EXHIBIT 4.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES UNLESS THE ISSUER RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THIS NOTE REASONABLY SATISFACTORY TO THE ISSUER
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR THAT THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT.
ZYLAB INTERNATIONAL, INC.
SECURED CONVERTIBLE PROMISSORY NOTE
$150,000 January , 2002
FOR VALUE RECEIVED, Zylab International, Inc., a Virginia corporation (the
"Company" or the "Payor"), with an address at 00000 Xxxxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000 promises to pay to the order of Authentidate Holding Corp.
(the "Payee" or the "Holder"), the principal amount of ONE HUNDRED FIFTY
THOUSAND DOLLARS ($150,000) of principal and interest in six (6) quarterly
installments of $26,328.78, each commencing on June 30, 2002 with a final
installment due and payable on September 30, 2003 (the "MATURITY DATE").
Interest shall accrue and be payable at the rate of 6% per annum (except as
provided in Section 1.4), calculated for the actual number of days the Principal
is outstanding and interest is accrued and unpaid based on a 360-day year, in
accordance with the terms hereof. Payments of principal and interest shall be
made in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public or private debts at such
address of the Holder as set forth herein or that the Holder shall hereafter
give to the Payor by written notice made in accordance with the provisions
hereof.
1. Terms of Repayment
1.1 All payments received on account of this Note shall be applied first to
the payment of accrued interest on this Note and then to the reduction of the
unpaid principal balance of this Note. Interest shall be computed on the basis
of a year of 360 days, for the actual number of days elapsed. Payor may prepay
principal and interest on this Note upon 10 days prior notice to the Holder.
1.2 If payment of the outstanding principal amount of this Note, together
with accrued unpaid interest thereon at the applicable rate of interest (as set
forth herein), is not made on the earlier to occur of (i) the Maturity Date (as
such date may be extended pursuant to the extension options set forth in Section
4 hereof) and (ii) the Accelerated Maturity Date (defined below), then interest
shall accrue on the outstanding principal amount due under this Note and on any
unpaid accrued interest due on this date of the payment in full of such amounts
(including from and after the date of the entry of judgment in favor of the
Holder in an action to collect this Note) at an annual rate equal to the lesser
of 18% or the maximum rate of interest permitted by applicable law.
1.3 Notwithstanding anything to the contrary contained in this Note, Payor
shall not be obligated pay, and the Holder shall not be entitled to charge,
collect, or receive, interest in excess of the maximum rate allowed by
applicable law. During any period of time in which the interest rate specified
herein exceeds such maximum rate, any amounts of interest collected by the
Holder in excess of such maximum rate shall be deemed to apply to principal and
all payments of interest and principal shall be recalculated to allow for such
characterization.
1.4 In the event that the date for the payment of any amount payable under
this Note falls due on a Saturday, Sunday or public holiday under the laws of
the State of New York, the time for payment of such amount shall be extended to
the next succeeding business day and interest shall continue to accrue on any
principal amount so effected until the payment thereof on such extended due
date.
2. Security. This Holder of this Note is entitled to the rights as set
forth in that certain Security Agreement between the Company and Authentidate
Holding Corp. dated December 24, 2001 (the "Security Agreement"), pursuant to
which the Holder has been granted a first priority security interest in the
assets of the Company. This Note is the direct obligation of the Company and is
secured by all of the Collateral contemplated by the Security Agreement. In
order to effectuate the purposes of the Security Agreement and this Note,
certain of the Collateral contemplated by the Security Agreement shall be
deposited with an escrow agent pursuant to the terms of the escrow agreement as
provided in the Security Agreement. A copy of the Security Agreement and escrow
agreement are available for inspection at the Company's principal office.
Reference to the Security Agreement and escrow agreement shall in no way impair
the absolute and unconditional obligation of the Company to pay both principal
and interest hereon as provided herein. All capitalized terms not defined herein
shall have the meanings ascribed thereto in the Security Agreement and Escrow
Agreement.
