Exhibit 4.1
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
No. [ ] $[ ]
Date: [ ]
ONSTREAM MEDIA CORPORATION
8.0% SUBORDINATED SECURED CONVERTIBLE NOTE DUE ____
THIS NOTE is one of a series of duly authorized and issued Notes of
Onstream Media Corporation, a Florida corporation (the "Company"), designated as
its 8.0% Subordinated Secured Convertible Notes due 2008, in the aggregate
principal amount of up to 2.5 Million with $1,000,000 over-allotment (the
"Notes"), subject to increase pursuant to the terms of a certain Additional
Investment Right of even date herewith.
FOR VALUE RECEIVED, the Company promises to pay to the order of [Holder]
or its registered assigns (the "Holder"), the principal sum of [__________]
$(________), on [_____________] (the "Maturity Date"), or such earlier date as
the Notes are required or permitted to be repaid as provided hereunder, and to
pay interest to the Holder on the unconverted and then outstanding principal
amount of this Note in accordance with the provisions hereof. Notwithstanding
the foregoing, the Company hereby unconditionally promises to pay to the order
of the Holder interest on any principal or interest payable hereunder that shall
not be paid in full when due, whether at the time of any stated interest payment
date or maturity or by prepayment, acceleration or declaration or otherwise, for
the period from and including the due date of such payment to but excluding the
date the same is paid in full, at a rate of 18% per annum (but in no event in
excess of the maximum rate permitted under applicable law).
Interest payable under this Note shall be computed on the basis of a year
of 360 days and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which interest is payable.
Payments of principal and interest shall be made in lawful money of the
United States of America to the Holder at its address as provided in Section 14
or by wire transfer to such account specified from time to time by the Holder
hereof for such purpose as provided in Section 14.
The holder of this Note is entitled to the benefits of the Security
Agreement.
1. Definitions. In addition to the terms defined elsewhere in this Note,
the following terms have the meanings indicated:
"Company Prepayment Price" for any Notes which shall be subject to
prepayment pursuant to Section 8(a), shall equal the sum of: (i) 115% of
the principal amount of Notes to be prepaid, plus all accrued and unpaid
interest thereon, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Notes.
"Conversion Date" means the date a Conversion Notice is delivered to
the Company together with the Conversion Schedule pursuant to Section
6(a).
"Conversion Notice" means a written notice in the form attached
hereto as Schedule 1.
"Conversion Price" means $1.00, subject to adjustment from time to
time pursuant to Section 12.
"Equity Conditions" means, with respect to a specified issuance of
Common Stock, that each of the following conditions is satisfied: (i) the
number of authorized but unissued and otherwise unreserved shares of
Common Stock is sufficient for such issuance; (ii) such shares of Common
Stock are registered for resale by the Holder and may be sold by the
Holders pursuant to an effective Registration Statement covering the
Underlying Shares or all such shares may be sold without volume
restrictions pursuant to Rule 144(k) under the Securities Act; (iii) the
Common Stock generally is listed or quoted (and is not suspended from
trading) on an Eligible Market and such shares of Common Stock are
approved for listing upon issuance; (iv) such issuance would be permitted
in full without violating Section 6(c) hereof or the rules or regulations
of any Trading Market; (v) no Bankruptcy Event has occurred; (vi) the
Company is not in default with respect to any material obligation
hereunder or under any other Transaction Document; and (vii) no public
announcement of a pending or proposed Change of Control transaction has
occurred that has not been consummated.
"Event Equity Value" means 115% of the average of the Closing Prices
for the five Trading Days preceding the date of delivery of the notice
requiring payment of the Event Equity Value, provided that if the Company
does not make such required payment (together with any other payments,
expenses and liquidated damages then due and payable under the Transaction
Documents) when due or, in the event the Company disputes in good faith
the occurrence of the Triggering Event pursuant to which such notice
relates, does not instead deposit such required payment (together with
such other payments, expenses and liquidated damages then due) in escrow
with an independent third-party escrow agent within five Trading Days of
the date such required payment is due, then the Event Equity Value shall
be 115% of the greater of (a) the average of the Closing Prices for the
five Trading Days preceding the date of delivery of the notice requiring
payment of the Event Equity Value and (b) the average of the Closing
Prices for the five Trading Days preceding the date on which such required
payment (together with such other payments, expenses and liquidated
damages) is paid in full.
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"Original Issue Date" means the date of the first issuance of any
Notes, regardless of the number of transfers of any particular Note.
"Principal Payment Date" means any date on which payment of a
principal amount of this Note shall be due and payable by the Company in
accordance with Section 9.
