EXHIBIT C
DIGITAL RIVER INC
CONVERTIBLE LOAN NOTE
DIGITAL RIVER, INC.
18% CONVERTIBLE DEBENTURE
DUE DECEMBER 1997
$_________________ December 1996
Minneapolis, Minnesota, USA
Digital River, Inc., a Minnesota corporation ("the Company"), for value
received, hereby promises to pay to the order of or
any permitted assignee thereof ("the Holder") the principal sum of
Dollars ($ ) on December 1997, or such later date as shall be the
anniversary of the date hereof with interest on the unpaid balance of such
principal amount accrued from the day following the date hereof at an annual
rate of eighteen per cent (18%) calculated on the basis of a 365-day year,
such interest payable on the due date of this debenture unless this debenture
is converted as provided for below.
This Debenture is subject to the following terms and conditions:
1. SERIES
This Debenture is one of a series of convertible debentures issued or
to be issued by the Company in connection with a private placement of
up to $1,000,000.00 principal amount of convertible debentures. The
debentures in such series shall collectively be referred to herein as
the "Debentures".
2. CONVERSION
This Debenture is convertible at the option of the Holder during the
period from the date a private placement of shares completes as set
forth below through the date of repayment into shares of Common Stock
of the Company at a per share conversion price equal to the lesser of
seventy-five per cent (75%) of the per share offering price at which
the Company next offers its Common Stock pursuant to a planned private
placement or six dollars ($6.00) per share. Said private offering to
be completed within twelve (12) months from the date hereof. In the
event the Company does not complete a private offering of its stock
with twelve (12) months, the exercise price shall be six dollars
($6.00) per share. The number of shares into which this Debenture is
convertible and the conversion price shall be appropriately adjusted to
reflect stock dividends, stock splits, and other events as hereinafter
provided. The conversion price in effect from time to time is herein
called the "Conversion Price".
This Debenture shall be automatically converted in its entirety upon
the successful closing of the anticipated private stock offering. Said
conversion shall be at the
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Conversion Price. The Company undertakes to use its reasonable
endeavors to effect such a private stock offering within twelve (12)
months of the hereof.
The Company shall not be required to issue any fraction of a share of
Common Stock or scrip representing a fraction of a share of Common
Stock on any conversion pursuant to the terms of this Debenture. Upon
the surrender to the Company of this Debenture for conversion, the
Holder shall be entitled to receive the number of full shares of Common
Stock equal to the quotient (exclusive of fractions) obtained by
dividing the principal amount of this Debenture so surrendered by the
Conversion Price, and an amount in cash, as an adjustment in lieu of
any fraction of a share resulting from such division, equal to such
fraction multiplied by the Conversion Price of one share.
To convert this Debenture to shares of Common Stock, this Debenture
shall be surrendered to the Company at its principal office or at such
other agency as the Company may authorise for such purpose, endorsed or
accompanied by a written instrument of surrender in a form satisfactory
to the Company, duly executed by the Holder or his or her attorney or
other signatory duly authorised in writing.
The Company shall issue and deliver, in exchange for that portion of
this Debenture so surrendered for conversion, as soon as practicable
after such surrender, certificates representing the number of shares of
Common Stock into which such Debenture shall be convertible, issued in
the name of the Holder or in such name or names as the Holder may
direct. The conversion right in respect of this Debenture shall be
deemed to be exercised upon the receipt by the Company of the Debenture
so surrendered, duly endorsed or accompanied by a written instrument as
above provided. However, in the event of an automatic conversion,
failure to deliver the Debenture shall not create any obligation to the
Company other that to deliver the shares of Common Stock into which the
Debenture is converted. The Holder of this debenture shall be deemed
to have become a shareholder of record as of the date upon which this
Debenture shall have been been so received, provided the requirements
hereof are complied with. Thereupon, this Debenture shall be deemed to
be satisfied and discharged and no longer outstanding for any purpose.
The receipt of this Debenture so surrendered shall constitute full
payment for the shares issued in conversion thereof.
The number of shares of Common Stock into which this Debenture is
convertible and the Conversion Price shall be subject to adjustment
from time to time as follows:
(a) In the event the Company declares a dividend upon its Common
Stock payable otherwise than in cash out of earnings or surplus,
including a dividend payable in Common Stock or securities
convertible into Common Stock, or in any rights or options to
purchase Common Stock or securities convertible into Common
Stock, the Holder shall, upon conversion of this Debenture, be
entitled to receive Common Stock at the Conversion Price then in
effect, and, in addition and without payment therefor, the cash,
stock, or other securities and other property which such Holder
would have received by way of dividends or distributions
(otherwise than out of earnings or surplus) as if continuously
since the record date
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for any such dividend or distribution the Holder (i) had been
the record Holder of the number of shares of Common Stock then
received, and (ii) had retained all prior dividends or
distributiosn in stock or securities paid as dividends or
distributions and originating directly or indirectly from such
Common Stock.