3. Conversion Rights
3.1 The Holder shall have the right prior to the date on which this Note is
paid in full, to convert at any time as provided below, from time to time, any
part of the outstanding principal amount of this Note into fully paid and
non-assessable shares of the Common Stock, no par value per share ("Conversion
Shares"), of Payor (the "CONVERSION RIGHTS") at the Conversion Ratio (as defined
below in Section 3.2) determined as provided in this Section 3. Promptly after
the surrender of this Note, accompanied by a Notice of Conversion of Convertible
Note in the form
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attached hereto as Exhibit A, properly completed and duly executed by the Holder
(a "CONVERSION NOTICE"), Payor shall issue and deliver to or upon the order of
the Holder that number of shares of Common Stock for the balance of this Note
converted as shall be determined in accordance herewith. This Note shall be
convertible, at the option of the Holder commencing on the date which is the
earlier of (i) the date of termination of the Letter of Intent between the
Company and Authentidate Holding Corp. dated as of December 14, 2001 unless the
Letter of Intent has been superceded by a definitive agreement between the
Company and Authentidate Holding Corp. providing for the acquisition of the
Company by Authentidate Holding Corp. or (ii) 90 days from the date hereof.
3.2 Conversion Ratio. The principal amount of this Note outstanding may be
converted, at the option of the Holder at any time, into shares of Common Stock
of Payor (or any successor entity). The number of shares of Payor's Common Stock
to be delivered to Payee upon conversion of the entire original principal amount
of this Note shall equal seven and one half (7.5%) of the outstanding Common
Stock of Payor, determined on a fully diluted basis, as of the date of
Conversion ("CONVERSION RATIO"). If less then the total principal amount of this
Note is converted by the Holder, the number of shares to be delivered shall be
reduced pro rata by the ratio by which the principal amount to be converted
bears to $150,000. Upon conversion, in whole or in part, all accrued interest
due and owing as of the date of conversion shall be paid in full on the next
scheduled quarterly installment date.
3.3 Subdivision. If the Company, at any time while Note remains
outstanding, shall (i) subdivide the Common Stock (or effect a similar
transaction), the Conversion Ratio shall be proportionately reduced or (ii)
effect a reverse stock split or similar transaction, the Conversion Ratio shall
be proportionately increased, as the case may be, as of the effective date of
such subdivision, reverse stock split or similar transaction, or, if the Company
shall take a record of holders of its Common Stock for the purpose of any such
transaction, as of such record date, whichever is earlier (provided if such
transaction does not actually occur, such adjustment shall not be made).
3.4 Stock Dividends. If the Company at any time while the Note is
outstanding shall pay a dividend in shares of, or make other distribution of
shares of, the Common Stock, then the Conversion Ratio shall be adjusted, as of
the date the Company shall take a record of the holders of its Common Stock for
the purpose of receiving such dividend or other distribution (or if no such
record is taken, as at the date of such payment or other distribution), to that
price determined by multiplying the Conversion Ratio in effect immediately prior
to such payment or other distribution by a fraction (a) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (b) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
dividend or distribution.
3.5 Reclassification, Consolidation or Merger. At any time while this Note
remains outstanding, in case of any reclassification or change of Common Stock
(other than a change in par value, or from par value to no par value per share,
or from no par value per share to par value or as a result of a subdivision or
combination of Common Stock) or in case of any consolidation or
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merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is a continuing corporation and which
does not result in any reclassification or change, other than a change in par
value, or from par value to no par value per share, or from no par value per
share to par value, or as a result of a subdivision or combination Common
Stock), or in the case of any sale or transfer to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
Company, or such successor or purchasing corporation, as the case may be, shall,
without payment of any additional consideration therefor, execute new notes
providing that the holders of the Note shall have the right to exercise such new
notes (upon terms not less favorable to the holders than those then applicable
to the Note) and to receive upon such exercise, in lieu of each share of Common
Stock theretofore issuable upon exercise of the Note, the kind and amount of
shares of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by the Holder
of one share of Common Stock issuable upon exercise of the Note had the Note
been converted immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new notes shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3. The provisions of this Section 3.5
shall similarly apply to successive reclassifications, changes, consolidations,
mergers, sales and transfers.
3.6 Method of Conversion. Except as otherwise provided in this Note or
agreed to by the Holder, this Note may be converted by the Holder in whole or in
part as permitted herein (provided such partial conversion is at least $20,000)
from time to time by (i) submitting to the Company a Conversion Notice (by
facsimile dispatched on the Conversion Date and confirmed by U.S. mail or
overnight mail service sent within two business days thereafter) and (ii)
surrendering this Note with the mailed confirmation of the Conversion Notice at
the principal office of the Company. Upon partial exercise of the Conversion
Rights, a new note containing the same date and provisions as this Note shall be
issued by the Company to the Holder for the balance due hereunder which shall
not have been converted.
