Exhibit 4.8
EXHIBIT A
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS 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 ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: April 21, 2005
Amount: $600,000
8% SENIOR SECURED CONVERTIBLE DEBENTURE
THIS DEBENTURE is one of a series of duly authorized and issued 8% Senior
Secured Convertible Debentures of Edentify, Inc., a Delaware corporation, having
a principal place of business at 000-00 Xxxxxxxxxx Xxxxx, Xxxxxx Xxxx, XX 00000
(the "Company"), designated as its 8% Senior Secured Convertible Debenture (the
"Debenture(s)").
FOR VALUE RECEIVED, the Company promises to pay to _____________________ or
its registered assigns (the "Holder"), the principal sum of $600,000 on the
earlier of (a) the two year anniversary of the date hereof, (b) if a Public
Liquidity Event has not occurred on or before the first anniversary of the date
hereof, the one year anniversary of the date hereof and (c) such earlier date as
the Debentures are required or permitted to be repaid as provided hereunder (the
"Maturity Date"), and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Debenture in accordance with the
provisions hereof. This Debenture is subject to the following additional
provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in Section
5(d).
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"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which
banking institutions in the State of New York are authorized or required by
law or other government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 33% of the voting securities of the Company, or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving
effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 33% of the aggregate voting power
of the Company or the successor entity of such transaction, or (iii) the
Company sells or transfers its assets, as an entirety or substantially as
an entirety, to another Person and the stockholders of the Company
immediately prior to such transaction own less than 33% of the aggregate
voting power of the acquiring entity immediately after the transaction,
(iv) a replacement at one time or within a three year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board
of directors was approved by a majority of the members of the board of
directors who are members on the date hereof), or (v) the execution by the
Company of an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth above in (i) or (iv).
"Common Stock" means the common stock, par value $0.001 per share, of
the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section 4(a).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the
terms.
Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the Trading
Market (as reported by Bloomberg L.P. at 4:15 PM (New York time) as the
last reported closing bid price for regular session trading on such day),
or (b) if there is no such price on such date, then the closing bid price
on the Trading Market on the date nearest preceding such date (as reported
by Bloomberg L.P. at 4:15 PM (New York time) as the closing bid price for
regular session trading on such day), or (c) if the Common Stock is not
then listed or quoted on the Trading Market and if prices for the Common
Stock are then reported in
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the "pink sheets" published by the National Quotation Bureau Incorporated
(or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock
so reported, or (d) if the shares of Common Stock are not then publicly
traded the fair market value of a share of Common Stock as determined by an
appraiser selected in good faith by the Purchasers of a majority in
principal of the Debentures then outstanding.
"Debenture Register" shall have the meaning set forth in Section 2(c).
"Effectiveness Period" shall have the meaning given to such term in
the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled
to occur or occurring by virtue of one or more Notice of Conversions, if
any, (ii) all liquidated damages and other amounts owing in respect of the
Debentures shall have been paid; (iii) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv)
the Common Stock is trading on the Trading Market and all of the shares
issuable pursuant to the Transaction Documents are listed for trading on a
Trading Market (and the Company believes, in good faith, that trading of
the Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (v) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the issuance
of all of the shares issuable pursuant to the Transaction Documents, (vi)
there is then existing no Event of Default or event which, with the passage
of time or the giving of notice, would constitute an Event of Default,
(vii) all of the shares issued or issuable pursuant to the transaction
proposed would not violate the limitations set forth in Section 4(c) and
(viii) no public announcement of a pending or proposed Fundamental
Transaction, Change of Control Transaction or acquisition transaction has
occurred that has not been consummated.
"Event of Default" shall have the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fundamental Transaction" shall have the meaning set forth in Section
5(d).
"Forced Conversion Notice" shall have the meaning set forth in Section
6(d).
"Force Conversion Notice Date" shall have the meaning set forth in
Section 6(d).
"Interest Conversion Rate" means 90% of the lesser of (a) the average
of the 20 Closing Prices immediately prior to the applicable Interest
Payment Date or (b) the average of the 20 Closing Prices immediately prior
to the date the applicable interest payment shares are issued and delivered
if after the Interest Payment Date.
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"Interest Payment Date" shall have the meaning set forth in Section
2(a).
