm or to Paradigm's Subsidiaries
and/or
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provided credit or other facilities to Paradigm or to Paradigm's Subsidiaries).
(b) Shareholders' Equity. Paradigm agrees that as of the Closing Date
and for so long as the Debentures and the Additional Debentures (if issued) have
not been redeemed, repurchased, repaid or converted in full, the shareholders'
equity of Paradigm shall not be less than (i) Paradigm's shareholders' equity
(in US dollars) as of June 30, 2001, and (ii) 40% of the Total Assets of
Paradigm, as reflected in its Financial Statements.
(c) Merger; Consolidation; Sale of Shares. For so long as the
Debentures and/or the Additional Debentures (if issued) have not been redeemed,
repurchased, repaid or converted in full Paradigm will offer the Investors to
have the Debentures and/or Additional Debentures (if issued) repaid if the
Investors notify Paradigm of their election to do so, immediately upon the
closing of a consolidation of Paradigm with, a merger with or into, or the sale
of securities of Paradigm to any party, in one transaction or a series of
related transactions, pursuant to which Paradigm's shareholders immediately
prior to such transaction(s) own less than 51% of the surviving entity
immediately following such transaction(s), provided that such notification is
delivered to Paradigm within ten (10) days of receipt of a notice from Paradigm
specifying the principal terms of such transaction.
(d) Acquisition of Paradigm. In the event that ninety percent (90%) or
more of the securities of Paradigm are sold to any third party purchaser (the
"Purchase Transaction") prior to the repayment or conversion of the Debentures
and/or the Additional Debentures (if issued) in full, then upon the consummation
of such Purchase Transaction, Paradigm will repay any portion of the Debentures
and/or Additional Debentures (if issued) which was not repaid or converted prior
to such date. For the avoidance of doubt, if the Additional Debentures have not
yet been issued at the time that the Purchase Transaction is consummated and
Paradigm elects to repay any portion of the Debentures which was not repaid or
converted prior to such date, then the Investors' right to receive the
Additional Debentures shall immediately terminate and Paradigm will have no
further obligation with respect thereto.
5. THE DEBENTURES
Paradigm will authorize the issue and delivery of assignable (subject to the
limitations specified below) Debentures in an unlimited amount. The term of the
Debentures shall commence upon the Closing and shall terminate on the fifth
anniversary of the Closing (subject to Section 4 above) and shall be
convertible, at the Investors' sole discretion, in whole or in part, at any time
and from time to time, into such number of issued and outstanding Ordinary
Shares of Paradigm as determined by dividing (x) the principal amount of the
Debenture outstanding and to be converted at such time by (y) the Initial
Conversion Price (as defined below) or the Adjusted Conversion Price (as defined
below), as applicable. Subject to the Default provisions set forth below, (i)
the principal shall be repaid in three equal annual payments commencing on the
third anniversary of the Closing; provided, however, that prior to each payment
date the Investors, at their sole discretion, may elect, by giving an
irrevocable written notice to Paradigm, to have any portion of the principal be
deferred and repaid on the fifth anniversary of the Closing; (ii) the Debenture
shall bear dollar denominated interest at an annual rate of the
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LIBOR for three month US dollar deposits minus one percent, payable quarterly as
of the Closing, in each case with such interest payment and any linkage
differences (if applicable) being supplemented by applicable value added tax;
provided, however, that any interest accrued and unpaid on the date on which the
conversion of the Debentures is effected shall become immediately payable on
such date of conversion; (iii) be otherwise substantially in the form attached
hereto as EXHIBIT 5. Interest on each of the Debentures shall be computed on the
basis of a 360 day year.
Notwithstanding anything to the contrary in this Agreement, the Debentures shall
not be assigned (i) to a Competitor of the Company (as such term is defined in
Section 8(a) below); or (ii) during a period of one year commencing on the
Closing Date.
5A. ADDITIONAL LOAN; ADDITIONAL DEBENTURES.