3.7 Restrictions on Shares. This Note has been issued by the Company
pursuant to the exemption from registration under the Securities Act of 1933
(the "ACT"). The shares of Common Stock issuable upon conversion of this Note
may not be offered, sold or otherwise transferred unless (i) they first shall
have been registered under the Act and applicable state securities laws or (ii)
the Company shall have been furnished with an opinion of legal counsel (in form,
substance and scope reasonably acceptable to the Company) to the effect that
such sale or transfer is exempt from the registration requirements of the Act.
Each certificate for shares of Common Stock issuable upon conversion of this
Note that have not been so registered and that have not been sold pursuant to an
exemption that permits removal of the applicable legend, shall bear a legend
substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES
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AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Note, the Company shall remove the
foregoing legend from the certificate or issue to such Holder a new certificate
therefor free of any transfer legend, if (i) with such request, the Company
shall have received an opinion of counsel, reasonably satisfactory to it in
form, substance and scope, to the effect that any such legend may be removed
from such certificate or (ii) a registration statement under the Act covering
the resale of such securities is in effect.
3.8 Reservation of Shares. The Company shall at all times have authorized
and reserved, for the purpose of issuance, a sufficient number of shares of
Common Stock to provide for the issuance of shares of Common Stock underlying
the then outstanding aggregate Principal amount of the Note. In the event that
at any time commencing on the date hereof that the Company does not have an
adequate and sufficient number of authorized shares of Common Stock available to
provide for issuance to Holder for the full conversion of this Note as provided
herein, then (i) the principal officers and/or shareholders of the Company shall
deliver to Holder, to be held in escrow (until an Event of Default as provided
in this Note), such number of shares representing the number of shares by which
the Company is deficient (the "Deficiency Shares"), together with undated and
executed stock powers, which shall be held in escrow until the Company is able
to deliver the fully authorized Deficiency Shares and (ii) the Company and the
officers and directors of the Company shall deliver written and binding
agreements by which each of them agree to use their best efforts to obtain
shareholder approval as soon as possible to authorize additional shares of
Common Stock of the Company and agree to vote all shares owned by them
(beneficially and of record) at the next meeting of shareholders (or by written
consent) in favor of authorizing a sufficient number of additional shares of
Common Stock to provide for at least the Deficiency Shares. The Company shall
procure a Certificate of Amendment to its Certificate of Incorporation providing
for the increase in its authorized capital and deliver such Certificate of
Amendment to the Holder no later than ten days from the date hereof.
4. Covenants. The Company covenants and agrees that for so long as any
portion of the indebtedness evidenced by this --------- Note, whether principal,
accrued and unpaid interest or any other amount at any time due hereunder,
remains unpaid:
4.1 Negative Covenants. The Company will not, without the prior written
consent of the Holder:
(a) Sell, transfer or in any other manner dispose of, or purchase or
acquire, any business, assets, capital stock or other property, except (i) in
the ordinary course of its business, or (ii) if (A) the transaction is a bona
fide transaction in which fair market value is received by the Company, (B) no
Event of Default or Default (each defined hereinafter) has occurred and is
continuing or would occur after giving effect to such transaction, and (C)
payment of the principal amount of the Notes and accrued and unpaid interest
thereon through the date of such payment shall have been made or provided for
from the net proceeds of such transaction.
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(b) Make any loan or advance to any person who is or hereafter becomes an
officer, director or shareholder of the Company or any affiliate of any such
person, other than for reasonable advances for expenses to be incurred by
officers, directors, employees and consultants of the Company in the ordinary
course of the business of the Company.
(c) Purchase or otherwise redeem any Common Stock or other equity
securities of the Company or declare or pay any dividends in cash or other
assets on any of its Common Stock or other equity securities.