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the greater of: (A) 250% of the principal amount of Debentures to be
prepaid, plus all accrued and unpaid interest thereon, or (B) the number of
shares issuable upon Conversion of this Debenture in full on (x) the date
the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is less,
multiplied by the Closing Price on (x) the date the Mandatory Prepayment
Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is greater, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"New York Courts" shall have the meaning set forth in Section 9(d).
"Notice of Conversion" shall have the meaning set forth in Section
4(a).
"Optional Redemption" shall have the meaning set forth in Section
6(a).
"Optional Redemption Amount" shall mean the sum of (i) 125% of the
principal amount of the Debenture then outstanding, (ii) accrued but unpaid
interest and (iii) all liquidated damages and other amounts due in respect
of the Debenture.
"Optional Redemption Notice" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Notice Date" shall have the meaning set forth in
Section 6(a).
"Original Issue Date" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of December 31, 2004, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
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"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Conversion Shares and naming the Holder as a
"selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the Purchase
Agreement.
"Threshold Period" shall have the meaning given to such term in
Section 6(d).
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
Section 2. Interest.
a) Payment of Interest in Cash or Kind. The Company shall pay interest
to the Holder on the aggregate unconverted and then outstanding principal
amount of this Debenture at the rate of 8% per annum, payable quarterly on
March 31, June 30, September 30 and December 31, beginning on the first
such date after the Original Issue Date and on each Conversion Date (as to
that principal amount then being converted) and on the Maturity Date
(except that, if any such date is not a Business Day, then such payment
shall be due on the next succeeding Business Day) (each such date, an
"Interest Payment Date"), in cash or shares of Common Stock at the Interest
Conversion Rate, or a combination thereof; provided, however, payment in
shares of Common Stock may only occur if during the 10 Trading Days
immediately prior to the applicable Interest Payment Date all of the Equity
Conditions have been met and the Company shall have given the Holder notice
in accordance with the notice requirements set forth below.
b) Company's Election to Pay Interest in Kind. Subject to the terms
and conditions herein, the decision whether to pay interest hereunder in
shares of Common Stock or cash shall be at the discretion of the Company.
Not less than 10 Trading Days prior to each Interest Payment Date, the
Company shall provide the Holder with written notice of its election to pay
interest hereunder either in cash or shares of Common Stock (the Company
may indicate in such notice that the election contained in such notice
shall continue for later periods until revised). Within 10 Trading Days
prior to an Interest
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Payment Date, the Company's election (whether specific to an Interest
Payment Date or continuous) shall be irrevocable as to such Interest
Payment Date. Subject to the aforementioned conditions, failure to timely
provide such written notice shall be deemed an election by the Company to
pay the interest on such Interest Payment Date in cash.
c) Interest Calculations. Interest shall be calculated on the basis of
a 360-day year and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued and
unpaid interest and other amounts which may become due hereunder, has been
made. Payment of interest in shares of Common Stock shall otherwise occur
pursuant to Section 4(d)(ii) and only for purposes of the payment of
interest in shares, the Interest Payment Date shall be deemed the
Conversion Date. Interest shall cease to accrue with respect to any
principal amount converted, provided that the Company in fact delivers the
Conversion Shares within the time period required by Section 4(d)(ii).
Interest hereunder will be paid to the Person in whose name this Debenture
is registered on the records of the Company regarding registration and
transfers of Debentures (the "Debenture Register"). Except as otherwise
provided herein, if at any time the Company pays interest partially in cash
and partially in shares of Common Stock, then such payment shall be
distributed ratably among the Holders based upon the principal amount of
Debentures held by each Holder.
d) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or such
lower maximum amount of interest permitted to be charged under applicable
law) ("Late Fees") which will accrue daily, from the date such interest is
due hereunder through and including the date of payment. Notwithstanding
anything to the contrary contained herein, if on any Interest Payment Date
the Company has elected to pay interest in Common Stock and is not able to
pay accrued interest in the form of Common Stock because it does not then
satisfy the conditions for payment in the form of Common Stock set forth
above, then, at the option of the Holder, the Company, in lieu of
delivering either shares of Common Stock pursuant to this Section 2 or
paying the regularly scheduled cash interest payment, shall deliver, within
three Trading Days of each applicable Interest Payment Date, an amount in
cash equal to the product of the number of shares of Common Stock otherwise
deliverable to the Holder in connection with the payment of interest due on
such Interest Payment Date and the highest Closing Price during the period
commencing on the Interest Payment Date and ending on the Trading Day prior
to the date such payment is made.
