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EXHIBIT 4.4
(FACE OF DEBENTURE)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED WITHIN THE "UNITED STATES" OR TO "U.S. PERSONS"
(AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE HOLDER OF THIS
SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES FOR THE
BENEFIT OF THE COMPANY THAT: (I) IT HAS ACQUIRED A "RESTRICTED" SECURITY WHICH
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL
OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE WHICH IS ONE YEAR AFTER
THE DATE OF ORIGINAL ISSUANCE HEREOF EXCEPT (A) TO OBJECTIVE COMMUNICATIONS,
INC., (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, OR
(D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AS CONFIRMED IN AN OPINION OF COUNSEL ACCEPTABLE IN FORM
AND SUBSTANCE TO THE ISSUER OF THIS SECURITY AND, IN EACH CASE, IN ACCORDANCE
WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION; AND (III) IT WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS SECURITY OF THE RESALE
RESTRICTIONS SET FORTH IN CLAUSE (II) ABOVE. ANY OFFER, SALE OR OTHER
DISPOSITION PURSUANT TO THE FOREGOING CLAUSE (II)(D) IS SUBJECT TO THE RIGHT OF
THE ISSUER OF THIS SECURITY TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS OR OTHER INFORMATION ACCEPTABLE TO THEM IN FORM AND SUBSTANCE.
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OBJECTIVE COMMUNICATIONS, INC.
(Incorporated in the State of Delaware)
5% CONVERTIBLE DEBENTURE DUE 2003
No. R- U.S. $
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Objective Communications, Inc., a corporation duly
incorporated and existing under the laws of the State of Delaware (the
"Company"), for value received, hereby promises to pay to
, or
registered assigns, the principal sum of United States Dollars on July 8, 2003
(the "Maturity Date"), subject to earlier redemption by the Company. The
Debentures will be convertible into common stock, par value $.01 per share, of
the Company on the terms and subject to the conditions hereinafter set forth,
after the date that is one-hundred and eighty-one (181) days after the date of
issuance. The Debentures will accrue interest at a rate of 5% per annum, due
and payable quarterly in arrears, on the last day of March, June, September and
December of each year, commencing September 30, 1998, as described further
under the Terms and Conditions of the Debentures. Interest hereon shall be
calculated on the basis of a 360 day year.
Reference is hereby made to the further provisions of this
Debenture set forth under the Terms and Conditions of the Debentures on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed in its corporate name by the manual or facsimile signature of
a duly authorized signatory, as attested to by another duly authorized
signatory of the Company.
Dated: July 8, 1998
OBJECTIVE COMMUNICATIONS, INC.
By:
--------------------------------
Name:
Title:
ATTEST:
By:
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Name:
Title:
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[Reverse]
Terms and Conditions of the Debentures
1. General.
(a) This Debenture is one of a duly authorized issue of Debentures
of the Company in original aggregate principal amount of $3,125,000, designated
as its 5% Convertible Debenture due 2003 (herein called the "SECURITIES").
(b) The Securities are issuable, without coupons, in principal
denominations of U.S. $10,000 and integral multiples thereof. The Securities,
and transfers thereof, shall be in registered form as provided in Section 2
hereof. The registered holder of a Security shall (to the fullest extent
permitted by applicable law) be treated at all times, by all persons and for
all purposes as the absolute owner of such Security, regardless of any notice
of ownership, theft or loss or of any writing thereon.
2. Interest. (a) Each Debenture shall be entitled to
receive, cumulative annual interest at the rate of 5.0% per annum on the
principal amount thereof. Such interest shall be due and payable quarterly in
arrears on the last day of March, June, September and December of each year
(each, an "INTEREST PAYMENT DATE"), commencing on September 30, 1998. Interest
shall accrue daily from the Issuance Date (as defined herein), whether or not
earned or declared, until such Debenture has been converted or redeemed as
herein provided. To the extent interest is not paid on the applicable Interest
Payment Date, such interest shall be cumulative and shall compound quarterly
until the date of payment of such interest. The interest so payable will be
paid to the person in whose name the Debentures (or one or more predecessor
shares) are registered on the records of the Company regarding registration and
transfers of the Debentures (the "DEBENTURE"); provided, however, that the
Company's obligation to a transferee of a Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions hereof and the Subscription Agreement, dated as of the Issuance
Date, by and between the Company and the Subscribers set forth on the signature
pages thereof (the "SUBSCRIPTION AGREEMENT").
(b) The interest is payable in such coin or currency of
the United States of America as at the time of payment is legal tender, to the
person in whose name the applicable Debenture is duly registered on the
Debenture Register (the "HOLDER") on the tenth day prior to the applicable
Interest Payment Date and at the address last appearing on the Debenture
Register as designated in writing by such Holder thereof from time to time;
provided, however, that, in lieu of paying such interest in coin or currency,
the Company may, at its option, in full or in part, pay interest on the
Debentures on any Interest Payment Date by increasing the Debentures by the
amount of such interest such that the sum of (i) the amount of such increase in
the principal amount of the Debentures and (ii) the amount of cash interest
paid in part, if any, is equal to the amount of the cash interest which would
otherwise be paid on such Interest Payment Date if such
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interest were paid entirely in cash. Any such increase in the principal amount
of the Debenture (plus the amount of cash interest, if any, paid together
therewith) shall constitute full payment of such interest. When any interest
is added to the principal amount of the Debenture, such interest shall, for all
purposes of the Debenture, be deemed to be part of the principal amount of the
Debenture for purposes of determining interest thereafter payable hereunder and
amounts thereafter convertible into Common Stock hereunder, and all references
herein to the principal amount of the Debenture shall mean the principal amount
of the Debenture, as adjusted pursuant to these provisions.