(d) Issue, create, incur, assume, permit, guarantee or suffer to exist any
indebtedness or other obligations for money borrowed or capital lease
obligations, except for (i) indebtedness under the Note and any extension,
renewal or refinancing thereof; (ii) trade indebtedness incurred in the ordinary
course of business; (iii) indebtedness or other obligations for money borrowed
which are subordinated in all respects, including, but not limited to, priority
upon liquidation, to the Note and (iv) account receivable financing in an amount
not to exceed $150,000 principal amount, and which account receivable financing
is secured by no other assets of the Company.
(e) Pay (other than in accordance with the terms thereof), or voluntarily
prepay, any amounts under any indebtedness or other obligations for money
borrowed, or capital lease obligations, whenever incurred or created and whether
or not such indebtedness becomes due, past due or accelerated, except for (i)
the Note, (ii) trade indebtedness incurred in the ordinary course of business or
(iii) regularly scheduled payments in connection with account receivables
financing which the Company may obtain in an amount not to exceed $150,000.
(f) (i) Amend its certificate or articles of incorporation or by-laws in
any manner which would impair or reduce the rights of the holders of the Note,
(ii) effect a merger or consolidation in which the Company is not the surviving
entity or (iii) liquidate, wind up its affairs or dissolve.
(g) Create, permit or suffer to exist any lien, charge or security interest
in any of its assets, except for (i) the security interest created by the
Security Agreement; and (ii) Permitted Liens. As used herein, "Permitted Liens"
means any of the following: (a) liens for taxes, assessments and governmental
charges or levies (i) not yet in default or (ii) that are being contested in
good faith and by appropriate proceedings diligently conducted, provided that in
the case of liens under this clause (ii), reserves or other appropriate
provisions shall have been established therefor in accordance with generally
accepted accounting principles ("GAAP") and enforcement of any such liens shall
have been effectively stayed or fully bonded pending the final determination of
such proceeding, (b) liens imposed by law, such as materialmen's, mechanics'
carriers', workmen's and repairmen's liens and other similar liens arising in
the ordinary course of business securing obligations that are not overdue for a
period of more than 60 days or which, if overdue, are being contested in good
faith and by appropriate proceedings diligently conducted, provided that
reserves or other appropriate provisions shall have been established therefor in
accordance with GAAP and enforcement of any such lien is effectively stayed or
fully bonded pending the final determination of such proceeding, (c) pledges or
deposits to secure obligations under workers' compensation laws or similar
legislation or to secure
6
public or statutory obligations; (d) easements, zoning restrictions or other
restrictions, rights-of-way, minor encroachments, covenants or encumbrances on
real property imposed by law or arising in the ordinary course of business that
do not arise out of the incurrence of any indebtedness and that do not and could
not reasonably be expected to materially detract from the value of the affected
property or interfere materially with the ordinary conduct of business of the
Company or materially impair the use thereof to the indebtedness; (e) judgments
and other similar liens arising in connection with court proceedings in an
amount not in excess of $50,000, provided the execution or other enforcement of
such liens is effectively stayed or fully bonded pending the final determination
of the proceeding referred to below and the claims secured thereby are being
contested in good faith and by appropriate proceedings; and (f) liens (other
than liens created or imposed under the Employee Retirement Income Security Act
of 1974, as amended) incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tender,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar obligations
(exclusive in any case of obligations incurred in connection with the borrowing
of money or the obtaining of advances or credit).
(h) Directly or indirectly, enter into any transaction with or for the
benefit of an affiliate (other than the reasonable compensation of an affiliate
for services as an officer, director or employee).
4.2 Affirmative Covenants. The Company will:
(a) Pay and discharge all lawful taxes, assessments and governmental
charges or levies imposed upon it, upon its income and profits or upon any of
its assets, before the same shall become in default, as well as all lawful
claims for labor, materials and supplies which, if unpaid, might become a lien
or charge upon such properties or any part thereof, provided, however, that the
Company will not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as (i) the validity, applicability and/or the
amount thereof shall be contested in good faith by appropriate proceedings, (ii)
the Company, shall have set aside on its books adequate reserves in accordance
with GAAP with respect to any such tax, assessment, charge, levy or claim so
contested, and (iii) enforcement of any lien on any assets of the Company
associated with any such taxes, assessments, charges, levies or claims shall
have been effectively stayed or fully bonded pending the final determination of
any such proceedings.
(b) Do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights and franchises and to
comply in all material respects with all laws, regulations and orders of each
governmental authority having jurisdiction over the Company (it being
acknowledged that the Company may nevertheless effectuate its Reincorporation).
