Exhibit 10.3
DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED,
RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
US $2,000,000
MICROWARE SYSTEMS CORPORATION
8% CONVERTIBLE DEBENTURE DUE NOVEMBER 28, 2003
FOR VALUE RECEIVED, between MICROWARE SYSTEMS CORPORATION, an Iowa
corporation (the "Company") promises to pay to Elder Court, LLC, a Cayman
Islands limited liability company, the registered holder hereof (the "Holder"),
the principal sum of Two Million Dollars and 00/100 Dollars (US $2,000,000) on
November 28, 2003 (the "Maturity Date") and to pay interest on the principal sum
outstanding from time to time in arrears (i) prior to the Maturity Date,
quarterly, on the last day of March, June, September and December of each year,
(ii) upon conversion as provided herein or (iii) on the Maturity Date, at the
rate of eight percent (8%) per annum accruing from November 28, 2000, the date
of the issuance of this Debenture. Accrual of interest shall commence on the
first such business day to occur after the date hereof and shall continue to
accrue on a daily basis until payment in full of the principal sum has been made
or duly provided for.
This Debenture is subject to the following additional provisions:
1. The Debentures are exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or
not this Debenture be overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
4. A. The Holder of this Debenture is entitled, at its
option, subject to the following provisions of this Section 4, to convert all
or a portion of this Debenture into shares of Common Stock of the Company, no
par value per share ("Common Stock") of the Company at any time until the
Maturity Date, at a conversion price for each share of Common Stock (the
"Conversion Rate") equal to the lower of (x) $0.69, or (y) the Current Market
Price (as defined below) multiplied by eighty percent (80%); provided that
the principal amount being converted is the lower of (x) at least $5,000
(unless if at the time of such election to convert the aggregate principal
amount of all Debentures registered to the Holder is less than Ten Thousand
Dollars $5,000, then the whole amount thereof) or (y) the maximum amount
which the Holder can then convert pursuant to the terms of Section 4.E.
hereof.
B. For purposes of this Debenture, the following terms have the
meanings indicated below:
(i) "Current Market Price" means the average of the Market
Price of the Common Stock for any three (3) non-consecutive trading
days of the Common Stock (which may include some consecutive days)
during the twenty day trading period ending on the trading day
immediately before the relevant Conversion Date (as defined below). On
the relevant Conversion Date, Holder may select, in its sole
discretion, either of the formulas contained in (A) and (B) in the
immediately preceding sentence.
C. The Holder of this Debenture is entitled, at its option, to
convert this Debenture at any time which is after the earlier of (x) the
thirtieth (30th) day after the Initial Closing Date or (y) the Effective Date of
the Registrable Securities applicable to the Initial Debentures (as those terms
are defined in the Securities Purchase Agreement).
D. Conversion shall be effectuated by surrendering the Debentures
to be converted to the Company's transfer agent, Xxxxx Fargo Shareowner
Services, accompanied by or preceded by facsimile or other delivery to the
Company of the form of conversion notice attached hereto as Exhibit A, executed
by the Holder of the Debenture evidencing such Holder's intention to convert
this Debenture or a specified portion hereof, and accompanied, if required by
the Company, by proper assignment hereof in blank. Subject to the provisions of
Section 4.E hereof, interest accrued or accruing from the date of issuance to
the date of conversion shall, at the option of the Company, be paid in cash or
Common Stock upon conversion at the Conversion Rate applicable to such
conversion. No fractional shares of Common Stock or scrip representing fractions
of shares will be issued on conversion, but the number of shares issuable shall
be rounded to the nearest whole share. The date on which notice of conversion is
given (the "Conversion Date") shall be deemed to be the date on which the Holder
faxes or otherwise delivers the conversion notice ("Notice of Conversion"),
substantially in the form annexed hereto as Exhibit A, duly executed, to the
Company, provided that the Holder shall deliver to the Company's transfer agent
or the Company the original Debentures being converted within three (3) business
days thereafter (and if not so delivered with such time, the Conversion Date
shall be
the date on which the later of the Notice of Conversion and the original
Debentures being converted is received by the Company). Facsimile delivery of
the Notice of Conversion shall be accepted by the Company at facsimile number
(000) 000-0000; ATTN: CHIEF FINANCIAL OFFICER.