(c) If the Company shall elect to pay any part of an
interest payment by increasing the principal amount of the Debenture as
described in Paragraph 2(b), the Company will provide notice setting forth the
new principal amount of the Debenture to each Holder (an "INTEREST NOTICE") on
or prior to the applicable Interest Payment Date.
(d) If the cash interest due hereunder is not paid or the
Interest Notice is not delivered to each Holder within ten (10) calendar days
after the applicable Interest Payment Date, the Company shall no longer have
the right to choose the method by which interest is paid, and each Holder may
elect either cash interest payments or interest payable by increasing the
principal amount of the Debenture.
(e) Except as specifically provided herein, an election
by the Company to pay interest, in full or in part, in cash on any Interest
Payment Date shall not preclude the Company from electing any other available
alternative in respect of all or any portion of any subsequent interest
payment.
(f) So long as any Debentures are outstanding, no
dividends, including, without limitation, dividends or distributions paid in
shares of, or options, warrants or rights to subscribe for, or purchase shares
of, equity securities of the Company (whether with respect to dividends or upon
liquidation, dissolution, winding up or otherwise), including Common Stock or
any debt securities on a parity with the Debentures (whether with respect to
dividends or upon liquidation, dissolution or winding up) (collectively, the
"PARITY SECURITIES"), shall be declared or paid or set apart for payment or
other distribution upon the equity securities or the Parity Securities, nor
shall any equity securities or Parity Securities be redeemed, purchased or
otherwise acquired for any consideration (or any monies to be paid to, or made
available for, a sinking fund for the redemption of any shares of any such
stock) by the Company, directly or indirectly (except by conversion to, or
exchange for, equity securities or Parity Securities, respectively), unless, in
each case, (i) the full cumulative interest on all outstanding Debentures has
been paid or (ii) otherwise consented to by the holders of not less than
two-thirds (2/3) of the then outstanding aggregate principal amount of
Debentures (in original aggregate principal amount of $3,125,000); provided,
however, the restrictions set forth in this Paragraph 1(f) shall not apply to
dividends payable in shares of Common Stock.
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3. Senior Debt; Rank.
(a) Without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding aggregate
principal amount of Debentures (in original aggregate principal amount of
$3,125,000), the Company shall not hereafter (i) issue any Debentures, (ii)
authorize or issue any debt securities of senior rank to the Debentures in
respect of interest rights or priority of payment, (iii) authorize or issue any
Parity Securities with terms and conditions more favorable than the terms
herein, or (iv) authorize or make any amendment to the Company's Certificate of
Incorporation or By-laws, which would materially and adversely affect the
rights or relative priority of the Holders of the Debentures relative to the
holders of Parity Securities or the holders of any other class of capital
stock.
(b) In the event of the merger, consolidation or
other business combination of the Company with or into another corporation, the
Debentures shall maintain their relative powers provided for herein and no
merger, consolidation or other business combination shall result inconsistent
therewith.
4. Transfers. The Debentures have been issued subject
to investment representations of the original purchaser of such shares and may
be transferred or exchanged only in compliance with the Securities Act of 1933,
as amended (the "ACT"), and applicable state securities laws. Prior to due
presentment for transfer of each Debenture, the Company may treat the Holder as
the owner thereof for the purpose of receiving payments as herein provided and
all other purposes, and the Company shall not be affected by notice to the
contrary.
4A. Definitions. For purposes hereof the following
definitions shall apply:
"AGGREGATE YIELD" shall mean for each of the Debentures, the
sum of (a) the principal amount thereof, plus (b) accrued but unpaid interest
thereon.
"CLOSING PRICE" shall mean the price of one share of Common
Stock determined as follows:
(a) If the Common Stock is listed on the Nasdaq
National Market or The Nasdaq SmallCap Market (collectively, "NASDAQ"), the
closing bid price, as reported by Bloomberg, L.P. on the date of valuation (or,
if there is no closing bid price for such date, the most recent previous
closing bid price);
(b) If the Common Stock is listed on a national
securities exchange, the last reported closing price on such exchange on the
date of valuation (or, if there is no last reported closing price on that date,
the most recent previous closing bid price);
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(c) If neither (a) nor (b) apply, but the Common
Stock is quoted in the over-the-counter market on the pink sheets or bulletin
board, the closing bid price on the date of valuation; and
(d) If none of clause (a), (b) or (c) above
applies, the market value as determined by a nationally recognized investment
banking firm or other nationally recognized financial advisor retained in good
faith by the Board of Directors of the Company for such purpose, taking into
consideration among other factors, the earnings history, book value and
prospects for the Company, and the prices at which shares or Common Stock
recently have been traded. Such determination shall be conclusive and binding
on all persons.
"COMMON STOCK" shall mean the common stock, par value $0.01
per share, of the Company.
"CONVERSION PRICE" shall mean an amount that is equal to the
lesser of (a) the Fixed Conversion Price or (b) the Floating Conversion Price,
unless otherwise specified herein.
"CONVERSION RATE" shall mean the number of shares of Common
Stock issuable upon conversion of each $10,000 aggregate principal amount of
the Debentures determined by the application of the following formula where D
equals the accrued but unpaid interest as to such aggregate amount of
Debentures (not previously added to the principal amount of the Debentures
pursuant to Paragraph 2 hereof) as of the Holder Conversion Date (as defined in
Paragraph 6):
Principal Amount + D
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Conversion Price
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"FIXED CONVERSION PRICE" shall mean the average of (i) the
amount of 140% of the average of the Closing Price during the 5 days prior to
July 1, 1998; and (ii) the amount of 140% of the average of the Closing Price
during the 5 days prior to the Issuance Date; provided, however, that if the
Company offers, sells, contracts to sell or otherwise issues or agrees to issue
any convertible debt or convertible equity securities of the Company, in a
private placement transaction (other than pursuant to any existing stock or
option or similar existing equity-based compensation plan for employees,
officers, directors or consultants), with a maximum conversion price per share
of Common Stock of an amount less than the Fixed Conversion Price, then the
"Fixed Conversion Price" shall mean such lower conversion price for the
Debentures not yet converted. The Fixed Conversion Price shall also be subject
to adjustment from time to time ratably for any events set forth in Paragraph 9
hereof.