"Triggering Event" means any of the following events: (a) the Common
Stock is not listed or quoted, or is suspended from trading, in each case,
on an Eligible Market for a period of 20 or more Trading Days (which need
not be consecutive Trading Days); (b) the Company fails for any reason to
deliver a certificate evidencing any Securities to a Purchaser within five
Trading Days after delivery of such certificate is required pursuant to
any Transaction Document or the exercise or conversion rights of the
Holders pursuant to any Transaction Document are otherwise suspended for
any reason; (c) the Company fails to have available a sufficient number of
authorized but unissued and otherwise unreserved shares of Common Stock
available to issue Underlying Shares upon any exercise of the Note; (d)
the Company effects or publicly announces its intention to effect any
exchange, recapitalization or other transaction that effectively requires
or rewards physical delivery of certificates evidencing the Common Stock;
(e) the effectiveness of the Registration Statement lapses for any reason
or the Holder shall not be permitted to resell any Underlying Shares under
the Registration Statement, in either case, for 30 or more consecutive
days in any 12 month period or for more than twice any 12 month period;
(f) the Company fails to make any cash payment required under the
Transaction Documents and such failure is not cured within five days after
notice of such default is first given to the Company by a Purchaser; or
(g) the Company defaults in the timely performance of any other obligation
under the Transaction Documents and such default continues uncured for a
period of 20 days after the date on which notice of such default is first
given to the Company by a Purchaser (it being understood that no prior
notice need be given in the case of a default that cannot reasonably be
cured within 20 days).
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2. Principal and Interest.
(a) The Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note at the rate of
8.0% per annum, payable quarterly in arrears, except if such date is not a
Trading Day, in which case such interest shall be payable on the next succeeding
Trading Day (each, an "Interest Payment Date"). The first Interest Payment Date
shall be one hundred eighty (180) days after the final closing of the offering
and quarterly thereafter.
(b) Subject to the conditions and limitations set forth below, the
Company may pay interest or principal on this Note in (i) cash or (ii) shares of
Common Stock, subject to any limitations upon share issuances, imposed by the
Nasdaq Stock Market. The Company must deliver written notice to the Holder
indicating the manner in which it intends to pay interest and principal at least
15 Trading Days prior to each Interest Payment Date or the Principal Payment
Date, respectively, but the Company may indicate in any such notice that the
election contained therein shall continue for subsequent Interest Payment Dates
or Principal Payment Dates until revised. Failure to timely provide such written
notice shall be deemed an election by the Company to pay the amount of any
interest or principal in cash.
(c) Notwithstanding the foregoing, the Company may not pay interest
or principal by issuing shares of Common Stock unless all of the Equity
Conditions have been satisfied; provided, however, that prior to the Effective
Date, the Company shall be permitted to pay the first interest payment in shares
of unregistered Common Stock to the extent such shares will be included in the
Registration Statement. If the Company is required to pay interest in cash on
any Interest Payment Date but fails to do so, the Holder may (but shall not be
required to) treat such interest as if it had been added to the principal amount
of this Note as of such Interest Payment Date or accept any number of shares of
Common Stock in lieu of such interest payment.
(d) In the event that the Company elects to pay interest on any
Interest Payment Date or Principal Payment Date in shares of Common Stock, the
number of shares of Common Stock to be issued to each Holder as such interest or
principal shall be (i) with respect to interest, determined by dividing the
aggregate amount of interest then payable to such Holder by the Market Price (as
defined below) as of the applicable Interest Payment Date, and rounding up to
the nearest whole share, (ii) with respect to principal, determined as set forth
in Section 9(c) hereof, and (iii) paid to such Holder in accordance with Section
2(e) below. The term "Market Price" shall mean 85% of the arithmetic average of
the VWAP for the 20 Trading Days prior to the applicable Interest Payment Date
or Principal Payment Date, as the case may be (not including such date).
(e) In the event that any interest or principal are paid in Common
Stock, the Company shall on such Interest Payment Date or Principal Payment Date
(i) issue and deliver to such Holder a certificate, registered in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder shall be entitled or (ii) at all times after the Holder has notified
the Company that this clause (ii) shall apply, credit the number of shares of
Common Stock to which the Holder shall be entitled to the Holder's or its
designee's balance account with The Depository Trust Company through its Deposit
Withdrawal Agent Commission System.
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3. Ranking and Covenants.
(a) Except as set forth in Schedule 3.1(a) or as otherwise permitted
on Schedule 3.1(a) (the "Existing Indebtedness"), no indebtedness of the Company
is senior to this Note in right of payment, whether with respect to interest,
damages or upon liquidation or dissolution or otherwise. Other than the Existing
Indebtedness and any renewal, refinancing or replacement thereof that does not
exceed the aggregate amount of the Existing Indebtedness and the borrowing
availability under the related credit or loan agreements on the date hereof, the
Company will not, and will not permit any Subsidiary to, directly or indirectly,
enter into, create, incur, assume or suffer to exist any indebtedness of any
kind, on or with respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom, that is
senior in any respect to the Company's obligations under the Notes, other than
indebtedness secured by purchase money security interests (which will be senior
only as to the underlying assets covered thereby) and indebtedness under capital
lease obligations (which will be senior only as to the assets covered thereby).