(c) Promptly following the occurrence of a Default (as defined herein),
furnish to the Holder and the Secured Party a statement of the Company's
President or Chief Financial Officer setting forth the details of such Default
and the action which the Company proposes to take with respect thereto.
7
(d) At all times maintain true and complete records and books of account in
which all of the financial transactions of the Company are duly recorded in
conformance with GAAP.
(e) Within 90 days of the date hereof, at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issuance upon conversion of this Note, such number of shares of Common Stock
as shall be issuable upon the conversion of this Note.;
(f) Take all action which may be necessary or expedient to assure that,
upon conversion of this Note, all Conversion Shares issuable upon such
conversion will be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder.
(g) Use the proceeds from the sale of the Notes primarily for working
capital requirements and for repayment of debt payable to third parties, but not
debt to officers or directors or their affiliates.
(h) Commencing on January 31, 2002, provide the Holder with monthly
financial statements prepared in accordance with generally accepted accounting
principals consistently applied including a balance sheet and statements of
income and cash flow, as well as detailed aging of accounts receivable and
accounts payable.
(i) Furnish to the Payee such reports as to the Collateral (as defined in
the Security Agreement) for the Notes as the Holder may reasonably request from
time to time.
(j) Cooperate with the Holder and execute such further instruments and
documents as the Holder shall reasonably request to carry out to their
satisfaction the transactions contemplated by this Note.
(k) Permit the Holder to visit and inspect any of the properties of the
Company to examine the books of account of the Company (and to make copies
thereof and extracts therefrom), and to discuss the affairs, finances and
accounts of the Company with, and to be advised as to the same by, its and their
officers, at all such reasonable times and intervals as the Holder may
reasonably request.
(l) Comply in all material respects with (i) the applicable laws and
regulations wherever its business is conducted, (ii) the provisions of its
charter documents and by-laws, (iii) all agreements and instruments by which it
or any of its properties may be bound and (iv) all applicable decrees, orders
and judgements.
(m) Continue to retain Xxxxxxxx Xxxxxx as the Chairman and Chief Executive
Officer of the Company.
8
(n) Cause any Subsidiary organized after the date of the Note to be bound
by the terms hereof and the Security Agreement to the same extent as the
Company.
(o) Deliver to the Holder, upon request, a detailed statement reflecting
the number of shares of Common Stock outstanding and the number of all
convertible securities with the terms of such conversion.
(p) Submit, within 45 days of the date hereof, for approval of
shareholders, a resolution to approve an increase in the authorized common stock
of the Company or obtain written consents for such approval within 45 days of
the date hereof.
(q) Along with Xxxxxxxx Xxxxxx, use commercially reasonable efforts to
obtain a term life insurance policy on the life of Xx. Xxxxxx, for the benefit
of Holder in the amount of $500,000. Such policy may be made payable to the
Company only if the Company collaterally assigns such proceeds to the Holder
sufficient proceeds, up to $500,000, to satisfy any outstanding Notes (as
defined in the Security Agreement dated December 24, 2001, between Company and
Authentidate Holding Corp.), which proceeds shall be applied to repay said
Notes.