e) Prepayment. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this
Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as
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requested by the Holder surrendering the same. No service charge will be
made for such registration of transfer or exchange.
b) Investment Representations. This Debenture has been issued subject
to certain investment representations of the original Holder set forth in
the Purchase Agreement and may be transferred or exchanged only in
compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or
not this Debenture is overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Section 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue Date
until this Debenture is no longer outstanding, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in
whole or in part at any time and from time to time (subject to the
limitations on conversion set forth in Section 4(c) hereof). The Holder
shall effect conversions by delivering to the Company the form of Notice of
Conversion attached hereto as Annex A (a "Notice of Conversion"),
specifying therein the principal amount of Debentures to be converted and
the date on which such conversion is to be effected (a "Conversion Date").
If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
provided hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender Debentures to the Company unless the
entire principal amount of this Debenture plus all accrued and unpaid
interest thereon has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Debenture
in an amount equal to the applicable conversion. The Holder and the Company
shall maintain records showing the principal amount converted and the date
of such conversions. The Company shall deliver any objection to any Notice
of Conversion within 1 Business Day of receipt of such notice. In the event
of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder
and any assignee, by acceptance of this Debenture, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted principal amount
of this Debenture may be less than the amount stated on the face hereof.
b) Conversion Formula. Upon conversion of a principal amount of this
Debenture, the Holder shall be entitled to a number of shares of Common
Stock equal to (the principal amount converted/$600,000)*(10%)*(the number
of shares of Common Stock of the Company outstanding on a fully diluted
basis).
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c) Xxxxxx's Restriction on Conversion. The Company shall not effect
any conversion of this Debenture, and the Holder shall not have the right
to convert any portion of this Debenture, pursuant to Section 4(a) or
otherwise, to the extent that after giving effect to such conversion, the
Holder (together with the Holder's affiliates), as set forth on the
applicable Notice of Conversion, would beneficially own in excess of 4.99%
of the number of shares of the Common Stock outstanding immediately after
giving effect to such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and
its affiliates shall include the number of shares of Common Stock issuable
upon conversion of this Debenture with respect to which the determination
of such sentence is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) conversion of the remaining,
nonconverted portion of this Debenture beneficially owned by the Holder or
any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including,
without limitation, any other Debentures or the Warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 4(c)(ii),
beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act. To the extent that the limitation contained in this
section applies, the determination of whether this Debenture is convertible
(in relation to other securities owned by the Holder) and of which a
portion of this Debenture is convertible shall be in the sole discretion of
such Holder. To ensure compliance with this restriction, the Holder will be
deemed to represent to the Company each time it delivers a Notice of
Conversion that such Notice of Conversion has not violated the restrictions
set forth in this paragraph and the Company shall have no obligation to
verify or confirm the accuracy of such determination. For purposes of this
Section 4(c)(ii), in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common
Stock as reflected in (x) the Company's most recent Form 10-Q or Form 10-K,
as the case may be, (y) a more recent public announcement by the Company or
(z) any other notice by the Company or the Company's Transfer Agent setting
forth the number of shares of Common Stock outstanding. Upon the written or
oral request of the Holder, the Company shall within two Trading Days
confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Debenture, by the
Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this
Section 4(c) may be waived by the Holder upon, at the election of the
Holder, not less than 61 days' prior notice to the Company, and the
provisions of this Section 4(c) shall continue to apply until such 61st day
(or such later date, as determined by the Holder, as may be specified in
such notice of waiver).
d) Mechanics of Conversion
i. Intentionally Omitted.
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ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after any Conversion Date, the Company will deliver to
the Holder (A) a certificate or certificates representing the
Conversion Shares which shall be free of restrictive legends and
trading restrictions (other than those required by the Purchase
Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of Debentures (including, if so timely
elected by the Company, shares of Common Stock representing the
payment of accrued interest) and (B) a bank check in the amount of
accrued and unpaid interest (if the Company is required to pay accrued
interest in cash). The Company shall, if available and if allowed
under applicable securities laws, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing
similar functions.
iii. Failure to Deliver Certificates. If in the case of any
Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the third
Trading Day after a Conversion Date, the Holder shall be entitled by
written notice to the Company at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the principal amount of Debentures tendered
for conversion.