(b) Except as set forth on Schedule 3(b), so long as any Notes are
outstanding, neither the Company nor any Subsidiary shall, directly or
indirectly, (i) redeem, purchase or otherwise acquire any capital stock or set
aside any monies for such a redemption, purchase or other acquisition or (ii)
issue variable priced equity securities or variable priced equity linked
securities.
(c) The Company covenants that it will at all times reserve and keep
available out of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Underlying Shares as
required hereunder, the number of Underlying Shares which are then issuable and
deliverable upon the conversion of (and otherwise in respect of) this entire
Note (taking into account the adjustments set forth in Section 12 and
disregarding any limitations set forth in Section 6(b)), free from preemptive
rights or any other contingent purchase rights of Persons other than the Holder.
The Company covenants that all Underlying Shares so issuable and deliverable
shall, upon issuance in accordance with the terms hereof, be duly and validly
authorized and issued and fully paid and nonassessable.
(d) The Company covenants that it will not redeem, repurchase or
otherwise acquire all or any portion of the Series A-10 Preferred Stock or any
other preferred stock, common stock or other equity equivalent of the Company,
on or prior to the earlier of (i) the Maturity Date hereof or (ii) the date on
which all of the Notes shall have been converted into Common Stock, without the
prior written consent of the holders of 51% of the aggregate principal value of
the then outstanding Notes (the "Majority Holders").
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(e) The Holder acknowledges and agrees that the Debentures shall be
subordinate to the Existing Indebtedness as set forth in a subordination
agreement dated the date hereof.
4. Registration of Notes. The Company shall register the Notes upon
records to be maintained by the Company for that purpose (the "Note Register")
in the name of each record holder thereof from time to time. The Company may
deem and treat the registered Holder of this Note as the absolute owner hereof
for the purpose of any conversion hereof or any payment of interest or principal
hereon, and for all other purposes, absent actual notice to the contrary.
5. Registration of Transfers and Exchanges. The Company shall register the
transfer of any portion of this Note in the Note Register upon surrender of this
Note to the Company at its address for notice set forth herein. Upon any such
registration or transfer, a new Note, in substantially the form of this Note
(any such new Note, a "New Note"), evidencing the portion of this Note so
transferred shall be issued to the transferee and a New Note evidencing the
remaining portion of this Note not so transferred, if any, shall be issued to
the transferring Holder. The acceptance of the New Note by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Note. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge or other fee
will be imposed in connection with any such registration of transfer or
exchange.
6. Conversion.
(a) At the Option of the Holder. All or any portion of this Note
shall be convertible into shares of Common Stock (subject to the limitations set
forth in Section 6(c)), at the option of the Holder, at any time and from time
to time from and after the Original Issue Date. The number of Underlying Shares
issuable upon any conversion hereunder shall equal the outstanding principal
amount of this Note to be converted, plus the amount of any accrued but unpaid
interest on this Note through the Conversion Date, divided by the Conversion
Price on the Conversion Date. The Holder shall effect conversions under this
Section 6(a) by delivering to the Company a Conversion Notice together with a
schedule in the form of Schedule 2 attached hereto (the "Conversion Schedule").
If the Holder is converting less than all of the principal amount of this Note,
or if a conversion hereunder may not be effected in full due to the application
of Section 6(c), the Company shall honor such conversion to the extent
permissible hereunder and shall promptly deliver to the Holder a Conversion
Schedule indicating the principal amount (and accrued interest) which has not
been converted.
(b) Automatic Conversion. At any time following the Original Issue
Date, the Company shall have the right to cause an amount (the "Converted
Amount") of this Note then outstanding equal to the lesser of (A) the principal
amount outstanding under this Note and (B) 20% of the product of (x) the total
volume of Common Stock traded on the company's Trading Market for the 30 day
period preceding the Automatic Conversion Date (as defined below), (y) the
arithmetic average of the VWAP for such 30 day period and (z) the quotient of
(I) the outstanding principal amount of this Note on the Automatic Conversion
Date and (II) the outstanding principal amount of all of the Notes issued
pursuant to the Transaction Documents on the Automatic Conversion Date (such
amount being the Holder's "Pro Rata Amount"), to be automatically converted into
fully paid non-assessable shares of Common Stock (such conversion, an "Automatic
Conversion") at the Conversion Price (subject to the limitations set forth in
Sections 6(c)), by delivery of a 10 day advance written notice (the "Automatic
Conversion Notice") to the Holder.
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Notwithstanding anything to the contrary, the Company may not cause
an Automatic Conversion unless each of the following conditions are satisfied:
(A) as of the Automatic Conversion Date (as defined below), no Triggering Event
has occurred (after giving effect to any addition to principal under the Notes);
(B) each of the Equity Conditions are satisfied with respect to all of the
Common Stock issuable on the Automatic Conversion Date; and (C) the Closing
Price of the Common Stock on each of the 20 out of any 30 consecutive days
preceding the Automatic Conversion Notice is greater than $1.50 per share (as
adjusted for stock splits, stock combinations or other similar recapitalization
or event).
