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 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. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Date of Issuance: October 22, 2002
$____,000
7% CONVERTIBLE DEBENTURE
DUE OCTOBER 22, 2005
THIS DEBENTURE is one of a series of duly authorized and issued debentures of
Authentidate Holding Corp., a Delaware corporation, having a principal place of
business at 0000 Xxxxxxxxxx Xxxxx, Xxxxxxxxxxx, Xxx Xxxx 00000 (the "Company"),
designated as its 7% Convertible Debentures, due October 22, 2005 in the
aggregate principal amount of $3,700,000 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
_____________________________ or its registered assigns (the "Holder"), the
principal sum of $_____________ on October 22, 2005 or 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 at the rate of 7% per
annum, payable quarterly on March 1, June 1, September 1 and December 1,
beginning on December 1, 2002 and on each Conversion Date (as defined herein)
and on the Maturity Date (each such date, an "Interest Payment Date"), in cash
or shares of Common Stock (as defined in Section 5) at the Interest Conversion
Rate; provided, however, payment in shares of Common Stock may only occur if:
(i) there is an effective Underlying Shares Registration Statement pursuant to
which the Holder is permitted to utilize the prospectus thereunder to resell all
of the shares of Common
Stock to be issued in lieu of cash (and the Company believes, in good faith,
that such effectiveness will continue uninterrupted for the foreseeable future),
(ii) the Common Stock is listed for trading on a Principal Market (and the
Company believes, in good faith, that trading of the Common Stock on a Principal
Market will continue uninterrupted for the foreseeable future), and (iii) there
is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the share issuable pursuant to
the Transaction Documents, including the shares to be issued for interest in
lieu of cash. The Company may not prepay any portion of the principal amount or
interest on this Debenture without the prior written consent of the Holder.
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 20 Trading Days (as defined in Section 5) 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). 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 Conversion Date
in cash. Interest shall be calculated on the basis of a 360-day year and shall
accrue daily commencing on the Original Issue Date (as defined in Section 5)
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.
Interest hereunder will be paid to the Person (as defined in Section 5) in whose
name this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures (the "Debenture Register"). All overdue
accrued and unpaid interest to be paid hereunder shall entail a late fee at the
rate of 8% per annum (or such lower maximum amount of interest permitted to be
charged under applicable law) ("Late Fee") which will accrue daily, from the
date such interest is due hereunder through and including the date of payment.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 5) and may be transferred or exchanged only in compliance
with the Purchase Agreement and applicable federal and state securities laws and
regulations. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company may treat the Person (as
defined in Section 5) 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.
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Section 3. 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 the principal of, interest
(including any Late Fees) on or liquidated damages in respect of,
any Debentures, 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 is not cured, if possible
to cure, within 3 days of notice of such default sent by the Holder;
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit
any breach of any of the Transaction Documents (as defined in
Section 5)(other than a breach by the Company of its obligations to
deliver shares of Common Stock to the Holder upon conversion or
interest payment which breach is addressed in clause (x) below)
which is not cured, if possible to cure, within 5 days of notice of
such default sent by the Holder (except with respect to breaches
pursuant to Sections 4.1, 4.8 and 4.9 of the Purchase Agreement and
Section 3(a) of the Warrant);
(iii) 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 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 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 the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding
is entered; or 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 the Company or any subsidiary thereof makes a
general assignment for the benefit of creditors; or 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 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 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 any
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corporate or other action is taken by the Company or any subsidiary
thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under
any other Debenture 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 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;
(v) the Common Stock shall not be eligible for quotation on or
quoted for trading on the Nasdaq SmallCap Market, New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market
(each, a "Principal Market") and shall not again be eligible for and
quoted or listed for trading thereon within five Trading Days;
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 5), shall agree to sell or
dispose 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)(other than a sale of the stock or assets of DJS
Marketing Group, Inc.), or shall redeem or repurchase more than 2%
of its outstanding shares of Common Stock or other equity securities
of the Company (other than redemptions of Underlying Shares (as
defined in Section 5));
(vii) an Underlying Shares Registration Statement (as defined
in Section 5) shall not have been declared effective by the
Commission (as defined in Section 5) on or prior to the 180th
calendar day after the Original Issue Date;
(viii) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement (as defined in Section 5)), the
effectiveness of the Underlying Shares 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 Underlying Shares Registration Statement, in
either case, for more than 10 consecutive Trading Days or 20
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 underlying Shares 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
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be permitted an additional 10 non-consecutive Trading Days during
any 12 month period relating to such an event;
(ix) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of the
Holder prior to the expiration of thirty days from the Event Date
(as defined in the Registration Rights Agreement) relating thereto
(other than an Event resulting from a failure of an Underlying
Shares Registration Statement to be declared effective by the
Commission on or prior to the 120th calendar day after the Original
Issue Date, which shall be covered by Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the seventh Trading Day after a
Conversion Date pursuant to and in accordance with Section 4(b) 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; or
(xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within
seven days after notice thereof is delivered hereunder.