iv. Obligation Absolute; Partial Liquidated Damages. If the
Company fails for any reason to deliver to the Holder such certificate
or certificates pursuant to Section 4(d)(ii) by the third Trading Day
after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, for each $1000 of
principal amount being converted, $10 per Trading Day (increasing to
$20 per Trading Day after 5 Trading Days after such damages begin to
accrue) for each Trading Day after such third Trading Day until such
certificates are delivered. The Company's obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture 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 setoff, 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 Conversion Shares; provided, however, such delivery
shall not operate as a waiver by the Company of any such action the
Company may have against the Holder. In the event a Holder of this
Debenture shall elect to convert any or all of the outstanding
principal amount hereof, the Company may not refuse conversion based
on any claim that the Holder or any one associated or affiliated with
the Holder of has been engaged in any violation of
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law, agreement or for any other reason, unless, an injunction from a
court, on notice, restraining and or enjoining conversion of all or
part of this Debenture shall have been sought and obtained and the
Company posts a surety bond for the benefit of the Holder in the
amount of 150% of the principal amount of this Debenture outstanding,
which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Holder to the extent it
obtains judgment. In the absence of an injunction precluding the same,
the Company shall issue Conversion Shares or, if applicable, cash,
upon a properly noticed conversion. Nothing herein shall limit a
Xxxxxx's right to pursue actual damages or declare an Event of Default
pursuant to Section 8 herein for the Company's failure to deliver
Conversion Shares within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holders from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. In addition to any other rights
available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to
Section 4(d)(ii) by the third Trading Day after the Conversion Date,
and if after such third Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall (A) pay in
cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the actual
sale price of the Common Stock at the time of the sale (including
brokerage commissions, if any) giving rise to such purchase obligation
and (B) at the option of the Holder, either reissue Debentures in
principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Company timely complied with
its delivery requirements under Section 4(d)(ii). For example, if the
Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the actual sale price of the
Conversion Shares at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation was a
total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In. Notwithstanding
anything contained herein to the contrary, if a Holder requires
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the Company to make payment in respect of a Buy-In for the failure to
timely deliver certificates hereunder and the Company timely pays in
full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(d)(iv) in respect of the
certificates resulting in such Buy-In.
vi. Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock solely for the
purpose of issuance upon conversion of the Debentures and payment of
interest on the Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holders, not less than such number of shares of
the Common Stock as shall (subject to any additional requirements of
the Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding
principal amount of the Debentures and payment of interest hereunder.
The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Registration Statement is then
effective under the Securities Act, registered for public sale in
accordance with such Registration Statement.
vii. Fractional Shares. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing
fractions of shares of the Common Stock, but may if otherwise
permitted, make a cash payment in respect of any final fraction of a
share based on the Closing Price at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
viii. Transfer Taxes. The issuance of certificates for shares of
the Common Stock on conversion of the Debentures shall be made without
charge to the Holders thereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a
name other than that of the Holder of such Debentures so converted and
the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such
tax has been paid.
Section 5. Certain Adjustments.
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a) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) 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 (D) 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 (in any such case, a
"Fundamental Transaction"), then upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion
Share that would have been issuable upon such conversion absent such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of
such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of one share of Common Stock (the
"Alternate Consideration"); except that, with respect to a Public Liquidity
Event, the Holder shall be entitled to the number of Public Liquidity
Shares provided for in Section 4(b). If holders of Common Stock are given
any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction. To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder
a new debenture with substantially the same form as this Debenture and
consistent with the foregoing provisions and evidencing the Holder's right
to convert such debenture into Alternate Consideration. In furtherance
thereof, in the event a Public Liquidity Company is not the Company, the
Public Liquidity Company shall issue a new debenture with substantially the
same form as this Debenture. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this
paragraph (c) and insuring that this Debenture (or any such replacement
security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. Any Fundamental Transaction shall
require the consent of the Holder.
b) Notice to Holders.
i. Adjustment. Whenever the Debenture is adjusted pursuant to any
of this Section 5, the Company shall promptly mail to each Holder a
notice setting forth the consideration to be given after such
adjustment and setting forth a brief statement of the facts requiring
such adjustment.
ii. Notice to Allow Conversion by Xxxxxx. If (A) the Company
shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of
12
the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; (D) the
approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in each case, the
Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of the Debentures, and shall cause to be
mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior
to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the
holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger,
sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of
the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity
of the corporate action required to be specified in such notice.