Upon an Automatic Conversion in accordance with the procedures
specified in this Section 6(b), and effective as of the close of business on the
Automatic Conversion Date, the Converted Amount shall be converted into fully
paid and non-assessable shares of Common Stock automatically without the need
for any further action by the Holder. Upon the occurrence of such Automatic
Conversion of the Converted Amount, there shall be (A) issued and delivered to
the Holder a certificate or certificates for the number of shares of Common
Stock into which this the Converted Amount was convertible on the Automatic
Conversion Date or (B) at all times after the Holder has notified the Company
that this clause (ii) shall apply, credited the number of shares of Common Stock
to which the Holder shall be entitled to the Holder's or its designee's balance
account with The Depository Trust Company through its Deposit Withdrawal Agent
Commission System. For purposes of this Section 6(b), the "Automatic Conversion
Date" shall mean the 10th day following the date on which the Automatic
Conversion Notice is either: (x) delivered to the Holder by personal delivery,
or (y) delivered to the Holder by facsimile transmission to the facsimile
telephone number of such Holder appearing on the signature page to the Purchase
Agreement (with confirmation of receipt), or (z) deposited with a recognized
express courier for express delivery, fees prepaid, addressed to such registered
holder at the address of such holder appearing on the signature page to the
Purchase Agreement.
(c) Certain Conversion Restrictions.
Relating to the Number of Shares.
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(A) Subject to Section 6(c)(i)(B), the number of shares of
Common Stock that may be acquired by a Holder upon any conversion of Notes
(or otherwise in respect hereof) shall be limited to the extent necessary
to insure that, following such conversion (or other issuance), the total
number of shares of Common Stock then beneficially owned by such Holder
and its Affiliates and any other Persons whose beneficial ownership of
Common Stock would be aggregated with such Holder's for purposes of
Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum
Percentage") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock
issuable upon such conversion). For such purposes, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder. Each delivery of a
Conversion Notice hereunder will constitute a representation by the
applicable Holder that it has evaluated the limitations set forth in this
Section 6(c)(i)(A) and has determined that issuance of the full number of
Underlying Shares issuable in respect of such Conversion Notice does not
violate the restrictions contained in this Section 6(c)(i)(A). If at any
time the limits in this Section 6(c) make this Note inconvertible in whole
or in part, the Company shall not by reason thereof be relieved of its
obligation to issue shares of Common Stock at any time or from time to
time thereafter but prior to the Maturity Date upon conversion of this
Note as and when shares of Common Stock may be issued in compliance with
such restrictions.
(B) Trading Market Limitations. Notwithstanding anything
herein to the contrary, if the Company has not obtained shareholder
approval and if required by the applicable rules and regulations of the
Nasdaq Stock Market (or any successor entity), then until such time as
shareholder approval is obtained or is not otherwise required, this
Debenture shall not be convertible into Conversion Shares beyond any such
limitation.
7. Mechanics of Conversion.
(a) Upon conversion of this Note, the Company shall promptly (but in
no event later than three Trading Days after the Conversion Date) issue or cause
to be issued and cause to be delivered to or upon the written order of the
Holder and in such name or names as the Holder may designate a certificate for
the Underlying Shares issuable upon such conversion, free of restrictive legends
unless a registration statement covering the resale of the Underlying Shares and
naming the Holder as a selling stockholder thereunder is not then effective and
such Underlying Shares are not then freely transferable without volume
restrictions pursuant to Rule 144 under the Securities Act. The Holder, or any
Person so designated by the Holder to receive Underlying Shares, shall be deemed
to have become holder of record of such Underlying Shares as of the Conversion
Date. The Company shall, upon request of the Holder, use its best efforts to
deliver Underlying Shares hereunder electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions.
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(b) The Holder shall not be required to deliver the original Note in
order to effect a conversion hereunder. Execution and delivery of the Conversion
Notice shall have the same effect as cancellation of the original Note and
issuance of a New Note representing the remaining outstanding principal amount.
Upon surrender of this Note following one or more partial conversions, the
Company shall promptly deliver to the Holder a New Note representing the
remaining outstanding principal amount.
(c) The Company's obligations to issue and deliver Underlying Shares
upon conversion of this Note in accordance with the terms hereof are absolute
and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, or any set-off, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder or any other Person of any obligation
to the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Underlying Shares.
(d) If by the third Trading Day after a Conversion Date the Company
fails to deliver to the Holder such Underlying Shares in such amounts and in the
manner required pursuant to Section 7(a), then the Holder will have the right to
rescind such conversion.