(b) In case the Company shall during the time this Debenture is
outstanding subdivide its outstanding Common Stock into a
greater number of shares, or shall combine outstanding shares of
Common Stock into a smaller number of shares, the Conversion
Price shall be proportionately adjusted to reflect the the
respective reduction or increases in value of each such share of
Common Stock.
(c) If any capital reorganisation or reclassification of the capital
stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all
of its assets to another corporation shall be effected in such
a way that holders of the Company's Common Stock shall be
entitled to receive stock, other securities or assets with
respect to or in exchange for such Common Stock, then, as a
condition of such reorganisation, reclassification,
consolidation, merger, or sale, the Holder shall have the right
to acquire upon the basis and upon the terms and conditions
specified in this Debenture and in lieu of the shares of Common
Stock that could be acquired immediately theretofore, such
shares of stock, other securities, or assets as would have been
issued or delivered to the Holder if the Holder had converted
this Debenture prior to such reorganisation, reclassification,
consolidation, merger, or sale. The Company shall not effect
any such consolidation, merger, or sale unless prior to the
consummation thereof, the successor corporation (if other than
the Company) resulting from such consolidation or merger of the
corporation purchasing such assets shall assume, by written
instrument executed and mailed to the Holder at the last address
of the Holder appearing on the books of the Company, the obligation
to deliver to the Holder such shares of stock, other securities,
or assets as, in accordance with the foregoing provisions, the
Holder may be entitled to acquire.
(d) If the Company takes any other action, or if any other event
occurs which does not come within the scope of the provisions of
subparagraphs 1(a) through 1(c) hereof, but which should result
in an adjustment in the Conversion Price in order to fairly
protect the acquisition rights of the Holder, an appropriate
adjustment to the Conversion Price shall be made by the Company.
No adjustment in the Conversion Price shall be made on account
of an increase in the number of outstanding shares of Common
Stock resulting from (i) the issuance of shares pursuant to
employee stock option plans; (ii) the exercise of any of the
Company's outstanding Warrants; (iii) the conversion of any
outstanding Convertible Preferred Stock or Convertible
Debentures; or (iv) the sale or exchange by the Company for fair
value (as determined in good faith by the Company's Board of
Directors) of options, warrants, additional convertible
Debentures, or rights to acquire securities of the Company.
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(e) Upon an adjustment of the Conversion Price, the Company shall
give, within a reasonable time, written notice thereof, by first
class mail, postage prepaid, addressed to the Holder, which
notice shall state the Conversion Price resulting from such
adjustment and the increase or decrease, if any, in the number
of shares that may be acquired at such price upon the exercise
of this Debenture, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is
based. No failure to mail such notice or any defect therein or
in the mailing thereof shall affect the validity thereof except
as to the Holder to whom the Company failed to mail such notice,
or except as to the Holder whose notice was defective. The
affidavit of an officer of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
(f) As used in this Section 1, the term the Company's "Common Stock"
shall mean and include the Company's presently authorised shares
of Common Stock and shall also include any capital stock of any
class of the Company hereafter authorised which shall not be
limited to a fixed sum or percentage or par value in respect of
the rights of the holders thereof to participate in dividends or
in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company.
3. SECURITY
The obligations of the Company represented by this Debenture shall be
unsecured.
4. PREPAYMENT
(a) This Debenture may not be redeemed or prepaid, except (i) by
mutual agreement between the Company and the Holder, (ii) in
accordance with Section 6, or (iii) in accordance with paragraph
(b) below.
(b) The Company shall, unless it has already been converted or
repaid, redeem this Debenture on the first anniversary of the
date hereof by payment to the Holder of the principal amount set
out above (the "Principal"), all interest payable thereon and,
if the Company has failed to comply with the provisions of
Section 1, a premium of 15 per cent (15%) of the Principal.
5. CORPORATE OBLIGATIONS
With the exception of a written communication to Holder, proven to
constitute a knowing misrepresentation of a material fact, no recourse
under or upon any obligation, covenant or agreement contained in this
Debenture or for any claim based hereon or otherwise in respect
thereof, shall be had against any promoter, subscriber to shares,
incorporator, shareholder, officer or director, as such, past, present,
or future, of the Company or any successor corporation either directly
or through the Company or any successor corporation or through any
trustee, receiver, or any other person, whether by virtue of any
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constitution or statute, of, and in and all such rights and claims
against, every such promoter, subscriber, incorporator, shareholder,
officer or director, as such, are hereby expressly waiver and released
by the acceptance of this Debenture and as a part of the consideration
for the issuance hereof.