(a) At the Closing, the Investors shall be granted the right,
exercisable by the Investors at their sole and absolute discretion (subject to
the provisions of Section 5A(b) below), during the 30 day periods commencing on
each of the second and third anniversaries of the Closing, to make an additional
loan to Paradigm in an aggregate amount of up to US$3 million (the "Additional
Loan"), in exchange for U.S. dollar denominated debentures unlimited in amount
issued by Paradigm (the "Additional Debentures"), having terms and conditions
identical to the Debentures, excluding the following terms:
(i) Term: the term of the Additional Debentures shall
commence upon the making of the Additional Loan and shall terminate on the fifth
anniversary of the Closing.
(ii) Additional Debentures Conversion Price: the conversion
price of the Additional Debentures (the "Additional Debentures Conversion
Price") shall be equal to the Initial Conversion Price or the Adjusted
Conversion Price, as shall then be (or would have been) applicable in respect of
the Debentures.
For the avoidance of doubt, principal and interest payments on account of the
Additional Loan shall be payable concurrently with the terms of payment of the
principal and interest on account of the Loan.
(b) Notwithstanding the foregoing, in the event that (i) the Market
Price (as defined below) is equal to or higher than US $15, or (ii) a Purchase
Transaction occurs prior to the Investors having made the Additional Loan and
Paradigm elects to repay the full amount with respect to the Debentures which
were not repaid or converted prior to such date, then the Investors' right to
make the Additional Loan shall expire and shall become null and void.
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6. EVENTS OF DEFAULT AND REMEDIES THEREFOR
(a) Events of Default. Any one or more of the following shall
constitute an "Event of Default" as the term is used herein:
(1) a default in the payment of interest on the Loan or the
Additional Loan (if made to Paradigm) when due and such default shall continue
for more than five business days;
(2) a default in the payment of the principal at the expressed or
any accelerated due date and such default shall continue for more than five
business days;
(3) a default in the payment when due of the principal of or
interest on any Debt of Paradigm or the Subsidiaries to a bank, financial
institution or pursuant to which the creditor has a registered Security Interest
over assets, having an unpaid principal amount in excess of US$100,000 (whether
by lapse of time, by declaration, by call for redemption or otherwise), and such
default or event shall continue beyond the period of grace, if any, allowed with
respect thereto; provided, however, that the provisions of this Section 6(a)(3)
shall not apply to legitimate disputes in the ordinary course of the business of
Paradigm and/or the Subsidiaries;
(4) a default in the observance or performance of the covenants set
forth in Section 4 of this Agreement, which default was not cured within
fourteen business days from the date on which Paradigm had first actual
knowledge of such default;
(5) any representation or warranty made or furnished by Paradigm
herein, including in all Exhibits hereto and documents referred to in the
Exhibits hereto, is found to be untrue in any material respect as of the date of
the issuance or delivery of the Debentures;
(6) final judgments for the payment of money aggregating in excess
of US$200,000 (excluding the amount of any judgment which is covered by
insurance in an amount up to the amount remaining within the limits of the
applicable insurance policy if the claim giving rise to such judgment has been
specifically acknowledged in writing by the insurer as covered under the policy
of insurance written by such insurer) is or are outstanding against Paradigm
and/or the Subsidiaries or against any of the property or assets of Paradigm
and/or the Subsidiaries and any such judgment or judgments aggregating in excess
of US$200,000 (unless covered by insurance as provided herein) has or have
remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a
period of 90 days from the date of its or their entry
(7) Paradigm becomes bankrupt, is generally not paying its debts as
they become due or makes an assignment for the benefit of creditors, or Paradigm
causes or suffers an order for relief to be entered with respect to it under
applicable bankruptcy law or applies for or consents to the appointment of a
custodian, trustee or receiver for or over all the assets of Paradigm or a
substantial part thereof;
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(8) a custodian, liquidator, trustee or receiver is appointed for or
over all of the assets of Paradigm or a substantial part of its property and is
not discharged within 90 days after such appointment; or
(9) bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against Paradigm and, if
instituted against Paradigm, are consented to or are not dismissed within 90
days after such institution.