"FLOATING CONVERSION PRICE" shall mean the average of the
three (3) lowest Closing Prices during the Valuation Period.
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"ISSUANCE DATE" shall mean the initial date of issuance of the
Debentures.
"PERSON" means and includes an individual, a partnership, a
joint venture, a corporation, a company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration
Rights Agreement, dated as of the Issuance Date, by and between the Company and
the Purchasers named therein.
"REGISTRATION STATEMENT" shall mean the registration statement
filed by the Company with the SEC to register the shares of Common Stock
issuable upon conversion of the Debentures.
"SEC" shall mean the Securities and Exchange Commission and
any successor entity thereto.
"TRIGGERING EVENT" means the occurrence of any of the
following events:
(a) the Common Stock is either delisted or
suspended from trading on Nasdaq, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. for a period of five (5) consecutive trading
days, or any such delisting or suspension is threatened in writing or pending
(excluding disruptions from business announcements that result in any halt(s)
in trading of not more than one day on each occasion) and other than as a
result of the suspension of trading in securities on such market in general; or
(b) any money judgment (including any arbitration
award, but only if reduced to a judgment, but excluding any arbitration award
rewarded in respect of such proceedings commenced pursuant to Paragraphs 5A(d)
and 8(h)), writ or warrant of attachment, or similar process in excess of Seven
Hundred and Fifty Thousand Dollars ($750,000) in the aggregate shall be entered
or filed against the Company, its subsidiaries or any of their properties or
other assets and which shall remain unpaid, unvacated, unbonded or unstayed for
a period of sixty (60) days or in any event later than ten (10) days prior to
the date of any proposed sale thereunder.
"VALUATION PERIOD" shall mean the twelve (12) trading days
immediately preceding, but not including, the Holder Conversion Date (as
defined herein), subject to adjustment from time to time ratably for any events
set forth in Paragraph 8 hereof that occur during such twelve (12) trading day
period.
5. Paragraph 5 Transactions. (a) If at any time (i)
there occurs any merger, consolidation or other business combination of the
Company, with or into any other corporation,
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entity or person (whether or not the Company is the surviving corporation) or
there occurs any other corporate reorganization or transaction or series of
related transactions, and as a result thereof the shareholders of the Company
pursuant to such merger, consolidation, reorganization or other transaction own
in the aggregate less than 50% of the voting power and common equity of the
ultimate parent corporation or other entity surviving or resulting from such
merger, consolidation, reorganization or other transaction, (ii) the Company
transfers all or substantially all of the Company's assets to another
corporation or other entity or person, or (iii) a purchase, tender or exchange
offer is made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock (each of the foregoing items (i) to (iii), a
"PARAGRAPH 5 TRANSACTION"), then the Holders of the Debentures then outstanding
may participate in any such transaction as a class with the common stockholders
on the same basis as if the Debentures had been converted one day prior to the
announcement date (or record date for such distribution, dividend or offer) of
such transaction.
(b) At the option of each Holder, the Company
shall redeem all or any portion of such Holder's Debentures effective as of the
effective date of a Paragraph 5 Transaction, and the Holder shall be entitled
to receive a redemption price per $100 principal amount of Debentures being
redeemed equal to 112.5% of the Aggregate Value. Each Holder shall be entitled
to make an election for redemption at any time up to five (5) days prior to the
effective date of any Paragraph 5 Transaction; provided, however, at the
discretion of such Holder, such Holder may, at any time, elect to convert its
Debentures into fully paid, validly issued and nonassessable shares of Common
Stock in accordance with the terms of Paragraph 6 hereof, for such number of
shares of Common Stock as determined by the application of the Conversion Rate
so long as the Company has not redeemed such Debentures.
5A. Optional Redemption Upon a Triggering Event. At the
option of each Holder, the Company shall redeem all or any portion of such
Holder's outstanding Debentures effective as of the date of the occurrence of a
Triggering Event, and the Holder shall be entitled to receive a redemption
price per $100 principal amount of Debentures being redeemed equal to 130% of
the Aggregate Value. Each Holder shall be entitled to make an election for
redemption at any time following thirty (30) days after the occurrence of a
Triggering Event; provided, however, at the discretion of such Holder, such
Holder may, at any time, elect to convert its Debentures into fully paid,
validly issued and nonassessable shares of Common Stock in accordance with the
terms of Paragraph 6 hereof, for such number of shares of Common Stock as
determined by the application of the Conversion Rate so long as the Company has
redeemed such Debentures. In addition to the foregoing, upon the occurrence of
a Triggering Event, and only for the period that such Triggering Event remains
uncured, the Company will pay each Holder 2.0% per month on the outstanding
principal amount of the Debentures. Any such interest which is not paid when
due shall accrue interest until paid at the rate from time to time applicable
to interest on the Debentures as to which such Triggering Event has occurred.
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5B. Mechanics of Redemption.