6. DEFAULT
The term "Event of Default" as used herein shall mean any one or more
of the following events:-
(a) Failure of the Company to pay any accrued interest within
forty-five (45) days of the date on which such interest payment
is due and payable;
(b) Failure of the Company to pay the principal amount of this
Debenture within forty-five (45) days of the date on which such
principal payment is due and payable;
(c) Failure of the Company to observe or perform any other of the
covenants or agreements of the Company in this Debenture for a
period of forty-five (45) days; and/or
(d) The Company makes an assignment for the benefit of creditors, or
admits in writing its inability to pay its debts as they become
due, or files a voluntary petition in bankruptcy, or a decree or
other order by a court of competent jurisdiction shall have been
entered adjudging the Company bankrupt or insolvent under the
provisions of the United States Bankruptcy Code or applicable
insolvency law or statute providing for the modification or
adjustment of the rights of creditors, and such degree or order
shall have continued undischarged or unstayed for a period of
sixty (60) days.
If an Event of Default shall have occurred, the principal amount hereof
may be declared by the Holder, and upon such declaration, shall become
due and payable, without presentment of other notice or demand,
together with all accrued but unpaid interest through the date of the
Company's full payment hereof. Upon an Event of Default, the Company
agrees to pay all costs of collection, including reasonable attorneys'
fees.
7. RESERVATION OF COMMON STOCK
The Company covenants that it will at all times reserve and keep
available out of its authorised but unissued Common Stock, solely for
the purpose of delivery upon conversion of this Debenture as herein
provided, such number of shares of Common Stock as shall then be
deliverable upon the conversion of this Debenture.
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8. CONSENT OF HOLDERS REQUIRED
Prior to the repayment on conversion of the Debentures, the Company
will not, without the prior written consent of Debenture holders
representing sixty-five percent (65%) of the Debentures in issue:
(a) repay the Debentures in advance of the due date of payment
otherwise than in accordance with the provisions of Section 6 or
paragraph 4(b); or
(b) create or suffer any material change in its business as the same
is carried out at the date hereof or as contemplated by this
document.
In the event of the failure by the Company to obtain the consents
referred to above, or in the event of Xx Xxxxxxx ceasing, for whatever
reason, to be an executive officer of the Company, the Debentures
shall be repaid forthwith with accrued interest and a fifteen percent
(15%) penalty.
9. COMPANY'S WARRANTY
The Company hereby warrants the correctness of all statements of fact
made in the Private Placement Memorandum and exhibits thereto issued by
the Company dated 4 December 1996 under which this Debenture was issued.
10. REPLACEMENT
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Debenture, and at the option
of the Company, in the case of any such loss, theft or destruction,
upon delivery of a bond or indemnity satisfactory to the Company, or in
the case of any such mutilation, upon surrender and cancellation of
such Debenture, the Company shall issue a new Debenture of like tenor as
if the lost, stolen, destroyed or mutilated Debenture was then
surrendered for exchange in lieu of such lost, stolen, destroyed, or
mutilated Debenture.
11. CONSTRUCTION OF AGREEMENT
This Debenture shall be construed in accordance with the laws of the
State of Minnesota. This Debenture may not be waived, changed,
discharged, or terminated orally, nor shall any delay or failure on the
part of the Holder of this Debenture in exercising any right hereunder
affect such right or be deemed a waiver of any default on the part of
the Company. Wherever possible, each provision of this Debenture shall
be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Debenture is prohibited or
invalid under applicable law, such provision shall be ineffective only
to the extent of such prohibition or invalidity without invalidating
the remainder of such provisions or the remaining provisions of this
Debenture.
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12. NO VOTING RIGHTS
This Debenture shall not entitle the Holder to any voting right or
other rights as a shareholder of the Company.
13. NOTICES
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be delivered, or
mailed first class, postage prepaid (i) if to the Holder of this
Debenture at the address set forth in Holders Subscription Agreement or
at such other address as Holder may specify by written notice to the
Company, or (ii) if to the Company, at 0000 Xxxx 00xx Xxxxxx, Xxxxx,
Xxxxxxxxx, 00000, Attention: Xxxx Xxxxxxx, CEO, or at such other
address as the Company may specify by written notice to the Holder, and
such notices and other communications shall for all purposes of this
Debenture be treated as being effective or having ben given if
delivered personally, or if sent by mail, when received.
14. HEADINGS
The headings of articles, sections and paragraphs in this Debenture are
inserted for convenience only and shall not affect the remaining or
interpretation of all or an part of this Debenture.
15. FACSIMILE SIGNATURES
Until such time as this Debenture, duly executed by the Company
officers, has been delivered to Holder, a facsimile copy with the
signatures of Company officers thereon delivered to the Holder shall be
binding on the Company and constitute proof of funds advanced.
IN WITNESS WHEREOF the Company has caused this Debenture to be signed,
delivered and attested to by its duly authorised officers.
DIGITAL RIVER, INC.
By:
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Its:
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ATTEST:
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(Secretary)