Certificates representing Common Stock upon conversion will be delivered within
three (3) business days from the date later of the Notice of Conversion is
delivered to the Company as contemplated in the first sentence of this paragraph
C or the original Debenture is delivered to the Company's transfer agent or the
Company.
E. Notwithstanding any other provision hereof, of the Warrants or
of any of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures, (ii)
as specifically provided in this Debenture as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock) shall the Holder be entitled to convert any
Debenture or shall the Company have the obligation, to convert all or any
portion of this Debenture (and the Company shall not have the right to pay
interest on this Debenture) to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debentures or exercise of the Warrants with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such conversion or exercise). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such sentence.
Any issuance by the Company to the Buyer in excess of the limit
contained in this Section 4.E. shall be null and void, AB INITIO, and upon
notice of such invalid issuance, the Company shall correct its books and cause
its transfer agent's books to be corrected forthwith to reflect that the Buyer's
ownership of Common Stock is within the limit set forth herein. Holder shall
immediately deliver any certificates for invalidly issued Common Stock to the
Company's transfer agent. The Company further agrees to (i) immediately reissue
certificates for Common Stock to the extent that a portion of the Common Stock
represented by said certificates have been validly issued and (ii) immediately
reissue all or a portion of those shares which were deemed invalidly issued (at
the Conversion Price set forth in the original conversion notice(s) applicable
to such shares) upon notice from Holder that the reissuance of such shares would
not cause such Holder to have a beneficial ownership interest in excess of
4.99%. Notwithstanding the foregoing, Holder may elect, by providing the Company
written notice at any time prior to the reissuance of shares, to cancel that
portion of a prior conversion applicable to shares of Common Stock surrendered
by it pursuant to this Section 4.E. The Company hereby indemnifies and holds
Holder free and harmless in connection with any and all liabilities, losses,
costs and expenses, including, without limitation, attorneys' fees and costs
arising from or relating to claims made by any third parties alleging that any
Holder has violated Sections 13(d) and/or 16,
to the extent such violation is premised on the fact that, notwithstanding
this Section 4.E., the Holder is the beneficial owner of all of the shares of
Common Stock which would be issuable, from time to time, if Holder converted
the entire principal and interest balance of the Debenture. The Holder, by
its acceptance of this Debenture, further agrees that if the Holder transfers
or assigns any of the Debentures to a party who or which would not be
considered such an affiliate, such assignment shall be made subject to the
transferee's or assignee's specific agreement to be bound by the provisions
of this Section 4(E) as if such transferee or assignee were the original
Holder hereof.
F. Anything herein to the contrary notwithstanding, in the event
the Company breaches the provisions of Section 4(g) of the Securities Purchase
Agreement, the Conversion Rate shall be amended to be equal to (i) 87.5% of (ii)
the Conversion Rate determined in accordance with the other provisions of this
Debenture without regard to this Section 4.F., and the Holder may require the
Company to immediately redeem the outstanding portion of this Debenture in
accordance with clause (y) of Section 6 hereof.
5. On the condition that the Company is not then in default
hereunder, any portion of the principal balance and accrued interest of the
Debentures not previously converted as of the Maturity Date, shall be deemed to
be automatically converted, without further action of any kind (except the
delivery of unrestricted Common Stock in connection with such conversion) by the
Company or any of its agents, employees or representatives, as of the Maturity
Date at the Conversion Rate applicable on the Maturity Date ("Mandatory
Conversion"), and the Company shall have no further obligation to repay the
Debentures. If the Company is in default hereunder, (i) there shall be no
Mandatory Conversion, (ii) Holder shall retain all of its rights set forth in
Section 15 below, and (iii) Holder may, in addition to its other rights,
unilaterally extend the Maturity Date by one (1) year by providing written
notice to the Company on or before the Maturity Date.
6. The Holder recognizes that the Company may be limited in the
number of shares of Common Stock it may issue by (i) reason of its authorized
shares, or (ii) the applicable rules and regulations of the principal securities
market on which the Common Stock is listed or traded (collectively, the "Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
Holder of this Debenture (to the extent the same can not be converted in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall have the
option, exercisable in the Holder's sole and absolute discretion, to elect any
one of the following remedies:
(x) require the Company to issue shares of Common
Stock in accordance with such Holder's Notice of Conversion
relating to the Unconverted Debenture at a conversion purchase
price equal to the average of the closing bid price per share
of Common Stock for any five (5) consecutive trading days
(subject to the equitable adjustments for certain events
occurring during such period as provided in this Debenture)
during the sixty (60) trading
days immediately preceding the date of the Notice of
Conversion; or
(y) require the Company to redeem each Unconverted
Debenture for an amount (the "Cap Redemption Amount"), payable
in cash, equal to:
V x M
--
CP
where:
"V" means the outstanding principal plus
accrued interest through the Cap Redemption Date (as defined
below) of an Unconverted Debenture;
"CP" means the Conversion Rate in effect on
the date of redemption (the "Cap Redemption Date") specified
in the notice from the Holder electing this remedy; and "M"
means the highest closing ask price during the period
beginning on the Cap Redemption Date and ending on the date
of payment of the Cap Redemption Amount.
The holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture.
7. Subject to the terms of the Securities Purchase Agreement,
dated as of November 28, 2000 (the "Securities Purchase Agreement"), between the
Company and the Holder (or the Holder's predecessor in interest), no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued of
similar terms are direct obligations of the Company.
8. If the Company merges or consolidates with another corporation
or sells or transfers all or substantially all of its assets to another person
and the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments
which shall be as nearly equivalent as may be practicable. In the event of
any proposed merger, consolidation or sale or transfer of all or
substantially all of the assets of the Company (a "Sale"), the Holder hereof
shall have the right to convert by delivering a Notice of Conversion to the
Company within fifteen (15) days of receipt of notice of such Sale from the
Company. In the event the Holder hereof shall elect not to convert, the
Company may prepay all outstanding principal and accrued interest on this
Debenture by paying the Redemption Amount contemplated by Section 5 hereof,
less all amounts required by law to be deducted, upon which tender of payment
following such notice, the right of conversion shall terminate.
9. If, for any reason, prior to the Conversion Date or the
Redemption Payment Date, the Company spins off or otherwise divests itself of a
part of its business or operations or disposes all or of a part of its assets in
a transaction (the "Spin Off") in which the Company does not receive
compensation for such business, operations or assets, but causes securities of
another entity (the "Spin Off Securities") to be issued to security holders of
the Company, then the Company shall cause (i) to be reserved Spin Off Securities
equal to the number thereof which would have been issued to the Holder had all
of the Holder's Debentures outstanding on the record date (the "Record Date")
for determining the amount and number of Spin Off Securities to be issued to
security holders of the Company (the "Outstanding Debentures") been converted as
of the close of business on the trading day immediately before the Record Date
(the "Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
conversion of all or any of the Outstanding Debentures, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by
(y) a fraction, of which (I) the numerator is the principal amount of the
Outstanding Debentures then being converted, and (II) the denominator is the
principal amount of the Outstanding Debentures.
10. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Base Price shall be equitably adjusted to reflect such action.
By way of illustration, and not in limitation, of the foregoing (i) if the
Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to
any conversion for which the Company issues the shares after the record date of
such split, the Base Price shall be deemed to be one-half of what it had been
calculated to be immediately prior to such split; (ii) if the Company
effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such reverse split; and (iii) if the Company declares a stock dividend of one
share of Common Stock for every 10 shares outstanding, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such dividend, the Base Price shall be deemed to be the amount of such Base
Price calculated immediately prior to such record date multiplied by a fraction,
of which the numerator is the number of shares (10) for which a dividend share
will be issued and the denominator is such number of shares plus the dividend
share(s) issuable or issued thereon (11).
11. All payments contemplated hereby to be made "in cash" shall be
made in immediately available good funds in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. All payments of cash and each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
Holder at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder from time to time; except that
the Holder can designate, by notice to the Company, a different delivery
address for any one or more specific payments or deliveries.
12. The Holder of the Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
13. This Debenture and all agreements entered into in connection
herewith shall be governed by and interpreted in accordance with the laws of the
State of California for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the conflict of laws.
Any litigation based thereon, or arising out of, under, or in connection with,
this agreement or any course of conduct, course of dealing, statements (whether
oral or written) or actions of the Company or Holder shall be brought and
maintained exclusively in the state or Federal courts of the State of
California, sitting in the City of Los Angeles. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal Courts of the
State of California for the purpose of any such litigation as set forth above
and irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of California. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this Agreement and the related agreements entered into
in connection herewith.
14. In the event that any action is taken by the Company or Holder
in connection with this Note, or any related document or matter, the losing
party in such legal action, in addition to such other damages as he or it may be
required to pay, shall pay reasonable attorneys' fees to the prevailing party.
15. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal
or interest on this Debenture and same shall continue
for a period of three (3) days after its receipt of
written notice thereof; or
b. Any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement,
the Registration Rights Agreement or in any
certificate or financial or other written statements
heretofore or hereafter furnished by the Company in
connection with the execution and delivery of this
Debenture or the Securities Purchase Agreement shall
be false or
misleading in any material respect at the time made;
or
c. The Company fails to issue shares of Common Stock to
the Holder or to cause its Transfer Agent to issue
shares of Common Stock upon exercise by the Holder of
the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer
or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture and when
required by this Debenture or the Registration Rights
Agreement, and such transfer is otherwise lawful, or
fails to remove any restrictive legend or to cause
its Transfer Agent to transfer on any certificate or
any shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by
this Debenture, the Agreement or the Registration
Rights Agreement and such legend removal is otherwise
lawful, and any such failure shall continue uncured
for five (5) business days; or
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of this
Debenture and such failure shall continue uncured for
a period of twenty (20) days after written notice
from the Holder of such failure; or
e. The Company shall fail to perform or observe, in any
material respect, any covenant, term, provision,
condition, agreement or obligation of the Company
under the Securities Purchase Agreement, the
Registration Rights Agreement, the Warrant and such
failure shall continue uncured for a period of twenty
(20) days after written notice from the Holder of
such failure (other than a failure to cause the
Registration Statement to become effective no later
than the Required Effective Date, as defined and
provided in the Registration Rights Agreement, as to
which no such cure period shall apply); or
f. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make
an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial
part of its property or business; or
g. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within sixty (60) days after such
appointment; or
h. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within sixty (60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or
similar process in
excess of Two Hundred Thousand ($200,000) Dollars
in the aggregate shall be entered or filed against
the Company or any of its properties or other
assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60)
days or in any event later than five (5) days
prior to the date of any proposed sale thereunder;
or
j. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within sixty (60) days after such
institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or
delisted from an exchange or the NASD OTC Bulletin
Board from trading for in excess of five (5) trading
days.
l. An Event of Default has occurred under the terms of
any other Debenture (in this series) issued pursuant
to the Securities Purchase Agreement.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may, at its option,
consider this Debenture immediately due and payable in cash (and not by
conversion into Common Stock), without presentment, demand, protest or notice of
any kinds, all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately enforce any and all of the Holder's rights and remedies
provided herein, or any other rights or remedies afforded by law.
16. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
17. In the event for any reason, any payment by or act of the
Company or the Holder shall result in payment of interest which would exceed the
limit authorized by or be in violation of the law of the jurisdiction applicable
to this Debenture, the IPSO FACTO the obligation of the Company to pay interest
or perform such act or requirement shall be reduced to the limit authorized
under such law, so that in no event shall the Company be obligated to pay any
such interest, perform any such act or be bound by any requirement which would
result in the payment of interest in excess of the limit so authorized. In the
event any payment by or act of the Company shall result in the extraction of a
rate of interest in excess of a sum which is lawfully collectible as interest,
then such amount (to the extent of such excess not returned to the Company)
shall, without further agreement or notice between or by the Company or the
Holder,
be deemed applied to the payment of principal, if any, hereunder immediately
upon receipt of such excess funds by the Holder, with the same force and
effect as though the Company had specifically designated such sums to be so
applied to principal and the Holder had agreed to accept such sums as an
interest-free prepayment of this Debenture. If any part of such excess
remains after the principal has been paid in full, whether by the provisions
of the preceding sentences of this Section 17 or otherwise, such excess shall
be deemed to be an interest-free loan from the Company to the Holder, which
loan shall be payable immediately upon demand by the Company. The provisions
of this Section 17 shall control every other provision of this Debenture.
18. Time is of the essence as to the performance of each and every
obligation of the Company and Holder pursuant to this Debenture.