(a) In order to redeem any Debentures (in whole
or in part), the applicable Holder shall surrender the certificate(s)
representing the Debentures to be redeemed, by either overnight courier or
two-day courier, to the principal office of the Company, and shall give written
notice in the form of EXHIBIT 1 hereto (the "REDEMPTION NOTICE") by facsimile
(with the original of such notice forwarded with the foregoing courier) to the
Company at such office to the effect that such Holder elects to have redeemed
the principal amount of Debentures (plus accrued but unpaid interest thereon)
specified therein; provided, however, that the Company shall not be obligated
to pay the applicable redemption price unless either the certificate(s)
evidencing the Debentures being redeemed is delivered to the Company as
provided above, or if the Holder notifies the Company that such certificate(s)
has been lost, stolen or destroyed and follows such procedures as are set forth
in Paragraph 17. If less than all the principal amount represented by such
certificate or certificates are to be redeemed, the Company shall issue and
deliver to or on the order of the holder thereof, at the expense of the
Company, a new certificate or certificates representing the unredeemed amount,
to the same extent as if the certificate theretofore representing such
unredeemed principal amount had not been surrendered on redemption.
(b) The Company shall use its best efforts to pay
the applicable redemption price within three (3) business days after receipt by
the Company of the Redemption Notice and such certificate(s) evidencing the
principal amount of Debentures being redeemed, or after receipt of such
agreement and indemnification set forth in Paragraph 17, to such Holder,
together with a certificate, certified by an appropriate officer of the
Company, setting forth the calculation of the redemption price (the "REDEMPTION
CERTIFICATE") and, if appropriate, a certificate evidencing the principal
amount of the Debentures covered by the submitted certificate(s) not submitted
for redemption; provided that in the case where more than one Holder submits
Debenture certificates for redemption simultaneously and the Company is unable
to redeem all of the Debentures submitted for such redemption, the Company
shall redeem an amount from each Holder equal to each Holder's pro rata
principal amount (based on principal amount of Debentures held by each Holder
relative to outstanding) of all Debentures being redeemed.
(c) If the Company shall fail to redeem all of
the Debentures submitted for redemption (other than pursuant to a dispute as to
the calculation of the applicable redemption price), in addition to any remedy
each Holder may have under this Debenture, the Subscription Agreement and the
Registration Rights Agreement, the applicable redemption price payable in
respect of such unredeemed principal amount of Debentures shall bear interest
at the rate of 2.0% per month (pro rated for partial periods) until such
redemption price is paid in full. Until the Company pays such unpaid
redemption price in full to a Holder, such Holder shall have the option, in
lieu of redemption, to require the Company to promptly return to such Holder
the aggregate principal amount of Debentures submitted for redemption by such
Holder and for which the applicable redemption price has not been paid, by
sending written notice thereof to the Company via facsimile (a "REVOCATION
NOTICE"). Upon the Company's receipt of such Revocation Notice and prior to
payment in full of the applicable redemption price to such Holder, (i) the
Redemption
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Notice shall be null and void with respect to the principal amount of the
Debentures submitted for redemption and for which the applicable redemption
price has not been paid, (ii) the Company shall immediately return any
Debentures submitted to the Company for redemption for which the applicable
redemption price has not been paid, and (iii) the Fixed Conversion Price of
those returned shares shall be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the Revocation Notice is delivered to
the Company and (B) the Closing Price with the lowest dollar value during the
period beginning on the date on which the Notice of Redemption is delivered to
the Company and ending on the date on which the Revocation Notice is delivered
to the Company.
(d) Notwithstanding the foregoing, in the event
of a dispute as to the determination of the calculation of the applicable
redemption price, the amount of the redemption price that is not in dispute
shall be promptly paid to the Holder in accordance with Paragraph 5B(a) hereof.
The Holder shall then be entitled, within sixty (60) days of receipt of either
the Redemption Certificate or Redemption Notice, to submit such dispute to the
American Arbitration Association for resolution according to the then
applicable rules thereof, which determination shall be final and binding on all
parties. If it shall be determined that a Holder shall receive additional
monies in respect of such redemption, the Company shall deliver to such Holder
such amount within three (3) business days of written notice of such
determination. The cost of such proceeding shall be shared 50% by the Holder
involved in such dispute and 50% by the Company, except that the prevailing
party, as determined by the arbitrator presiding over the arbitration, shall be
entitled to recover reasonable attorneys' fees, in addition to other costs and
expenses and any other available remedy.
5C. Mandatory Redemption. (a) To the extent the
Company shall have funds legally available for such redemption, and provided
that the Company has previously redeemed the $2.5 million principal amount of
the Debentures issued on the Issuance Date, the Company shall, provided that
the notice provisions set forth in Paragraph 5C hereof have been complied with,
redeem the $625,000 aggregate original principal amount of the Debentures, on
the date that is one-hundred and eighty-one (181) days from the Issuance Date,
in whole, at a redemption price per Debentures equal to 110% of the Aggregate
Yield plus warrants to purchase 50,000 shares of Common Stock at an exercise
price of $11.00 per share; such warrants to be substantially in the form of
EXHIBIT 3 attached hereto.
(b) Notice of the Company's intention to redeem
the Debentures pursuant to this Xxxxxxxxx 0X xxxxx xx given not less than ten
(10) business days prior to the date of redemption by first class mail, postage
prepaid, to the Holders. Each such notice shall state: (i) a redemption date
that is not less than ten (10) business days following the date of mailing of
the notice (each, a "REDEMPTION DATE"); (ii) the place or places where the
certificates representing the Debentures are to be surrendered for payment of
the redemption price; and (iii) the redemption price and the calculation of
such price (the "COMPANY REDEMPTION NOTICE").
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(c) After a Company Redemption Notice is given
pursuant to Paragraph 5C(b), upon surrender in accordance with such notice of
Debentures, such Debentures shall be redeemed by the Company at the redemption
price on the Redemption Date.
6. Conversion at the Option of the Holder. Subject to
the limitations of Paragraph 13, the Holder shall have the following conversion
rights:
(a) Holder's Right to Convert. Debentures shall
be convertible at any time after the date that is one-hundred and eighty-one
(181) days after the Issuance Date, in whole or in part, at the option of the
Holder thereof, into fully paid, validly issued and nonassessable shares of
Common Stock in accordance with the terms herein for such number of shares of
Common Stock as determined by the application of the Conversion Rate.