Holders are entitled to convert Debentures during the 20-day period
commencing the date of such notice to the effective date of the event
triggering such notice.
Section 6. Redemption and [Forced Conversion.
a) Optional Redemption at Election of Company. Subject to the
provisions of this Section 6, the Company may deliver a notice to the
Holders (an "Optional Redemption Notice" and the date such notice is deemed
delivered hereunder, the "Optional Redemption Notice Date") of its
irrevocable election to redeem some or all of the then outstanding
Debentures, for an amount, in cash, equal to the Optional Redemption Amount
on the 20th Trading Day following the Optional Redemption Notice Date (such
date, the "Optional Redemption Date" and such redemption, the "Optional
Redemption"). The Optional Redemption Amount is due in full on the Optional
Redemption Date. The Company may only effect an optional redemption if
during the period commencing on the Optional Redemption Notice Date through
to the Optional Redemption Date, each of the Equity Conditions shall have
been met. If any of the Equity Conditions shall cease to be satisfied at
any time during the required period, then the Holder may elect to nullify
the Optional Redemption Notice by notice to the Company within 3 Trading
Days after the first day on which any such Equity Condition has not been
met (provided that if, by a provision of the Transaction Documents the
13
Company is obligated to notify the Holder of the non-existence of an Equity
Condition, such notice period shall be extended to the third Trading Day
after proper notice from the Company) in which case the Optional Redemption
Notice shall be null and void, ab initio. The Company covenants and agrees
that it will honor all Notice of Conversions tendered from the time of
delivery of the Optional Redemption Notice through the date all amounts
owing thereon are due and paid in full.
b) Redemption Procedure. The payment of cash pursuant to an Optional
Redemption shall be made on the Optional Redemption Date. If any portion of
the cash payment for an Optional Redemption, as applicable shall not be
paid by the Company by the respective due date, interest shall accrue
thereon at the rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the payment of the Optional
Redemption Amount, plus all amounts owing thereon is paid in full.
Alternatively, if any portion of the Optional Redemption Amount, remains
unpaid after such date, the Holders subject to such redemption may elect,
by written notice to the Company given at any time thereafter, to
invalidate ab initio such redemption, notwithstanding anything herein
contained to the contrary, and, with respect the failure to honor the
Optional Redemption, the Company shall have no further right to exercise
such Optional Redemption. Notwithstanding anything to the contrary in this
Section 6, the Company's determination to redeem in cash or its elections
under Section 6(a) shall be applied among the Holders of Debentures
ratably. The Holder may elect to convert the outstanding principal amount
of the Debenture pursuant to Section 4 prior to actual payment in cash for
any redemption under this Section 6 by fax delivery of a Notice of
Conversion to the Corporation.
c) Forced Conversion. Notwithstanding anything herein to the contrary,
if after the 12 month anniversary of the Effective Date (i) each of the
Closing Prices for any 30 consecutive Trading Days (such period commencing
only after the 1 year anniversary of the Effective Price, such period the
"Threshold Period")) exceeds $1.50, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of the Purchase
Agreement and (ii) the average daily dollar trading volume of the Common
Stock during the Threshold Period is greater than or equal to $150,000, the
Company may, within 1 Trading Day of the end of any such period, deliver a
notice to the Holder (a "Forced Conversion Notice" and the date such notice
is received by the Holder, the "Forced Conversion Notice Date") to cause
the Holder to immediately convert all or part of the then outstanding
principal amount of Debentures pursuant to Section 4(a). The Company may
only effect a Forced Conversion Notice if all of the Equity Conditions are
met through the applicable Threshold Period until the date of the
applicable Forced Conversion. Any Forced Conversion shall be applied
ratably to all Holders based on their initial purchases of Debentures
pursuant to the Purchase Agreement.
Section 7. Negative Covenants. So long as any portion of this Debenture is
outstanding, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly:
14
a) enter into, create, incur, assume or suffer to exist any
indebtedness or liens 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 to, or pari passu with,
in any respect, the Company's obligations under the Debentures;
b) amend its certificate of incorporation, bylaws or to her charter
documents so as to adversely affect any rights of the Holder;
c) repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its Common Stock or
other equity securities other than as to the Conversion Shares to the
extent permitted or required under the Transaction Documents or as
otherwise permitted by the Transaction Documents;
d) undertake an Change of Control Transaction or Fundamental
Transaction (including any Public Liquidity Event); or
e) enter into any agreement with respect to any of the foregoing.