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), 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 (as defined in Section 5). Interest shall accrue on the Mandatory
Prepayment Amount hereunder from the 5th day after such amount is due (being the
date of an Event of Default) through the date of prepayment in full thereof in
an amount equal to the Late Fee, to accrue daily from the date such payment is
due hereunder through and including the date of payment. All Debentures for
which the full prepayment price 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 4. Conversion.
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(a) (i) At any time after the Closing Date, 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(a)(ii) hereof). The
Holder shall effect conversions by delivering to the Company the form of
conversion notice attached hereto as Annex A (a "Conversion Notice"),
specifying therein the principal amount of Debentures to be converted and
the date on which such conversion is to be effected (a "Conversion Date")
and shall contain a completed schedule in the form of Schedule 1 to the
Conversion Notice (as amended on each Conversion Date, the "Conversion
Schedule") reflecting the remaining principal amount of this Debenture and
all accrued and unpaid interest thereon subsequent to the conversion at
issue. If no Conversion Date is specified in a Conversion Notice, the
Conversion Date shall be the date that such Conversion Notice 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 has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture plus all accrued and unpaid interest
thereon in an amount equal to the applicable conversion, which shall be
evidenced by entries set forth in the Conversion Schedule. 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 the figures represented in the Conversion Schedules 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. The Holder shall provide to each and
any assignee a copy of the Conversion Schedule and shall provide the
Company with proof of delivery of such Conversion Schedule.
(ii) Certain Conversion Restrictions.
(A) A Holder may not convert Debentures or receive shares of
Common Stock as payment of interest hereunder to the
extent such conversion or receipt of such interest
payment would result in the Holder, together with its
affiliates, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and
the rules promulgated thereunder) in excess of 4.999% of
the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and
payment of interest on, the Debentures held by such
Holder after application of this Section. To ensure
compliance with this restriction, the Holder will be
deemed to
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represent to the Company each time it delivers a
Conversion Notice that such Conversion Notice has not
violated the restrictions set forth in this paragraph.
If the Holder has delivered a Conversion Notice for a
principal amount of Debentures that, without regard to
any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess
of the permitted amount hereunder, the Company shall
notify the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted to
be converted on such Conversion Date in accordance with
the periods described in Section 4(b) and, at the option
of the Holder, either retain any principal amount
tendered for conversion in excess of the permitted
amount hereunder for future conversions or return such
excess principal amount to the Holder. In the event of a
merger or consolidation of the Company with or into
another Person, this paragraph shall not apply with
respect to a determination of the number of shares of
common stock issuable upon conversion in full of the
Debentures if such determination is necessary to
establish the Securities or other assets which the
holder of Common Stock shall be entitled to receive upon
the effectiveness of such merger or consolidation.
Notwithstanding the foregoing, the Company shall be
allowed to complete a Forced Conversion as contemplated
in Section 4a.(iv) hereof regardless of the number of
shares owned by Purchaser.
(B) If the Company has not obtained Shareholder Approval (as
defined below), then the Company may not issue upon
conversion of the Debentures, in the aggregate, in
excess of 19.999% of the number of shares of Common
Stock outstanding on the Trading Day immediately
preceding the Original Issue Date, less any shares of
Common Stock issued upon exercise of the Warrants issued
Holders of the Debentures on the Original Issue Date
pursuant to the Purchase Agreement (such number of
shares, the "Issuable Maximum"). Each Holder shall be
entitled to a portion of the Issuable Maximum equal to
the quotient obtained by dividing (x) the aggregate
principal amount of the Debenture(s) issued and sold to
such Holder on the Original Issue Date by (y) the number
of the Debenture aggregate principal amount of all
Debentures issued and sold by the Company on the
Original Issue Date. If any Holder shall no longer hold
the Debenture(s), then such Xxxxxx's remaining portion
of the
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Issuable Maximum shall be allocated pro-rata among the
remaining Holders. If on any Conversion Date: (A) the
applicable conversion price then in effect is such that
the shares issuable under this Debenture on any
Conversion Date together with the aggregate number of
shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding Debentures,
together with any shares of Common Stock previously
issued upon conversion of the Debenture theretofore
issuable under the Debentures and Warrants would exceed
the Issuable Maximum, and (B) the Company shall not have
previously obtained the vote of shareholders (the
"Shareholder Approval"), if any, as may be required by
the applicable rules and regulations of the Nasdaq
National Stock Market (or any successor entity)
applicable to approve the issuance of shares of Common
Stock in excess of the Issuable Maximum pursuant to the
terms hereof, then the Company shall issue to the Holder
requesting a conversion a number of shares of Common
Stock equal to such Holder's pro-rata portion (which
shall be calculated pursuant to the terms hereof) of the
Issuable Maximum and, with respect to the remainder of
the aggregate principal amount of the Debentures
(including any interest that shall have been added to
the principal amount pursuant to and in accordance with
Section 6(c)) then held by such Holder for which a
conversion in accordance with the applicable conversion
price would result in an issuance of shares of Common
Stock in excess of such Holder's pro-rata portion (which
shall be calculated pursuant to the terms hereof) of the
Issuable Maximum (the "Excess Principal"), the