(b) Mechanics of Conversion. In order to convert
any Debentures (in whole or in part) into full shares of Common Stock, the
applicable Holder shall surrender the stock certificate(s) representing the
Debentures to be converted, by either overnight courier or two-day courier, to
the principal office of the Company, and shall give written notice in the form
of EXHIBIT 2 (the "CONVERSION NOTICE") by facsimile (with the original of such
notice forwarded with the foregoing courier) to the Company at such office to
the effect that such Holder elects to have converted principal amount of
Debentures (plus accrued but unpaid interest thereon) specified therein (such
notice and election shall be irrevocable by the Holder); provided, however,
that the Company shall not be obligated to issue certificate(s) evidencing
shares of Common Stock issuable upon such conversion unless either the
certificate(s) evidencing the Debentures being converted is delivered to the
Company as provided above, or if the Holder notifies the Company that such
certificate(s) has been lost, stolen or destroyed, such Holder follows such
procedures as are set forth in Paragraph 17. If less than all of the principal
amount represented by such certificate or certificates is to be converted, the
Company shall issue and deliver to or on the order of the Holder thereof, at
the expense of the Company, a new certificate or certificates representing the
unconverted principal amount, to the same extent as if the certificate
theretofore representing such unconverted principal amount had not been
surrendered on conversion. The effective date of conversion (the "HOLDER
CONVERSION DATE") shall be deemed to be the date on which the Company receives
by facsimile the Conversion Notice.
(c) The Company shall use its best efforts to
issue and deliver within three (3) business days after receipt by the Company
of such certificate(s) evidencing the Debentures being converted, or after
receipt of the affidavit, agreement and indemnification as set forth in
Paragraph 17, to such Holder, or to its designee, certificates for the number
of shares of Common Stock to which such Holder shall be entitled hereunder or,
if requested by the Holder, issue such shares in electronic format (i.e.,
DWAC), together with a certificate, certified by an appropriate officer of the
Company, setting forth the calculation of the Conversion Rate and, if
appropriate, a certificate evidencing the principal amount of Debentures
covered by the submitted for conversion. The person or persons entitled to
receive the shares of Common Stock issuable
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upon such conversion shall be treated for all purposes as the record holder of
such shares of Common Stock on the Holder Conversion Date.
(d) Each certificate representing Debentures
surrendered to the Company for conversion pursuant to this Paragraph 6 shall,
on the Holder Conversion Date and subject to issuance of the shares of Common
Stock issuable upon conversion thereof, be canceled and retired by the Company.
Upon issuance of the shares of Common Stock issuable upon conversion of the
Debentures pursuant to this Paragraph 6, the Debentures formerly represented
thereby shall be deemed to be canceled and shall no longer be considered to be
issued and outstanding for any purpose, including without limitation, for
purposes of accruing interest thereon. Such principal amount outstanding
shall be retired and shall not be subject to reissuance by the Company.
7. Maturity.
(a) On the date that is the fifth anniversary of the
Issuance Date, or such later date to which such date has been extended pursuant
to Paragraph 16 hereof (the "MATURITY DATE"), the Company shall have the
option, in its sole and absolute discretion, to either (i) cause the Debentures
then outstanding to be automatically converted into that number of fully paid,
validly issued and nonassessable shares of Common Stock determined in
accordance with the terms of this Debenture certificate by application of the
then applicable Conversion Rate; or (ii) redeem all of Debentures then
outstanding at the Aggregate Value per share.
(b) In the event that the Company elects, pursuant
to paragraph 7(a) of this Certificate, to cause the outstanding Debentures to
be converted into shares of Common Stock, the Company shall give the Holders
written notice of such election not less than ten (10) days prior to the
Maturity Date, and such written notice shall specify (i) the Maturity Date, and
(ii) the place or places to which certificates representing the Debentures are
to be surrendered for conversion. Such conversion shall be effected as of the
Maturity Date in accordance with and pursuant to the terms of this certificate
at the then applicable Conversion Rate and in accordance with the procedures
set forth in Section 6(b) of this certificate; provided, however, that the
Holder shall not be obligated to provide the Conversion Notice to the Company.
(c) In the event that the Company elects, pursuant
to paragraph 7(a) of this certificate, to redeem the outstanding Debentures,
the Company shall give the Holders written notice of such election not less
than ten (10) days prior to the Maturity Date, and such written notice shall
specify (i) the Maturity Date, (ii) the place or places to which certificates
representing the Debentures are to be surrendered for redemption, and (iii) the
redemption price, which shall be equal to the Aggregate Yield per $10,000
principal amount of Debentures as of the Maturity Date. In order to redeem any
Debentures, the applicable Holder shall surrender the stock certificate(s)
representing the Debentures called for redemption, by either overnight courier
or two-day courier, to the place or places specified in the written notice of
redemption, including the written notice in the form of EXHIBIT 1 herein, and
the Company shall redeem such
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Debentures (plus any accrued but unpaid interest thereon) on the Maturity Date;
provided, however, that the Company shall not be obligated to pay the
applicable redemption price unless either the certificate evidencing the
Debentures being redeemed is delivered to the Company as provided above, or if
the Holder notifies the Company that such certificate(s) has been lost, stolen
or destroyed and follows such procedures as are set forth in Paragraph 17.
(d) Each certificate representing Debentures
surrendered to the Company for conversion or redemption pursuant to this
Paragraph 7 shall, on the Maturity Date and subject to issuance of the shares
of Common Stock issuable upon conversion or payment or setting aside for
payment of the redemption price payable upon redemption, as the case may be, be
canceled and retired by the Company. Upon issuance of the shares of Common
Stock issuable upon conversion of the Debentures pursuant to this Paragraph 7,
or payment or setting aside for payment of the redemption price payable upon
redemption of the Debentures pursuant to this Paragraph 7, as the case may be,
the Debentures formerly represented thereby shall be deemed to be canceled and
shall no longer be considered to be issued and outstanding for any purpose,
including without limitation, for purposes of accruing interest thereon.