5. Events of Default. If any of the following events (each an "Event of
Default") shall occur:
5.1 The Company fails to pay the principal of, any installment of principal
and/or interest accrued on, or any other amount at anytime owing under, the
Note, as and when the same becomes due and payable hereunder or thereunder
and/or under the Security Agreement; or
5.2 The Company defaults in the due observance or performance of or breach
any of its covenants contained in this Note or the Security Agreement, (other
than a Default involving the payment of money due under this Note), and such
default is not cured within 10 business days after the occurrence of such
default; or
5.3 The Company or any Subsidiary thereof shall (i) becomes insolvent, (ii)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, trustee or similar official of or for itself or of or for all or a
substantial part of its property, (iii) make an assignment for the benefit of
its creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code,
as now or hereafter in effect (the "Code"), (v) file a petition seeking to take
advantage of any other bankruptcy, insolvency, moratorium, reorganization or
other similar law of any jurisdiction ("Other Laws"), (vi) acquiesce as to, or
fail to controvert in a timely or appropriate manner, an involuntary case filed
against the Company or such Subsidiary under the Code, or (vii) take any
corporate action in furtherance of any of the foregoing; or
5.4 A proceeding or involuntary case shall be commenced, without the
application or consent of the Company or any Subsidiary thereof, in any court of
competent jurisdiction (i) under the Code, (ii) seeking liquidation,
reorganization, dissolution, winding up or composition or readjustment of its
debts under any Other Laws, or (iii) seeking the appointment of a trustee,
receiver
9
or similar official for it or for all or any substantial part of its assets, and
any such proceeding or case shall continue undismissed, or unstayed and in
effect, for a period of 60 days; or
5.5 A final judgment for the payment of money shall be rendered by a court
of competent jurisdiction against the Company or any Subsidiary thereof, and the
Company or such Subsidiary shall not discharge the same, or procure a stay of
execution thereof within 30 days from the date of entry thereof and within such
30 day period or such longer period during which execution of such judgment
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal, and such judgment, together with all other judgments
against the Company (including all subsidiaries), shall exceed in the aggregate
$50,000 in excess of any insurance as to the subject matter of such judgments,
as to which coverage has not been declined or the underlying claim rejected by
the applicable insurer; or
5.6 The liquidation or dissolution of the Company or any Subsidiary thereof
or any vote in favor thereof by the board of directors and shareholders of the
Company; or
5.7 A proceeding is commenced to foreclose a security interest in or lien
on any asset of the Company or any Subsidiary thereof as a result of a default
in the payment or performance of any indebtedness of the Company or such
Subsidiary; or
5.8 An attachment or garnishment is levied against the assets of the
Company or any Subsidiary thereof involving an amount in excess of $25,000 and
the lien created by such levy is not vacated, bonded or stayed within 10
business days after such lien has attached to such assets; or
5.9 The Company or any Subsidiary thereof defaults in the payment
(regardless of amount) when due of the principal of, interest on, or any other
liability on account of, any indebtedness of the Company or such Subsidiary
(other than the Notes) having an unpaid principal amount in excess of $50,000,
or a default occurs in the performance or observance by the Company or any
Subsidiary thereof of any covenant or condition (other than for the payment of
money) contained in any note (other than this Note) or agreement evidencing or
pertaining to any such indebtedness, which causes the maturity of such
indebtedness to be accelerated or permits the holder or holders of such
indebtedness to declare the same to be due prior to the stated maturity thereof;
5.10 Any representation, warranty or statement of fact made by the Company
in this Note, or the Security Agreement or in any certificate or financial
statement delivered by the Company to the Holder at any time proves to be false
or misleading in any material respect when made or deemed made by the Company;
5.11 The Company or any of its Subsidiaries sells all or substantially all
of its assets or merges or is consolidated with another corporation in which the
Company or such Subsidiary, as the case may be, is not the surviving
corporation;
10
5.12 The Company grants a security interest in any of its assets while any
principal or interest on this Note remains outstanding provided, however, the
Company may grant a security interest of up to $150,000 with respect to account
receivable financing; or
5.13 The Company fails to obtain shareholder approval to amend its
certificate of incorporation within 90 days of the date hereof to provide for an
increase in the number of authorized shares of Common Stock in an amount at
least equal to the number of shares issuable upon conversion of this Note.
then, and in any such event the Holder of this Note may by written notice to the
Company declare the entire unpaid principal amount of this Note outstanding
together with accrued interest thereon due and payable, and the same shall,
unless such default be cured within ten (10) days after such notice, forthwith
become due and payable upon the expiration of such ten (10) day period, without
presentment, demand, protest, or other notice of any kind, all of which are
expressly waived.
As used in this Note, "Accelerated Maturity Date" means any date prior to
the Maturity Date on which the principal of and any accrued and unpaid interest
on this Note is declared to be, or becomes, due pursuant to this Section 4 and
"Default" means any event that is or, with the passage of time or the giving of
notice or both, would be, an Event of Default.