(b) Notice to the Investors. When any Event of Default described in
Section 6(a) has occurred, Paradigm shall give a written notice within five
business days of such event to the Investors.
(c) Acceleration of Maturities. When any Event of Default described in
paragraphs (1) through (6), inclusive, of Section 6(a) has happened and is
continuing, the Investors may, by notice in writing sent to Paradigm, declare
the Debentures due and payable, without any presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived.
When any Event of Default described in paragraphs (7), (8), or (9) of Section
6(a) has occurred, then the Debentures shall immediately become due and payable
without presentment, demand or notice of any kind, all of which are hereby
expressly waived. Upon the Debentures becoming due and payable as a result of
any Event of Default as aforesaid, Paradigm will forthwith pay to the Investors
all principal of and interest accrued on the Debentures, together with
applicable value added tax. Such amounts shall be supplemented by additional
interest accrued thereon at an annual rate of 4% from (i) the date when the
Event of Default has occurred, in the event of an Event of Default described in
Sections 6(a)(7), 6(a)(8) or 6(a)(9) above, or (ii) from the date when a notice
in writing is sent by the Investors to Paradigm, declaring the Debenture due and
payable due to the occurrence of an Event of Default described in Sections (1)
through (6), inclusive, of Section 6(a) and until the payment date. Neither any
course of dealing on the part of the Investors nor any delay or failure on the
part of the Investors to exercise any right shall operate as a waiver of such
right or otherwise prejudice the Investors' rights, powers and remedies.
Paradigm further agrees, to the extent permitted by law, to pay the Investors
all reasonable expenses incurred by them in the implementation of their rights,
powers and remedies under this Section 6(c).
7. CONVERSION
(a) Right to Convert. Subject to the adjustments made in accordance
with the provisions of Section 7(c), each Debenture shall be convertible, in
whole or in part, at the option of the Investor holding such Debenture, at any
time and from time to time after the Closing Date (each date on which the
conversion of the Debenture or any portion thereof is effected shall be referred
to herein as a "Conversion Date"), into such number of issued and outstanding
Ordinary Shares of Paradigm (the "Underlying Shares") as determined by dividing
(i) the principal amount of the Debenture outstanding and to be converted at
such time by (ii) the Initial Conversion Price. The Initial Conversion Price per
share shall be US$ 7.5 (the "Initial Conversion Price"); provided, however, that
the Initial Conversion Price shall be subject to the adjustments
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set forth below (the Initial Conversion Price, as adjusted, shall be referred to
as the "Adjusted Conversion Price").
(b) Mechanism of Conversion. Before an Investor shall be entitled to
convert its Debenture into Underlying Shares it shall give a written notice to
Paradigm at its registered office, of the election to convert the same. Paradigm
shall, as soon as practicable thereafter, issue and deliver to the Investor, or
to its nominee or nominees, (i) a certificate or certificates for the number of
Underlying Shares to which the Investor shall be entitled as aforesaid, and (ii)
a new Debenture for the balance of the unconverted principal amount of the Loan.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date on which the Debenture was to be converted, and the
Investor shall be treated for all purposes as the record holder of such shares
as of such date.
(c) Conversion Price Adjustments.
(1) The Initial Conversion Price of the Debentures shall be subject
to adjustment in the event that the average closing prices of the Ordinary
Shares of Paradigm as recorded on the Nasdaq over the sixty (60) consecutive
trading days immediately preceding the second anniversary of the Closing (the
"Second Anniversary Price", which shall be subject to an additional adjustment
in the event that the average closing prices of the Ordinary Shares of Paradigm,
as recorded on the Nasdaq over the sixty (60) consecutive days immediately
preceding the third anniversary of the Closing, is lower than the Second
Anniversary Price (the Second Anniversary Price, as adjusted, the "Market
Price")) is lower than the Initial Conversion Price, the Adjusted Conversion
Price shall be equal to the Market Price; provided, however, that
notwithstanding anything to the contrary in this Agreement, the Adjusted
Conversion Price shall in no event be lower than US$ 3.26.