(e) If by the third Trading Day after a Conversion Date the Company
fails to deliver to the Holder such Underlying Shares in such amounts and in the
manner required pursuant to Section 7(a), and if after such third Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall either (i) pay cash to such Purchaser in an
amount equal to such Purchaser's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "Buy-In
Price"), at which point the Company's obligation to deliver such certificate
(and to issue such Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to such Purchaser a certificate or certificates
representing such Common Stock and pay cash to such Purchaser in an amount equal
to the excess (if any) of the Buy-In Price over the product of (A) such number
of shares of Common Stock, times (B) the Closing Price on the date of the event
giving rise to the Company's obligation to deliver such certificate. In the
event the Holder elects to effectuate a Buy-In and the Company complies with the
provisions of this Section 7(e), the failure of the Company to deliver to the
Holder the Underlying Shares required to be issued on the Conversion Date
pursuant to Section 7(a) shall not result in a Triggering Event.
8. Prepayment.
At the Option of the Company.
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(i) At any time following the Original Issue Date, upon
delivery of a written notice to the Holder (a "Company Prepayment Notice"
and the date such notice is delivered by the Company, the "Company Notice
Date"), the Company shall be entitled to prepay all or any portion of the
outstanding principal amount of this Note plus any accrued and unpaid
interest thereon for an amount in cash equal to the Company Prepayment
Price. Notwithstanding anything to the contrary, the Company shall only be
entitled to deliver a Company Prepayment Notice pursuant to the terms
hereof if the Equity Conditions are satisfied with respect to all shares
of Common Stock issuable pursuant to the Transaction Documents on the
Company Notice Date. If any of the Equity Conditions shall cease to be in
effect during the period between the Company Notice Date and the date the
Company Prepayment Price is paid in full, then the Holder subject to such
prepayment may elect, by written notice to the Company given at any time
after any of the Equity Conditions shall cease to be in effect, to
invalidate ab initio such optional prepayment, notwithstanding anything
herein contained to the contrary. The Holder may, within 5 Trading Days of
its receipt of the Company Prepayment Notice, convert any portion of the
outstanding principal amount of this Note and any accrued and unpaid
interest thereon subject to a Company Prepayment Notice. Once delivered,
the Company shall not be entitled to rescind a Company Prepayment Notice.
(ii) The Company Prepayment Price shall be due on the 5th
Trading Day immediately following the Company Notice Date. Any such
prepayment shall be free of any claim of subordination. If any portion of
the Company Prepayment Price shall not be timely paid by the Company,
interest shall accrue thereon at the rate of 18% per annum (or the maximum
rate permitted by applicable law, whichever is less) until the Company
Prepayment Price plus all such interest is paid in full, which payment
shall constitute liquidated damages and not a penalty. In addition, if any
portion of the Company Prepayment Price remains unpaid after such date,
the Holder subject to such prepayment may elect by written notice to the
Company to invalidate ab initio such Company Prepayment Notice with
respect to the unpaid amount, notwithstanding anything herein contained to
the contrary and no interest shall be owed to the Holder in respect
thereof. If the Holder makes such an election, the principal amount of
this Note, together with the accrued and unpaid interest thereon shall be
reinstated with respect to such unpaid amount and the Company shall no
longer have any prepayment rights under this Section 8.
(iii) Notwithstanding anything to the contrary herein, the
Company may not elect a prepayment pursuant to Section 8(a)(i) unless the
Company makes such prepayment election to all of the Holders on a pro rata
basis, based on such Holders then outstanding principal amount of Notes.
(iv) At any time the Company shall prepay any amount due under
this Note, the Company shall issue to the Holder warrants substantially in
the same form as the Warrants, except the number of shares of Common Stock
issuable upon the exercise of such warrants shall equal 50% of the
quotient of (1) the portion of the outstanding principal amount of this
Note prepaid by the Company in accordance with this Section 8(a) and (2)
the Conversion Price on the date the prepayment shall take place.
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9. Principal Repayment.
(a) On and after the 21st month following the Original Issue Date,
the principal face amount of any Notes then outstanding shall be paid in 9 equal
quarterly installments on the last day of such quarter (each a "Principal
Payment"), except if such date is not a Trading Day, in which case such
Principal Payment shall be payable on the next succeeding Trading Day, each a
"Principal Payment Date", with the first Principal Payment Date to occur on
______________.
(b) The Company shall have the option to make any Principal Payments
in cash or in Common Stock; provided, however, that the Company may only make
such payments in Common Stock if (i) the arithmetic average of the VWAP for the
quarter ending on the applicable Principal Payment Date is greater than $1.18
per share (as adjusted for stock splits, stock combinations or other similar
recapitalization or event), (ii) the Equity Conditions are satisfied with
respect to all shares of Common Stock issuable by the Company on the Principal
Payment Date, and (iii) to the extent such payment may be made in accordance
with subsection (c) below.