Section 8. Events of Default.
a) "Event of Default", wherever used herein, 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 of (A) the principal amount of any
Debenture, or (B) interest (including Late Fees) on, or liquidated
damages in respect of, any Debenture, in each case free of any claim
of subordination, as and when the same shall become due and payable
(whether on a Conversion Date or the Maturity Date or by acceleration
or otherwise) which default, solely in the case of an interest payment
or other default under clause (B) above, is not cured, within 3
Trading Days;
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Debenture (other than a breach
by the Company of its obligations to deliver shares of Common Stock to
the Holder upon conversion which breach is addressed in clause (xii)
below) which failure is not cured, if possible to cure, within the
earlier to occur of (A) 5 Trading Days after notice of such default
sent by the Holder or by any other Holder and (B)10 Trading Days after
the Company shall become or should have become aware of such failure;
iii. a default or event of default (subject to any grace or cure
period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents
other than the Debentures, or (B)
15
any other material agreement, lease, document or instrument to which
the Company or any Subsidiary is bound;
iv. any representation or warranty made herein, in any other
Transaction Documents, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate
made or delivered to the Holder or any other holder of Debentures
shall be untrue or incorrect in any material respect as of the date
when made or deemed made;
v. (i) the Company or any of its Subsidiaries shall commence, or
there shall be commenced against the Company or any such Subsidiary, a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company or any
Subsidiary commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or any Subsidiary
thereof or (ii) there is commenced against the Company or any
Subsidiary thereof any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 60 days; or (iii) the
Company or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt; or any order of relief
or other order approving any such case or proceeding is entered; or
(iv) the Company or any Subsidiary thereof suffers any appointment of
any custodian or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of 60
days; or (v) the Company or any Subsidiary thereof makes a general
assignment for the benefit of creditors; or (vi) the Company shall
fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or (vii) the
Company or any Subsidiary thereof shall call a meeting of its
creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (viii) the Company or any Subsidiary
thereof shall by any act or failure to act expressly indicate its
consent to, approval of or acquiescence in any of the foregoing; or
(ix) any corporate or other action is taken by the Company or any
Subsidiary thereof for the purpose of effecting any of the foregoing;
vi. the Company or any Subsidiary shall default in any of its
obligations under 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 in an amount
exceeding $150,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
16
vii. the Common Stock shall not be eligible for quotation on or
quoted for trading on a Trading Market and shall not again be eligible
for and quoted or listed for trading thereon within five Trading Days;
viii. the Company shall be a party to any Change of Control
Transaction, Fundamental Transaction (including any Public Liquidity
Event), shall agree to sell or dispose of all or in excess of 33% of
its assets in one or more transactions (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem or
repurchase more than a de minimis number of its outstanding shares of
Common Stock or other equity securities of the Company (other than
redemptions of Conversion Shares and repurchases of shares of Common
Stock or other equity securities of departing officers and directors
of the Company; provided such repurchases shall not exceed $100,000,
in the aggregate, for all officers and directors during the term of
this Debenture);
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 180th calendar day
after the Closing Date;
x. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration
Statement lapses for any reason or the Holder shall not be permitted
to resell Registrable Securities (as defined in the Registration
Rights Agreement) under the Registration Statement, in either case,
for more than 10 consecutive Trading Days or 15 non-consecutive
Trading Days during any 12 month period; provided, however, that in
the event that the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets or a
similar transaction and in the written opinion of counsel to the
Company, the Registration Statement, would be required to be amended
to include information concerning such transactions or the parties
thereto that is not available or may not be publicly disclosed at the
time, the Company shall be permitted an additional 10 consecutive
Trading during any 12 month period relating to such an event;
xi. the Company shall fail for any reason to deliver certificates
to a Holder prior to the fifth Trading Day after a Conversion Date
pursuant to and in accordance with Section 4(d) or the Company shall
provide notice to the Holder, including by way of public announcement,
at any time, of its intention not to comply with requests for
conversions of any Debentures in accordance with the terms hereof;
xii. any Person shall breach the agreements delivered to the
initial Holders pursuant to Section 2.2(a)(iv) of the Purchase
Agreement and the Company does not obtain [Shareholder Approval.