(2) Notwithstanding the foregoing, in the event that the average
closing prices of the Ordinary Shares of Paradigm as recorded on the Nasdaq over
the sixty (60) consecutive trading days immediately preceding a Conversion Date
(the "Conversion Closing Price") is equal to or higher than US$20 but lower than
US$30, the Adjusted Conversion Price, with respect to the portion of the
Debenture then being converted, shall be US$9. Further, in the event that the
Conversion Closing Price is equal to or higher than US$30, the Adjusted
Conversion Price, with respect to the portion of the Debenture then being
converted, shall be US$12.
(3) Notwithstanding anything to the contrary in this Agreement, no
adjustment shall be made under Sections 7(c)(1) in the event that the Fund or
any of its Affiliates had traded Paradigm's shares within the period of sixty
(60) consecutive trading days immediately preceding the second anniversary of
the Closing or the third anniversary of the Closing, as applicable to the
determination of the Market Price.
(4) If Paradigm shall subdivide or combine its Ordinary Shares, the
Initial Conversion Price or the Adjusted Conversion Price, as applicable, (and,
in the latter case, the Conversion Closing Price) shall be proportionately
reduced, in case of subdivision of shares, as at the effective date of such
subdivision, or if Paradigm shall fix a record date for the purpose of so
subdividing, as at such record date, whichever is
15
earlier, or shall be proportionately increased, in the case of combination of
shares, as at the effective date of such combination, or, if Paradigm shall fix
a record date for the purpose of so combining, as at such record date, whichever
is earlier.
(5) If Paradigm at any time shall pay a dividend payable in
additional Ordinary Shares or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
Ordinary Shares (hereinafter referred to as "Ordinary Share Equivalents"), then
the Initial Conversion Price or the Adjusted Conversion Price, as applicable,
shall be adjusted, as at the date Paradigm shall fix as the record date for the
purpose of receiving such dividend (or if no such record date is fixed, as at
the date of such payment), to that price determined by multiplying the Initial
Conversion Price or the Adjusted Conversion Price, as applicable, in effect
immediately prior to such record date (or if no such record date is fixed then
immediately prior to such payment) by a fraction, (a) the numerator of which
shall be the total number of Ordinary Shares outstanding immediately prior to
such dividend (plus, in the event that Paradigm paid cash for fractional shares,
the number of additional shares which would have been outstanding had Paradigm
issued fractional shares in connection with such dividend), and (b) the
denominator of which shall be the total number of Ordinary Shares outstanding
and those issuable with respect to such Ordinary Share Equivalents, being
determined from time to time in the manner provided for deemed issuance in the
following paragraph.
For the purpose of this Section 7(c)(1)(5), in the case of the issuance of
Ordinary Share Equivalents in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors of Paradigm.
(6) If at any time prior to the conversion or repayment of the
Debentures Paradigm shall distribute a dividend, payable out of earnings or
surplus legally available for dividends, the Conversion Closing Price set forth
in Section 7(c)(2) and 7(c)(3) and the Initial Conversion Price shall each be
reduced by an amount equal to the Dollar equivalent of the per-share
distribution on the record date fixed for the purpose of such distribution.
(7) If at any time prior to the conversion or repayment of the
Debentures Paradigm shall make a distribution of its assets to the holders of
its Ordinary Shares as a dividend in liquidation or partial liquidation or by
way of return of capital or other than as a dividend payable out of earnings or
surplus legally available for dividends (the "Dividend Equivalent"), the
Conversion Closing Prices set forth in Section 7(c)(2) and 7(c)(3) and the
Initial Conversion Price shall each be reduced by an amount equal to the Dollar
equivalent of the fair value of the per-share distribution on the record date
fixed for the purpose of such distribution.
(4) Rights Offering
If at any time or from time to time there shall be a rights
offering, then the Conversion Price shall be adjusted, as soon as practicable
after the date Paradigm shall fix as the record date for the purpose of the
rights offering, to that price determined by multiplying the Initial Conversion
Price or the Adjusted Conversion Price, as
16
applicable, in effect immediately prior to such record date by a fraction, (a)
the numerator of which shall be the opening price of the shares of Paradigm, as
recorded on the Nasdaq on the first trading day following the record date ("Ex
rights price"), and (b) the denominator of which shall be the closing price of
the shares of Paradigm, as recorded on the Nasdaq for such record date.