(e) If the Company elects to cause the Debentures
to be converted pursuant to this Paragraph 7, the Company shall use its best
efforts to issue and deliver within three (3) business days after receipt by
the Company of the Debentures, or after receipt of the affidavit, agreement and
indemnification described in Paragraph 18, to all Holders, or to their
designee, a certificate for the number of shares of Common Stock to which each
Holder shall be entitled hereunder or, if requested by the Holder, issue such
shares in electronic format (i.e., DWAC), together with a certificate,
certified by an appropriate officer of the Company, setting forth the
calculation of the Conversion Rate. The person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder of such shares of Common Stock on the
Maturity Date. If the Company elects to cause the Debentures to be converted
pursuant to this Paragraph 7, the Maturity Date shall be deemed a "Holder
Conversion Date" for purposes of the Debentures.
8. Stock Splits; Dividends; Adjustments;
Reorganizations.
(a) Stock Splits and Combinations. The Company
shall not effect any stock split, subdivision or combination with an effective
date within thirty (30) trading days of the Maturity Date.
(b) Certain Dividends and Distributions. The
Company shall not make, or fix a record date for the determination of holders
of Common Stock or other securities entitled to receive, a dividend or other
distribution payable in additional shares of Common Stock, with an effective
date within thirty (30) trading days of the Maturity Date.
(c) Adjustment for Other Dividends and
Distributions. In the event the Company at any time or from time to time after
the Issuance Date makes, or fixes a record date for
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the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, then and in each such event, provision shall be made so that the
Holders shall receive upon conversion of their Debentures pursuant to
Paragraphs 6 and 7 hereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of such other securities of the Company to
which a Holder on the relevant record or payment date, as applicable, of the
number of shares of Common Stock so receivable upon conversion would have been
entitled, plus any dividends or other distributions which would have been
received with respect to such securities had such Holder thereafter, during the
period from the date of such event to and including the Holder Conversion Date,
retained such securities, subject to all other adjustments called for during
such period under this Paragraph 8 with respect to the rights of the Holders.
For purposes of this Paragraph 8(c), the number of shares of Common Stock so
receivable upon conversion by the Holder shall be deemed to be that number
which the Holder would have received upon conversion of the Debentures if the
Holder Conversion Date had been the day preceding the date upon which the
Company announced the making of such dividend or other distribution.
(d) Adjustment of Floating Conversion Price upon
Issuance of Convertible Securities. If the Company in any manner issues or
sells securities that are convertible into or exchangeable for Common Stock at
a price which varies with the market price of the Common Stock (the formulation
for such variable price being herein referred to as the "VARIABLE PRICE") and
such Variable Price is not calculated using the same formula used to calculate
the Floating Conversion Price in effect immediately prior to the time of such
issue or sale, the Company shall provide written notice thereof via facsimile
and overnight courier to each holder of the Debentures ("VARIABLE NOTICE") on
the date of issuance of such convertible securities. If the holders of shares
of Debentures, including the holders of shares of Debentures who purchased of
up to $2.5 million aggregate principal amount of such Debentures, representing
at least two-thirds (2/3) of the outstanding principal amount of the Debentures
then outstanding Debentures (in original aggregate principal amount of
$3,125,000), provide written notice via facsimile and overnight courier (the
"VARIABLE PRICE ELECTION NOTICE") to the Company within five (5) business days
of receiving a Variable Notice that such holders desire to replace the Floating
Conversion Price then in effect with the Variable Price described in such
Variable Notice, then from and after the date of the Company's receipt of the
Variable Price Election Notice the Floating Conversion Price will automatically
be replaced with the Variable Price (together with such modifications to this
Certificate of Designations as may be required to give full effect to the
substitution of the Variable Price for the Floating Conversion Price). In the
event that a holder delivers a Conversion Notice at any time after the
Company's issuance of convertible securities with a Variable Price but before
such holder's receipt of the Company's Variable Notice, then such holder shall
have the option by written notice to the Company to rescind such Conversion
Notice or to have the Conversion Price be equal to such Variable Price for the
conversion effected by such Conversion Notice.
(e) Adjustment for Reclassification, Exchange and
Substitution. In the event that at any time or from time to time after the
Issuance Date, the Common Stock issuable
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upon the conversion of the Debentures is changed into the same or a different
number of shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend or reorganization provided for elsewhere in this
Paragraph 8 or Paragraph 5 Transaction), then and in each such event each
Holder shall thereafter have the right upon conversion to receive the kind and
amount of shares of stock and other securities, cash and property receivable
upon such recapitalization, reclassification or other change, by holders of the
number of shares of Common Stock which the Holder of Debentures would have
received had it converted such shares immediately prior to such
recapitalization, reclassification or other change, at the Conversion Price
then in effect (the kind, amount and price of such stock and other securities
to be subject to adjustments as herein provided). Prior to the consummation of
any recapitalization, reclassification or other change contemplated hereby, the
Company will make appropriate provision (in form and substance satisfactory to
the Holders of a majority of the Debentures then outstanding) to ensure that
each of the Holders of the Debentures will thereafter have the right to acquire
and receive in lieu of or in addition to (as the case may be) the shares of
Common Stock otherwise acquirable and receivable upon the conversion of such
Holder's Debentures, such shares of stock, securities or assets that would have
been issued or payable in such recapitalization, reclassification or other
change with respect to or in exchange for the number of shares of Common Stock
which would have been acquirable and receivable upon the conversion of such
Holder's Debentures had such recapitalization, reclassification or other change
not taken place (without taking into account any limitations or restrictions on
the timing or amount of conversions). In the event of such recapitalization,
reclassification or other change, the formulae set forth herein for conversion
and redemption shall be equitably adjusted to reflect such change in number of
shares or, if shares of a new class of stock are issued, to reflect the market
price of the class or classes of stock (applying the same factors used in
determining the Conversion Price for shares of Common Stock) issued in
connection with the above described events.