(c) In the event the Company elects to pay all or part of any
Principal Payment in Common Stock, such Principal Payment shall be satisfied
first through the issuance of Common Stock in an amount equal to the quotient of
(i) the lesser of (A) the product of (1) 20% of the total volume of Common Stock
traded on the Company's Trading Market in such quarter and (2) the arithmetic
average of the VWAP for such quarter (such amount, the "Maximum Principal
Payment") and (B) the Principal Payment amount and (ii) the Conversion Price on
such date. To the extent that such calculation results in an insufficient amount
to satisfy the then due Principal Payment, at the option of the Holder, the
balance may be paid in cash or otherwise in Common Stock issued at the
Conversion Price on such Principal Payment Date. Further, in the event such
amount shall exceed the Principal Payment then due, at the option of a Holder of
a Note, an additional amount of Common Stock up to an amount equal to the
quotient of (x) the Maximum Principal Payment on such date minus the Principal
Payment then due and (y) the Conversion Price may be converted and applied to
the 9th and final Principal Payment (or other Principal Payments in an order
starting with last Principal Payment that has not yet been satisfied in
accordance with this Section 9(c) (i.e. the Principal Payment due on the 8th
Principal Payment Date) once the last Principal Payment shall have been paid in
full). Any other conversions that occur after the 21st month following the
Original Issue Date shall apply to the 9th and final Principal Payment or prior
Principal Payments as set forth in the preceding sentence.
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10. Events of Default.
(a) "Event of Default" means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) any default in the payment (free of any claim of
subordination) of principal, interest or liquidated damages in respect of
any Notes, as and when the same becomes due and payable (whether on a date
specified for the payment of interest or the date on which the obligations
under the Note mature or by acceleration, redemption, prepayment or
otherwise);
(ii) the Company or any Subsidiary defaults in any of its
obligations under any other note or any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Company or any
Subsidiary in an amount exceeding $1,000,000, whether such indebtedness
now exists or is hereafter created, and such default results in such
indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise become due and payable;
(iii) the occurrence of a Triggering Event;
(iv) the occurrence of a Bankruptcy Event; or
(v) any breach of provisions of Sections 12(d)(i) and
12(d)(ii).
(b) At any time or times following the occurrence of an Event of
Default, the Holder shall have the option to elect, by notice to the Company (an
"Event Notice"), to require the Company to repurchase all or any portion of (i)
the outstanding principal amount of this Note, at a repurchase price equal to
the greater of (A) 115% of such outstanding principal amount, plus all accrued
but unpaid interest thereon through the date of payment, or (B) the Event Equity
Value of the Underlying Shares issuable upon conversion of such principal amount
and all such accrued but unpaid interest thereon, provided this remedy shall not
be available upon an Event of Default set forth in Section 10(a)(ii) hereof, and
(ii) any Underlying Shares issued to such Holder upon conversion of Notes and
then owned by the Holder, at a price per share equal to the Event Equity Value
of such issuable and issued Underlying Shares. The aggregate amount payable
pursuant to the preceding sentence is referred to as the "Event Price." The
Company shall pay the Event Price to the Holder no later than the third Trading
Day following the date of delivery of the Event Notice, and upon receipt thereof
the Holder shall deliver this Note and certificates evidencing any Underlying
Shares so repurchased to the Company (to the extent such certificates have been
delivered to the Holder).
12
(c) Upon the occurrence of any Bankruptcy Event, all amounts
pursuant to Section 10(b) shall immediately become due and payable in full in
cash, without any further action by the Holder.
(d) In connection with any Event of Default, the Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately enforce any and all of its
rights and remedies hereunder and all other remedies available to it under
applicable law. Any such declaration may be rescinded and annulled by the Holder
at any time prior to payment hereunder. No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent thereto.
11. Charges, Taxes and Expenses. Issuance of certificates for Underlying
Shares upon conversion of (or otherwise in respect of) this Note shall be made
without charge to the Holder for any issue or transfer tax, withholding tax,
transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid by the
Company; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Underlying Shares or Notes in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Note or receiving Underlying
Shares in respect hereof.
12. Certain Adjustments. The Conversion Price is subject to adjustment
from time to time as set forth in this Section 12.
(a) Stock Dividends and Splits. If the Company, at any time while
this Note is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Conversion Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
Section 12(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this Section 12(a) shall
become effective immediately after the effective date of such subdivision or
combination.
(b) Pro Rata Distributions. If the Company, at any time while this
Note is outstanding, distributes to all holders of Common Stock (i) evidences of
its indebtedness, (ii) any security (other than a distribution of Common Stock
described in Section 12(c)), (iii) rights or warrants to subscribe for or
purchase any security, or (iv) cash or any other asset (in each case,
"Distributed Property"), then, at the request of the Holder delivered before the
90th day after the record date fixed for determination of stockholders entitled
to receive such distribution, the Company will deliver to the Holder, within
five Trading Days after such request (or, if later, on the effective date of
such distribution), the Distributed Property that the Holder would have been
entitled to receive in respect of the Underlying Shares for which this Note
could have been converted immediately prior to such record date. If such
Distributed Property is not delivered to the Holder pursuant to the preceding
sentence, upon any conversion of this Note that occurs after such record date,
the Holder shall be entitled to receive, in addition to the Underlying Shares
otherwise issuable upon such conversion, the Distributed Property that the
Holder would have been entitled to receive in respect of such number of
Underlying Shares had the Holder been the record holder of such Underlying
Shares immediately prior to such record date.