(d) No Impairment
Paradigm will not, through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by
Paradigm, but will at all times in good faith reasonably assist in the carrying
out of all the provisions of this Agreement and in the taking of all such
reasonable action as may be necessary or appropriate in order to protect the
Investors' rights, including, inter alia, the Conversion Rights of the Investors
against impairment.
(e) No Fractional Shares and Certificate as to Adjustments
(1) No fractional shares shall be issued upon conversion of each
Debenture, and the number of Underlying Shares to be issued shall be rounded to
the nearest whole share (with cash being paid by Paradigm for any unissued
fractional shares).
(2) Upon the occurrence of each adjustment or readjustment of the
Initial Conversion Price of the Debentures pursuant to this Section 7, Paradigm,
at its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each of the
Investors a certificate setting forth each adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
Paradigm shall furnish or cause to be furnished to the Investors a like
certificate setting forth (i) such adjustment and readjustment, (ii) the
Adjusted Conversion Price at the time in effect, and (iii) the number of
Ordinary Shares and the amount, if any, of other property which at the time
would be received upon the conversion of each respective Debenture.
(f) Notices of Record Date
In the event of any taking by Paradigm of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (including a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of any class or any other securities or property, or to receive any other
right, Paradigm shall mail to the Investors a notice, which shall be sent
immediately after the notice sent to other shareholders of Paradigm, specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
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(g) Reservation of Shares Issuable Upon Conversion
Paradigm shall at all times reserve and keep available out of its
authorized but unissued Ordinary Shares solely for the purpose of effecting the
conversion of the Debentures and the Additional Debentures such number of its
ordinary shares as shall from time to time be sufficient to effect the full
conversion of the Debentures and the Additional Debentures; and if at any time
the number of authorized but unissued Ordinary Shares shall not be sufficient to
effect such conversion, in addition to such other remedies as shall be available
to the Investors, Paradigm will take such corporate action as may be necessary
to increase its authorized but unissued Ordinary Shares to such number of shares
as shall be sufficient for such purposes.
8. ADDITIONAL COVENANTS OF THE PARTIES
(a) The Investors and FIMI undertake that as long as the Investors hold
any Debentures or Additional Debentures or any Ordinary Shares issued to the
Investors following the conversion thereof, they or their Affiliates will not
sell any Ordinary Shares to a Competitor of the Company in (a) a private sale;
or (b) an arranged block trade. For purposes of this Section 8(a) the term
"Competitor of the Company" means any Person that is engaged, directly or
indirectly, in the field of providing technical information solutions for the
oil and gas industry worldwide, consisting of software solutions and services to
companies involved in the exploration and production of oil and gas and to
oilfield service companies.
(b) Notification of Purchase. The Investors will notify Paradigm in
writing promptly after purchasing any additional securities of Paradigm.
(c) Disclosure. All public disclosures of the existence and terms of
this Agreement and the transactions hereunder, will be agreed and coordinated
between the parties. The Investors hereby acknowledge Paradigm's requirement to
comply with regulations on public disclosure of material transactions.
9. MISCELLANEOUS
(a) Exhibits. The Exhibits attached to this Agreement constitute a part
of this Agreement. They are incorporated herein by reference and shall have the
same force and effect as if set forth in full in the main body of this
Agreement.
(b) Governing Law; Forum for Dispute Resolution. This Agreement shall
be governed by the laws of the State of Israel. Any dispute arising under or
with respect to this Agreement shall be resolved exclusively in the appropriate
court in Tel Aviv, Israel.