(f) Reorganization. If at any time or from time
to time after the Issuance Date there is a capital reorganization of the Common
Stock (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Paragraph
8) then, as a part of such reorganization, provisions shall be made so that the
Holders shall thereafter be entitled to receive upon conversion of its
Debentures the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled to receive had the holder of Debentures
converted such shares immediately prior to such capital reorganization, at the
Conversion Price then in effect. In any such case, appropriate adjustments
shall be made in the application of the provisions of this Paragraph 8 with
respect to the rights of the Holders after such capital reorganization to the
extent that the provisions of this Paragraph 8 shall be applicable after that
event and be as equivalent as may be practicable, including, by way of
illustration and not limitation, by equitably adjusting the formulae set forth
herein for conversion and redemption to reflect the market price of the
securities or property (applying the same factors used in determining the
Conversion Price for shares of Common Stock) issued in connection with the
above described events.
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(g) Certain Events. If any event occurs of the
type contemplated by the provisions of this Paragraph 8 but not expressly
provided for by such provisions, then the Company's Board of Directors will
make an appropriate adjustment in the Conversion Price so as
to protect the rights of the holders of the Debentures; provided, however, that
no such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Paragraph 8.
(h) Dispute. In the event of a dispute between a
Holder and the Company with respect to any of the adjustments required pursuant
to the provisions of this Paragraph 8, such Holder shall be entitled to receive
the number of shares of Common Stock as to which no dispute exists and, within
sixty (60) days of receipt of the Schedule of Computations (as defined below),
to submit such dispute to the American Arbitration Association for resolution
according to the then applicable rules thereof, which determination shall be
final and binding on all parties. If it shall be determined that a Holder
should have received additional shares of Common Stock or other securities upon
such conversion (the "UNDELIVERED SHARES") then, within three (3) trading days
of receipt of written notice of such determination, the Company shall issue to
such Holder that number of additional shares of Common Stock or other
securities as shall have a value, based upon the then Conversion Price for
shares of Common Stock, as shall equal the Undelivered Shares times the
Conversion Price for shares of Common Stock on the date of conversion. The
cost of such proceeding shall be shared 50% by the Holder involved in such
dispute and 50% by the Company, except that the prevailing party, as determined
by the arbitrator presiding over the arbitration, shall be entitled to recover
reasonable attorney's fees, in addition to other costs and expenses and any
other available remedy.
(i) Schedule of Computations. The Company shall
provide written notice to the Holders of all adjustments pursuant to this
Paragraph 8 shall be notified within three (3) trading days of the occurrence
thereof and such notice shall be accompanied by a schedule setting forth a
detailed calculation of such adjustments (the "SCHEDULE OF COMPUTATIONS"). If
so requested by a Holder, the Company shall provide to such Holder within ten
(10) trading days of its request therefor a certificate of concurrence to the
Schedule of Computations by the independent certified public accountants of the
Company.
9. Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable upon any
conversion shall be rounded up or down to the nearest whole share.
10. Reservation of Stock; Conversion Default.
(a) Reservation Requirement. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock such number of
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shares of Common Stock as shall be necessary for the purpose of effecting the
conversion of Debentures, which shares shall be free of preemptive rights, for
the purpose of enabling the Company to satisfy any obligation to issue shares
of its Common Stock, or other securities, upon conversion of all Debentures
pursuant hereto. The Company shall initially reserve a number of
shares of Common Stock equal to two times the number of shares necessary to
satisfy its obligations on conversion of the Debentures if all such shares were
converted on the Issuance Date.
(b) Default. If the Company (i) notifies a
Holder via facsimile or pursuant to a public disclosure, including, but not
limited to a press release, that the Company cannot, or does not intend to, or
(ii) fails to, issue shares of Common Stock registered for resale under the
Registration Statement for any reason (a "CONVERSION DEFAULT"), including,
without limitation, because the Company (x) does not have a sufficient number
of shares of Common Stock or other securities authorized and available, or (y)
is otherwise prohibited by applicable law or by the rules and regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities, including
without limitation the Exchange Cap (as defined in Paragraph 13), from issuing
all of the Common Stock which is to be issued to a Holder, then the Company
shall issue as many shares of Common Stock as it is able to issue in accordance
with such Holder's Conversion Notice, and with respect to the unconverted
principal amount of Debentures, notify the Holder of such failure (a "DEFAULT
NOTICE") which notice shall indicate (I) the reason why the Company is unable
to fully satisfy such holder's Conversion Notice, (II) the principal amount of
Debentures which cannot be converted and (III) the applicable mandatory
redemption price (as calculated pursuant to the terms below). Such Holder must
within ten (10) business days of (i) receipt of such Default Notice or (ii)
becoming aware of such Conversion Default, deliver written notice via facsimile
to the Company ("REMEDIES NOTICE") of its election pursuant to this Paragraph
10.