13
(c) Fundamental Changes. If, at any time while this Note is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person in which it is not the surviving entity, (ii) the
Company effects any sale of all or substantially all of its assets in one or
more transactions, (iii) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (iv) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(other than as a result of a subdivision or combination of shares of Common
Stock described in Section 12(a)) (in any such case, a "Fundamental Change"),
then upon any subsequent conversion of this Note, the Holder shall have the
right to receive, for each Underlying Share that would have been issuable upon
such conversion absent such Fundamental Change, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Change if it had been, immediately prior to such
Fundamental Change, the holder of one share of Common Stock (the "Alternate
Consideration"). If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Change, then the
Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Note following such Fundamental Change. In
the event of a Fundamental Change, the Company or the successor or purchasing
Person, as the case may be, shall execute with the Holder a written agreement
providing that:
(x) this Note shall thereafter entitle the Holder to purchase the
Alternate Consideration,
(y) in the case of any such successor or purchasing Person, upon
such consolidation, merger, statutory exchange, combination, sale or conveyance
such successor or purchasing Person shall be jointly and severally liable with
the Company for the performance of all of the Company's obligations under this
Warrant and the Purchase Agreement, and
14
(z) if registration or qualification is required under the Exchange
Act or applicable state law for the public resale by the Holder of shares of
stock and other securities so issuable upon exercise of this Warrant, such
registration or qualification shall be completed prior to such reclassification,
change, consolidation, merger, statutory exchange, combination or sale.
If, in the case of any Fundamental Change, the Alternate Consideration includes
shares of stock, other securities, other property or assets of a Person other
than the Company or any such successor or purchasing Person, as the case may be,
in such Fundamental Change, then such written agreement shall also be executed
by such other Person and shall contain such additional provisions to protect the
interests of the Holder as the Board of Directors of the Company shall
reasonably consider necessary by reason of the foregoing. At the Holder's
request, any successor to the Company or surviving Person in such Fundamental
Change shall issue to the Holder a new Note consistent with the foregoing
provisions and evidencing the Holder's right to convert such Note into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental Change
is effected shall include terms requiring any such successor or surviving Person
to comply with the provisions of this Section 12(c) and insuring that this Note
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Change. If any Fundamental
Change constitutes or results in a Change of Control, then at the request of the
Holder delivered before the 90th day after such Fundamental Change, the Company
(or any such successor or surviving entity) will purchase this Note from the
Holder for a purchase price, payable in cash within five Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
equal to the Black Scholes value of the remaining unexercised portion of this
Note on the date of such request.
(d) Subsequent Equity Sales.
(i) The Company covenants and agrees that for a period of one
year from the issuance of this Note, it will not issue additional shares
of Common Stock or rights, warrants, options or other securities or debt
convertible, exercisable or exchangeable for shares of Common Stock or
otherwise entitling any Person to acquire shares of Common Stock
(collectively, "Common Stock Equivalents") at a price (exclusive of
commissions payable by the Company in connection therewith) per share of
Common Stock (the "Effective Price") less than the Conversion Price (as
adjusted hereunder to such date), then the Conversion Price shall be
reduced to equal the Effective Price. For purposes of this paragraph, in
connection with any issuance of any Common Stock Equivalents, (A) the
maximum number of shares of Common Stock potentially issuable at any time
upon conversion, exercise or exchange of such Common Stock Equivalents
(the "Deemed Number") shall be deemed to be outstanding upon issuance of
such Common Stock Equivalents, (B) the Effective Price applicable to such
Common Stock shall equal the minimum dollar value of consideration payable
to the Company to purchase such Common Stock Equivalents and to convert,
exercise or exchange them into Common Stock (net of any discounts, fees,
commissions and other expenses), divided by the Deemed Number, and (C) no
further adjustment shall be made to the Conversion Price upon the actual
issuance of Common Stock upon conversion, exercise or exchange of such
Common Stock Equivalents.
15
(ii) At any time while this Note is outstanding, the Company
or Subsidiary shall not issue Common Stock Equivalents with an Effective
Price or a number of underlying shares that floats or resets or otherwise
varies or is subject to adjustment based (directly or indirectly) on
market prices of the Common Stock (a "Floating Price Security").