6. Suits for Enforcement and Remedies. If any one or more Events of Default
shall occur, the Holder may proceed to (i) protect and enforce Holder's rights
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, condition or agreement contained in this Note or in
any agreement or document referred to herein or in aid of the exercise of any
power granted in this Note or in any agreement or document referred to herein,
(ii) enforce the payment of this Note, or (iii) enforce any other legal or
equitable right of the Holder. No right or remedy herein or in any other
agreement or instrument conferred upon the Holder of this Note is intended to be
exclusive of any other right or remedy, and each and every such right or remedy
shall be cumulative and shall be in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
7. Restriction on Transfer. This Note has been acquired for investment and
has not been registered under the securities laws of the United States of
America or any state thereof. Accordingly, neither this Note nor any interest
therein may be offered for sale, sold or transferred in the absence of
registration and qualification of this Note under applicable federal and state
securities laws or an opinion of counsel of the Holder reasonably satisfactory
to the Company that such registration and qualification are not required.
8. Prepayment. The principal of and accrued interest on this Note may be
prepaid in full at any time without premium or penalty.
9. Holder Deemed Owner. The Company may deem and treat the registered
Holder hereof as the absolute owner of this Note (whether or not this Note shall
be overdue and
11
notwithstanding any notice of ownership or writing hereon made by anyone other
than the Company, for the purpose of receiving payment hereof or thereof or on
account hereof and for all other purposes) and the Company shall not be affected
by notice to the contrary.
10. Corporate Obligation. It is expressly understood that this Note is
solely a corporate obligation of the Company, and that any and all personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every promoter, subscriber,
incorporator, shareholder, officer, or director, as such, are hereby expressly
waived and released by the Holder hereof by the acceptance of this Note and as a
part of the consideration for the issue hereof.
11. Miscellaneous
11.1 The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. No provision of
this Note shall alter or impair the obligations of the Company hereby.
11.2 If, following the occurrence of an Event of Default, the Holder of
this Note shall seek to enforce the collection of any amount of principal and/or
accrued interest on this Note, there shall be immediately due and payable by the
Company, in addition to the then unpaid principal of, and accrued unpaid
interest on, this Note, all costs and expenses incurred by the Holder of this
Note in connection therewith, including, without limitation, reasonable
attorneys' fees and disbursements.
11.3 No forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver or as an acquiescence
in any Default, nor shall any single or partial exercise of any right or remedy
preclude any other or further exercise thereof or the exercise of any other
right or remedy.
11.4 This Note may not be modified or discharged (other than by payment),
except by a writing duly executed by the Company and Holder.
11.5 The headings of various sections and subsections of this Note are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.
11.6 All notices required to be given to any of the parties hereunder shall
be in writing and shall be deemed to have been sufficiently given for all
purposes when presented personally to such party, sent by telecopier (with the
original timely mailed), or sent by registered, certified or express mail,
return receipt requested, to such party at its address set forth below:
12
If to the Company, to: With a copy to:
Zylab International, Inc. Xxxxxx X. Xxxxx, Esq.
00000 Xxxxxxxxxxx Xxxx Xxxxx & Xxxxx, X.X.
Suite 000 0000-X Xxxxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000 XxXxxx, Xxxxxxxx 00000
Attn: Xxxx Xxxxxx Telecopier No.: (000) 000-0000
Telecopier No.: (000) 000-0000
If to the Payee, to: With a copy to:
Xxxxxx X. Xxxx, Chief Financial Officer Xxxxx X. Xxxxxxxx, Esq.
Authentidate Holding Corp. Xxxxxxxxx & XxXxxxx, LLP
0000 Xxxxxxxxxx Xxxxx 000 Xxxxxxxxx Xxxxxx-00xx Xxxxx
Xxxxxxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Telecopier: (000) 000-0000 Telecopier No.: (000) 000-0000
or hereafter given to the other party hereto pursuant to the provisions of this
Note.
11.7 The Company may not delegate its obligations under this Note and such
attempted delegations shall be null and void. The Holder may assign, pledge or
otherwise transfer this Note without prior written consent of the Company. This
Note inures to the benefit of Payee, its successors and its assignee of this
Note and binds the Company, and its successors and assigns, and the terms
"Payee" and "the Company" whenever occurring herein shall be deemed and
construed to include such respective successors and assigns.
11.8 This Note shall continue to be effective or be reinstated, as the case
may be, if at any time any payment made pursuant to it is rescinded or must
otherwise be returned by the Holder upon bankruptcy or reorganization or
otherwise of the Company, all as though such payment had not been made.