19. A. On the conditions that the Company (i) is not in
default under this Debenture (and no event has occurred that would ripen into
a default with the passage of time), and (ii) has previously honored all
prior Redemption Notices, the Company may, at its option, repay, in whole or
in part, the then outstanding principal and interest balance of this
Debenture on the date of the Redemption Notice (after deducting the principal
and interest subject to outstanding Conversion Notices) at the Redemption
Price (as defined below). This Debenture is redeemable, in whole or in part,
by the Company by providing written notice (the "REDEMPTION NOTICE") to the
Holder via facsimile at its address set forth herein (the Business Day
between the hours of 6:30 a.m. and 3:00 p.m. Pacific Time the Redemption
Notice is received by the Holder via facsimile is defined to be the
"REDEMPTION NOTICE DATE"). Within seven (7) Trading Days after the Redemption
Notice Date the Company shall make payment of the Redemption Price (as
defined below) in immediately available funds to the Holder (such date of
payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be
in an aggregate principal amount of at least $250,000.
B. In the event the Company serves a Redemption Notice, the
Redemption Price shall be equal to the greater of (i) 125% of the outstanding
principal and interest balance of the Debenture, or (ii) the "Economic Benefit"
of the principal and interest of the Debenture which are the subject of such
Redemption Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the
principal (and interest) which was the subject of the Redemption Notice was
converted on the Redemption Notice Date and sold on the Redemption Notice Date
at the Closing Bid Price of the Common Stock on the Redemption Notice Date.
C. The Notice of Redemption shall set forth (i) the Redemption
Date and the place fixed for redemption, (ii) the Redemption Price, (iii) a
statement of or reference to the conversion right set forth herein, and (iv)
confirmation that the Company has the full Redemption Price reserved as set
forth in F. below. The notice shall specify the principal and interest balance
hereof to be redeemed. Within seven (7) Trading Days of the Redemption Notice
Date, the Company shall wire transfer the appropriate amount of funds to the
Holder. If the Company fails to comply with the redemption provisions set forth
herein by the seventh Trading Day after the Redemption Notice Date (or in the
case of a public offering as contemplated in F. below, by the seventh Trading
Day after the Redemption Notice Date) relating to the Redemption Notice, the
redemption will be declared null and void and the Company shall not be permitted
to serve another Redemption Notice. For the first five Trading Days after the
Redemption Notice Date,
the Holder will retain its conversion rights with respect to a maximum of
twenty percent (20%) of the principal and interest amount subject to the
redemption. If the Holder elects to so convert the said principal and
interest after the receipt of the Redemption Notice, the Company must receive
notice of such election within two (2) business days from the time the
Redemption Notice was received by the Holder. In the event the Company has
not complied with the redemption provisions set forth herein the Company must
comply with the delivery requirements of any then outstanding Conversion
Notice as set forth herein. If the entire balance of interest and principal
of this Debenture is redeemed hereunder, the Holder shall deliver to the
Company the original of this Debenture within three (3) Business Days after
it has received good funds for the Redemption Price.
D. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of any
stock dividend, stock split, combination of shares or similar event.
E. Intentionally Deleted.
F. The Company shall not be entitled to send any Redemption
Notice and begin the redemption procedure hereunder unless it has:
(a) the full amount of the Redemption Price
in cash, available in a demand or other immediately
available account in a bank or similar financial
institution, specifically allotted for such redemption;
(b) immediately available credit facilities, in
the full amount of the Redemption Price with a bank or
similar financial institution specifically allotted for
such redemption; or
(c) a combination of the items set forth in (i)
and (ii) above, aggregating the full amount of the
Redemption Price.
Notwithstanding the foregoing, in the event the redemption is expected to be
made contemporaneously with the closing of a public offering of the Company's
securities for an amount in excess of the Redemption Price, the Company shall
not be required to have the full amount of the Redemption Price available to it
as set forth above.
G. Upon its receipt of a Conversion Notice, the Company may, at
its option, repay that portion of the accrued interest of this Debenture which
is subject to such outstanding Conversion Notice, at the Redemption Price,
provided that the Company delivers to Holder a Redemption Notice with respect
thereto within two (2) business days after the date of the subject Conversion
Notice. On the Redemption Date, the Company shall make payment of the Redemption
Price in immediately available funds to the Holder.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: as of November 28, 2000
MICROWARE SYSTEMS CORPORATION, an Iowa
corporation
By:
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(Print Name)
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(Title)
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount (and $________________ of accrued interest thereon) of
the above Debenture No. ___ into Shares of Common Stock of MICROWARE SYSTEMS
CORPORATION, an Iowa corporation (the "Company") according to the conditions
hereof, as of the date written below.
Conversion Date*
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Applicable Conversion Price
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Signature
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[Name]
Address:
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* This original Debenture must be received by the Company or its transfer agent
by the third business day following the Conversion Date.