(c) Each Holder pursuant to such Default Notice
shall have the following options, at its election: (i) the right to demand
from the Company immediate redemption of its Debentures in cash at 125% of the
Aggregate Yield; (ii) void its Conversion Notice and have returned the
nonconverted Debentures that were to be converted pursuant to such Holder's
Conversion Notice; or (iii) if the Company's inability to fully convert the
Debentures is pursuant to the Exchange Cap described in Paragraph 10(b)(ii)(y),
require the Company to use its best efforts to take all steps necessary in
order to exceed such Exchange Cap; provided, however, the Holder may elect any
of the other options set forth in this Paragraph 10(c) if the Company shall
fail to be able to exceed such Exchange Cap within 45 days of the Company's
receipt of the applicable Remedies Notice. Notwithstanding the foregoing, no
Remedies Notice may be delivered by a Holder subsequent to receipt by such
Holder of notice from the Company (sent by overnight or two-day courier with a
copy sent by facsimile) of the availability of sufficient shares of Common
Stock or other securities to perfect conversion (a "POST-DEFAULT CONVERSION")
of all the Debentures; provided that such rights as set forth herein and
election as set forth in the Remedies Notice shall be reinstated if the Company
shall
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thereafter fail to perfect such Post-Default Conversion by delivery of Common
Stock certificates or certificates representing other securities in accordance
with the applicable provisions hereof and payment of all accrued and unpaid
interest in cash with respect thereto within five (5) days of delivery of the
notice of Post-Default Conversion.
(d) In addition to the foregoing, upon a
Conversion Default, the dividend rate on all of the Debentures (including
Debentures for which a Conversion Notice has not yet been sent), shall for the
period during which such Debentures have not been duly converted or redeemed as
herein provided, the Company will pay each Holder 2.0% per month on the
outstanding principal amount of the Debentures until such Debentures have been
duly converted or redeemed as herein provided; provided, however, that if the
Company's inability to fully convert Debentures is pursuant to Paragraph
10(b)(ii)(y) above, the Company shall have sixty (60) days to cure such default
prior to giving rise to the right of the Holder to exercise remedies pursuant
to this Section 10, including, without limitation, the right to receive
additional interest. Any such interest which is not paid when due shall accrue
interest until paid at the rate from time to time applicable to interest on the
Debentures as to which the Conversion Default has occurred.
11. Taxes. The Company shall pay any and all taxes
attributable to the issuance and delivery of Common Stock or other securities
upon conversion of the Debentures.
12. Voting Rights. The Holders shall have no voting
rights, except as required by law, including but not limited to the Delaware
General Corporation Law, and as expressly provided herein.
13. Limitation on Number of Conversion Shares. The
Company shall not be obligated to issue upon conversion of the Debentures, in
the aggregate, more than a number of shares of Common Stock equal to 19.99% of
the number of shares of Common Stock outstanding on the Issuance Date (such
amount to be proportionately and equitably adjusted from time to time in the
event of stock splits, stock dividends, combinations, reverse stock splits,
reclassification, capital reorganization and similar events relating to the
Common Stock) (the "EXCHANGE CAP"), if issuance of a larger number of shares of
Common Stock would constitute a breach of the Company's obligations under the
rules or regulations of Nasdaq or any other principal securities exchange or
market upon which the Common Stock is or becomes traded. The Exchange Cap
shall be allocated among the Holders pro rata based on the total principal
amount outstanding of the Debentures.
14. No Reissuance of Debentures. No shares of Debentures
acquired by the Company by reason of redemption, purchase, conversion or
otherwise shall be reissued.
15. No Impairment. The Company shall not intentionally
take any action which would impair the rights and privileges of the Debentures
set forth herein or the rights of the Holders thereof.
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16. Registration Suspension. In the event that at any
time or from time to time any Registration Statement is suspended or trading in
the Common Stock on Nasdaq is suspended for a period of time (excluding
disruptions from business announcements that result in any halt(s) in trading
of not more than one (1) day on each occasion) and other suspension of trading
on such market in general (each, a "BLACKOUT PERIOD"), the Maturity Date
hereunder shall be extended for a period equal to l.5 times the number of days
in such Blackout Period. Furthermore, additional provisions pertaining to the
suspension of effectiveness of such registration statement set forth in
Paragraph 5A of the Registration Rights Agreement shall be applicable in the
event of a Blackout Period, and such provisions as specifically incorporated by
reference herein.
17. Replacement Certificate. In the event that any
Holder notifies the Company that a stock certificate evidencing Debentures has
been lost, stolen, destroyed or mutilated, the Company shall issue a
replacement stock certificate evidencing the Debentures identical in tenor and
date (or if such certificate is being issued for shares not covered in a
redemption or conversion, in the applicable tenor and date) to the original
stock certificate evidencing the Debentures, provided that the Holder executes
and delivers to the Company an affidavit of lost stock certificate and an
agreement reasonably satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such Debenture certificate;
provided, however, the Company shall not be obligated to re-issue replacement
certificates if the Holder contemporaneously requests the Company to convert or
redeem the full principal amount evidenced by such lost, stolen, destroyed or
mutilated certificate.
18. Compliance With Federal and State Securities Laws.
Notwithstanding any other provision in this Debenture, the Holder shall
exercise its rights of conversion and redemption hereunder in accordance with
Federal and state securities laws then applicable to it, including, without
limitation, any restrictions to which the Holder may then be subject as an
"affiliate" of the Company (as defined in the Securities Act), if applicable.
19. Notices. All notices to the holders of Debentures
will be mailed to registered holders of Debentures at their registered
addresses as the same shall appear in the Debenture Security Register on the
day fifteen days prior to such mailing.
20. Governing Law. The Debentures shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of law.
21. Countersignature and Registration. This Debenture
shall not become valid or obligatory for any purpose until the Debentures shall
have been duly executed by the Company and such signature attested to by an
authorized Officer thereof.
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22. Warranty of the Company. The Company hereby
certifies and warrants that all acts, conditions and things required to be done
and performed and to have happened precedent to the creation and issuance of
this Debenture, and to constitute the same legal, valid and binding obligations
of the Company enforceable in accordance with their terms, have been done and
performed and have happened in due and strict compliance with all applicable
laws.
23. Descriptive Headings. The descriptive headings
appearing herein are for convenience of reference only and shall not alter,
limit or define the provisions hereof.
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