11.9 THE COMPANY AND THE HOLDER EACH (I) AGREES THAT ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE SHALL BE INSTITUTED
EXCLUSIVELY IN THE APPROPRIATE STATE COURT, COUNTY OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, (II) WAIVES ANY
OBJECTION WHICH THE COMPANY MAY HAVE NOW OR HEREAFTER BASED UPON FORUM NON
CONVENIENS OR TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND (III)
IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE STATE COURT, COUNTY OF NEW YORK,
NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK IN ANY SUCH SUIT, ACTION OR PROCEEDING. THE COMPANY AND THE HOLDER EACH
FURTHER AGREES TO ACCEPT AND ACKNOWLEDGE SERVICE OF ANY AND ALL PROCESS WHICH
MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE COURT, COUNTY
OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND AGREES THAT SERVICE OF PROCESS UPON THE COMPANY OR THE HOLDER,
MAILED BY CERTIFIED MAIL TO THEIR RESPECTIVE ADDRESSES, SUCH SERVICE TO
13
BECOME EFFECTIVE THREE BUSINESS DAYS AFTER SUCH MAILING, WILL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE COMPANY OR THE HOLDER, AS THE CASE
MAY BE, IN ANY SUIT, ACTION OR PROCEEDING. FURTHER, BOTH THE COMPANY AND THE
HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE THIS NOTE AND IN
CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH
ACTION.
11.10 This Note is exchangeable, without expense, upon the surrender hereof
by the Holder at the principal executive office of the Company, for two or more
new Notes of like tenor and date (except for the principal amounts thereof)
representing in the aggregate the same principal amount as this Note, in such
denominations as shall be designated by the Holder thereof at the time of such
surrender, provided that such new Notes shall be issuable in minimum
denominations of $10,000 and integral multiples thereof.
11.11 This Note shall be construed in accordance with and governed by the
laws of the State of New York without regard to principles of conflicts of law,
and cannot be changed, discharged or terminated orally but only by an instrument
in writing signed by the party against whom enforcement of any change, discharge
or termination is sought.
11.12 Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Note, if mutilated, the
Company will make and deliver a new Note of like date and tenor, in lieu hereof.
11.13. Payor may not delegate its obligations under this Note and such
attempted delegations shall be null and void. The Payor may assign, pledge or
otherwise transfer this Note without prior written consent of Payor. This Note
inures to the benefit of Payee, its successors and its assignee of this Note and
binds Payor, and its successors and assigns, and the term "Payee"whenever
occurring herein shall be deemed and construed to include such respective
successors and assigns.
11.14. The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. No provision of
this Note shall alter or impair the obligations of the Payor hereby.
11.15. No forbearance, indulgence, delay or failure to exercise any right
or remedy with respect to this Note shall operate as a waiver or as an
acquiescence in any Event of Default, nor shall any single or partial exercise
of any right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy.
14
PAYOR:
ZYLAB INTERNATIONAL, INC.
By:
---------------------------------------
Xxxxxxxx Xxxxxx, President
15
EXHIBIT 1
NOTICE OF CONVERSION
OF CONVERTIBLE NOTE
TO: [ ]
(A) Pursuant to the terms of the attached Convertible Note (the "Note"), the
undersigned hereby elects to convert $ principal amount of the Note
into shares of Common Stock of Zylab International, Inc. (the "Maker").
Capitalized terms used herein and not otherwise defined herein have the
respective meanings provided in the Note.
(B) Please issue a certificate or certificates for the number of shares of
Common Stock into which such principal amount of the Note is convertible in
the name(s) specified immediately below or, if additional space is
necessary, on an attachment hereto:
----------------------- --------------------------
Name Name
----------------------- --------------------------
Address Address
----------------------- --------------------------
SS or Tax ID Number SS or Tax ID Number
(C) In the event of partial exercise, please reissue an appropriate Note(s)
for the balance that shall not have been converted.
(D) The undersigned represents and warrants that (i) all of the requirements of
the Securities Act of 1933, as amended (the "ACT"), applicable to the
undersigned have been complied with by the undersigned and (ii) the
undersigned has not engaged in any transaction or series of transactions
that is a part of or a plan or scheme to evade the registration
requirements of the Act.
---------------------- -------------------------------
Date Signature of Registered Holder
(Must be signed exactly as name
appears in the Note. The
signature must be notarized.)
16