17
b) Remedies Upon Event of Default. If any Event of Default occurs, the
full principal amount of this Debenture, together with interest and other
amounts owing in respect thereof, to the date of acceleration shall become,
at the Holder's election, immediately due and payable in cash. The
aggregate amount payable upon an Event of Default shall be equal to the
Mandatory Prepayment Amount. Commencing 5 days after the occurrence of any
Event of Default that results in the eventual acceleration of this
Debenture, the interest rate on this Debenture shall accrue at the rate of
18% per annum, or such lower maximum amount of interest permitted to be
charged under applicable law. All Debentures for which the full Mandatory
Prepayment Amount hereunder shall have been paid in accordance herewith
shall promptly be surrendered to or as directed by the Company. 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 and
without expiration of any grace period enforce any and all of its rights
and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Xxxxxx at
any time prior to payment hereunder and the Holder shall have all rights as
a Debenture holder until such time, if any, as the full payment under this
Section shall have been received by it. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries
to be provided by the Holders hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service,
addressed to the Company, at the address set forth above, facsimile number
000-000-0000, Attn: Xxxxxxxx XxXxxxxx or such other address or facsimile
number as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section. Any and all notices or
other communications or deliveries to be provided by the Company hereunder
shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service addressed to each Holder at
the facsimile telephone number or address of such Xxxxxx appearing on the
books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or
other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 5:30 p.m. (New York City time),
(ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section 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 second Business 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.
18
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct debt obligation of the Company. This Debenture ranks
pari passu with all other Debentures now or hereafter issued under the
terms set forth herein.
c) Lost or Mutilated Debenture. If this Debenture shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated
Debenture, or in lieu of or in substitution for a lost, stolen or destroyed
Debenture, a new Debenture for the principal amount of this Debenture so
mutilated, lost, stolen or destroyed but only upon receipt of evidence of
such loss, theft or destruction of such Debenture, and of the ownership
hereof, and indemnity, if requested, all reasonably satisfactory to the
Company.
d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture 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 agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated
by any of the Transaction Documents (whether brought against a party hereto
or its respective affiliates, directors, officers, shareholders, employees
or agents) shall be commenced in the state and federal courts sitting in
the City of New York, Borough of Manhattan (the "New York Courts"). Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of
the New York Courts 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, or such New York
Courts are improper or inconvenient venue for such proceeding. 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 Debenture 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. Each party hereto hereby irrevocably waives,
to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
19
e) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other
term of this Debenture. Any waiver must be in writing.
f) Severability. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in
effect, and if any provision is inapplicable to any person or circumstance,
it shall nevertheless remain applicable to all other persons and
circumstances. If it shall be found that any interest or other amount
deemed interest due hereunder violates applicable laws governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum permitted rate of interest. The Company covenants (to the
extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any
such law, hinder, delay or impeded the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every
such as though no such law has been enacted.
g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only,
do not constitute a part of this Debenture and shall not be deemed to limit
or affect any of the provisions hereof.
i) Security Interest. This Debenture is a direct debt obligation of
the Company and pursuant to the Security Agreement is secured by a
perfected security interest in all of the assets of the Company for the
benefit of the Holders.
*********************
20
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
EDENTIFY, INC.
By:
------------------------------------
Name: Xxxxxxxx XxXxxxxx
Title: President
21
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8% Convertible
Debenture of Edentify, Inc., a ____________ corporation (the "Company"), into
shares of common stock, par value $___ per share (the "Common Stock"), of the
Company according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations: ____________
Date to Effect Conversion: _____________
Principal Amount of Debentures to be
Converted: ________________
Payment of Interest in Common Stock
___ yes ___ no
If yes, $_____ of Interest Accrued
on Account of Conversion at Issue.
Number of shares of Common Stock to
be issued: __________________________
Signature:
-----------------------------
Name:
----------------------------------
Address:
-------------------------------
22
SCHEDULE 1
CONVERSION SCHEDULE
The 8% Convertible Debentures, in the aggregate principal amount of
$____________ issued by Edentify, Inc. This Conversion Schedule reflects
conversions made under Section 4 of the above referenced Debenture.
Dated: _______________________
Aggregate Principal
Amount Remaining
Subsequent to Conversion
Date of Conversion (or for first (or original Principal
entry, Original Issue Date) Amount of Conversion Amount) Company Attest
-------------------------------- -------------------- ------------------------ --------------
23