(iii) Notwithstanding the foregoing, no adjustment will be
made under this paragraph (d) in respect of (A) the issuance of Common
Stock upon exercise or conversion of any Common Stock Equivalents
described in Schedule 3.1(g) to the Purchase Agreement (provided that such
exercise or conversion occurs in ---------------- accordance with the
terms thereof, without amendment or modification, and that the applicable
exercise or conversion price or ratio is described in such schedule); (B)
to officers, directors or employees of, or advisers, consultants or
independent contractors acting in a similar capacity to, the Company
pursuant to restricted stock issuances, stock grants, stock options or
similar employee stock incentives, in each case approved by the Board of
Directors of the Company; (C) the issuance of securities in connection
with a bona fide joint venture or development agreement or strategic
partnership or similar agreement approved by the Company's board of
directors, the primary purpose of which is not to raise equity capital; or
(D) in connection with a transaction involving a merger or acquisition of
an entity, business or assets (not principally for the purpose of
obtaining cash).
(e) Calculations. All calculations under this Section 12 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
(f) Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 12, the Company at its expense will promptly compute
such adjustment in accordance with the terms hereof and prepare and deliver to
the Holder a certificate describing in reasonable detail such adjustment and the
transactions giving rise thereto, including all facts upon which such adjustment
is based.
(g) Notice of Corporate Events. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Change or (iii) authorizes
the voluntary dissolution, liquidation or winding up of the affairs of the
Company, then the Company shall deliver to the Holder a notice describing the
material terms and conditions of such transaction, at least 20 Trading Days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to convert this
Note prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
16
13. No Fractional Shares. The Company shall not issue or cause to be
issued fractional Underlying Shares on conversion of this Note. If any fraction
of an Underlying Share would, except for the provisions of this Section 13, be
issuable upon conversion of this Note, the number of Underlying Shares to be
issued will be rounded up to the nearest whole share.
14. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile (facsimile confirmed) at
the facsimile number specified in this Section prior to 5:30 p.m. (New York City
time) on a Trading Day, (ii) the Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Agreement later than 5:30 p.m. (New York City time) on any
date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
Trading Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:
If to the Company: Onstream Media Corporation
0000 XX 00 Xxxxxx
Xxxxxxx Xxxxx, Xxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
Fax No.: 000-000-0000
With a copy to: With a copy to:
Xxxxxxxx & Xxxx LLP
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxx Xxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxx
Fax No.: (000) 000-0000
If to the Purchasers: To the address set
forth under such
Purchaser's name on
the signature pages
attached hereto.
17
15. Miscellaneous.
(a) This Note shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. The
Company shall not be permitted to assign this Note.
(b) Subject to Section 15(a), nothing in this Note shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Note.
(C) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
(d) The headings herein are for convenience only, do not constitute
a part of this Note and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Note shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Note shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Note.
(f) In the event of any stock split, subdivision, dividend or
distribution payable in shares of Common Stock (or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly shares of Common Stock), combination or other similar
recapitalization or event occurring after the date hereof, each reference in
this Note to a price shall be amended to appropriately account for such event.
18
(g) No provision of this Note may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and
Majority Holders, or, in the case of a waiver, by the Holder; provided that no
amendment shall, without the consent of the Holder (i) extend the scheduled
final maturity of this Note, or reduce the rate or extend the time of payment of
principal or of interest (other than as a result of waiving the applicability of
any post-default increase in interest rates) hereon or reduce the principal
amount hereof or reduce or change the form or relative amounts of the components
of the Company Prepayment Price, the Holder Prepayment Price or the Event Price,
(ii) increase the Conversion Price, (iii) amend, modify or waive any provision
of this Section 15(g), including, without limitation, the definition of Majority
Holders or (v) change the method of calculating the Market Price in a manner
adverse to the Holder. No waiver of any default with respect to any provision,
condition or requirement of this Note shall be deemed to be a continuing waiver
in the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by a duly authorized officer as of the date first above indicated.
ONSTREAM MEDIA CORPORATION
By
--------------------------
Xxxxx X. Xxxxxx
Chief Executive Officer
19
Schedule 1
FORM OF CONVERSION NOTICE
(To be executed by the registered Holder
in order to convert Note)
The undersigned hereby elects to convert the specified principal amount of 8.0%
Subordinated Secured Convertible Notes (the "Notes") into shares of common
stock, no par value (the "Common Stock"), of Onstream Media Corporation, a
Florida corporation, according to the conditions hereof, as of the date written
below.
--------------------------------------------------------
Date to Effect Conversion
--------------------------------------------------------
Principal amount of Notes owned prior to conversion
--------------------------------------------------------
Principal amount of Notes to be converted
(including accrued but unpaid interest thereon)
--------------------------------------------------------
Number of shares of Common Stock to be Issued
--------------------------------------------------------
Applicable Conversion Price
--------------------------------------------------------
Principal amount of Notes owned subsequent to Conversion
--------------------------------------------------------
Name of Xxxxxx
By
-----------------------------------------------------
Name:
Title:
Schedule 2
CONVERSION SCHEDULE
This Conversion Schedule reflects conversions of the 8.0% Subordinated Secured
Convertible Notes issued by Onstream Media Corporation.
Aggregate Principal
Amount Remaining
Date of Conversion Amount of Conversion Subsequent to Conversion
--------------------- ----------------------------- ----------------------------
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21