(c) Notices. All notices required or permitted hereunder to be given to
a party pursuant to this Agreement shall be in writing and shall be deemed to
have been duly given to the addressee thereof (i) if hand delivered, on the day
of delivery, (ii) if given by facsimile transmission, on the business day on
which such transmission is sent and confirmed, (iii) if given by air courier,
five business days following the date it was sent or (iv) if mailed by
registered mail, return receipt requested, five business days
18
following the date it was mailed, to such party's address as set forth below or
at such other address as such party shall have furnished to each other party in
writing in accordance with this provision:
if to the Company: Paradigm GeoPhysical Ltd.
0 Xxxxxxx Xxxxxx
Herzliya Pituach
Tel: 000-0-0000000
Fax: 000-0-0000000
Attn: CFO
With a copy to: Efrati, Galili & Co.
(which shall 6 Wissotsky St.
not constitute notice): Xxx Xxxx 00000 XXXXXX
Fax: 000-0-000 0111
Attn: Adv. Xxx Xxxxxxxxx
if to the Investors: The Investors
c/o First Israel Mezzanine Investors Ltd.
"Xxxxxxxxxx Xxxxx"
00 Xxxxxx Xxxxx Xxxx
Tel: 00-0000000
Fax: 00-0000000
Each party may from time to time change the address or fax number to
which notices to it are to be delivered or mailed hereunder by notice delivered
or sent to the other party in accordance herewith; provided, however, that any
notice of change of address shall be deemed effective only upon its receipt.
(d) Expenses. At the Closing, Paradigm shall pay the reasonable fees
and expenses of the Investors in connection with the negotiation and
consummation of this transaction, up to a maximum of US$50,000 plus applicable
VAT and any stamp duty that may be payable in connection with the transaction
documents and any conversion of the Debentures hereunder.
(e) Entire Agreement. This Agreement constitutes the entire agreement
among the parties regarding the transactions contemplated herein, and may not be
amended except in writing.
(f) Headings. The headings contained in this Agreement are solely for
convenience of reference and shall not affect the interpretation of this
Agreement.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Successors and Assigns; Assignment. Except to the extent set forth
herein, Paradigm will not sell, assign, transfer, or otherwise convey any of its
rights or delegate any of its duties under this Agreement without the prior
written consent of the
19
Investors.
(i) Delays or Omissions; Waiver. No delay or omission to exercise any
right, power, or remedy accruing to either Paradigm or the Investors upon any
breach or default by the other party under this Agreement shall impair any such
right or remedy nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein or in any similar breach or default
thereafter occurring.
(j) Further Actions. At any time and from time to time, each party
agrees, without further consideration, to take such actions and to execute and
deliver such documents as may be reasonably necessary to effectuate the purposes
of this Agreement.
(k) Manner of Payment. All payments that are paid to the Investors
pursuant to this Agreement shall be paid in U.S. Dollars to the Investors to
their respective bank accounts, as shall be designated by or on behalf of the
Investors from time to time in a written notice sent to Paradigm by each of the
Investors. Paradigm shall make such payments to such bank account by initiating
such payments on a banking day, before 11.00 a.m., Israel time, by bank wire
transfer in immediately available funds, marked for attention as indicated.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PARADIGM GEOPHYSICAL LTD.
By: /s/ Xxxxx Xxxxx
-----------------------
Name: Xxxxx Xxxxx
-----------------------
Title: CEO
-----------------------
THE ISRAEL MEZZANINE FUND, L.P.
By: First Israel Mezzanine Investors Ltd.
By: /s/ Xxxxx Xxxxxx
-----------------------
Name: Xxxxx Xxxxxx
-----------------------
Title: CEO
-----------------------
THE ISRAEL MEZZANINE FUND (IN ISRAEL), LIMITED PARTNERSHIP
By: First Israel Mezzanine Investment Ltd.
By: /s/ Xxxxx Xxxxxx
-----------------------
Name: Xxxxx Xxxxxx
-----------------------
Title: CEO
-----------------------
THE JORDAN (BERMUDA) INVESTMENT COMPANY LTD.
By: First Israel Mezzanine Investment Ltd.
By: /s/ Xxxxx Xxxxxx
-----------------------
Name: Xxxxx Xxxxxx
-----------------------
Title: CEO
-----------------------
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