converting Holder may require the Company to elect to
either: (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon
as is possible, but in any event not later than the 90th
day after the date in which the Company determines (or
is notified by the Holder) that the Issuable Maximum
would be exceeded, or (2) by the tenth Trading Day
following such election or failure to timely elect, as
the case may be, pay cash to the converting Holder in an
amount equal to 100% of the principal amount for the
Excess Principal. The Company must make its election by
written notice to the Holders by the fifth Trading Day
after the date that the Company determines (or is
notified by the Holder) that the Issuable Maximum would
be exceeded. Failure to timely elect to seek Shareholder
Approval under this Section
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shall be deemed an election by the Company to pay the
Mandatory Prepayment Amount for the Excess Principal in
cash. If the Company shall have elected the first option
pursuant to the immediately preceding sentence and the
Company shall have failed to obtain the Shareholder
Approval on or prior to the 90th day after the date in
which the Company determines (or is notified by a
Holder) that the Issuable Maximum would be exceeded,
then within three days of such 90th day, the Company
shall pay cash to the converting Holder an amount equal
to 100% of the principal amount for the Excess
Principal. If the Company fails to pay the Prepayment
Amount for the Excess Principal in full pursuant to this
Section after the date payable, the Company will pay
interest thereon at a rate of 7% per annum or such
lesser maximum amount that is permitted to be paid by
applicable law, to the converting Holder, accruing daily
from the date such payment is due until such amount,
plus all such interest thereon, is paid in full. The
Company and the Holder understand and agree that shares
of Common Stock issued to and then held by the Holder as
a result of conversions of Debentures shall not be
entitled to cast votes on any resolution to obtain
Shareholder Approval pursuant hereto.
(iii) Underlying Shares Issuable Upon Conversion and Pursuant to
Interest.
(A) Conversion of Principal Amount. The number of shares of
Common Stock issuable upon a conversion shall be
determined by the quotient obtained by dividing (x) the
outstanding principal amount of this Debenture to be
converted and (y) the Conversion Price, and
(B) Payment of Interest in Underlying Shares. The number of
shares of Common Stock issuable upon payment of interest
under this Debenture shall be the number determined by
(x) the product of (I) the outstanding principal amount
of this Debenture to be converted and (II) the product
of (aa) the quotient obtained by dividing 7% by 360 and
(bb) the number of days for which such principal amount
was outstanding, divided by (y) the applicable Interest
Conversion Rate, provided, that if the Company shall
have elected to pay the interest due on an Interest
Payment Date in cash pursuant to the terms hereof,
subsection (2) shall not be used in the
9
calculation of the number of shares of Common Stock
issuable upon a conversion hereunder.
(B) Notwithstanding anything to the contrary contained
herein, if on any Conversion Date:
(1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held
as treasury stock, is insufficient to pay interest hereunder
in shares of Common Stock, unless the Company pays interest in
cash;
(2) such shares of Common Stock to be paid as interest:
(x) are not registered for resale pursuant to an effective
Underlying Shares Registration Statement and (y) may not be
sold immediately pursuant to Rule 144 promulgated under the
Securities Act;
(3) the Common Stock shall fail to be listed or quoted
for trading on a Principal Market; or
(4) the Company has failed to timely satisfy its
conversion obligations hereunder.
then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to this Section 4, shall
deliver, within seven Trading Days of each applicable Conversion
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 such Conversion Date and the highest VWAP during the period
commencing on the Conversion Date and ending on the Trading Day
prior to the date such payment is made.
(b) (i) Not later than seven Trading Days after any Conversion Date,
the Company will deliver to the Holder (A) a certificate or
certificates for the Shares of Common Stock 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 and (B) a bank check in the amount of accrued and unpaid
interest (if the Company has timely elected or is required to pay
accrued interest in cash). The Company shall, upon request of the
Holder, 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. If in the case of any Conversion Notice such certificate
or certificates are not delivered to or as directed by the
applicable Holder by the seventh Trading Day
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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.
(ii) If the Company fails for any reason to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i) by the
seventh 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 $5,000 of principal amount being converted, $50 per Trading
Day (increasing to $100 per Trading Day after 3 Trading Days and
increasing to $200 per Trading Day 6 Trading Days after such damages
begin to accrue) for each Trading Day after such seventh Trading Day
until such certificates are delivered. Nothing herein shall limit a
Xxxxxx's right to pursue actual damages or declare an Event of
Default pursuant to Section 3 herein for the Company's failure to
deliver certificates representing shares of Common Stock upon
conversion 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. Notwithstanding anything herein to the contrary, in the event a
Holder is entitled to collect liquidated damages hereunder and
liquidated damages pursuant to Section 4.1(c) of the Purchase
Agreement and/or Section 4(b)(iii) below, the Holder shall be
limited to collect, at its option, of such remedies, only one such
remedy on any given occasion.
(iii) 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(b)(i) by the
seventh 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
Underlying 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 market price of the
Common Stock at the time of the sale 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(b)(i). For
example, if the
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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 market price of the Underlying
Shares on the date of conversion 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 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(b)(ii) in respect of the certificates resulting in
such Buy-In. Notwithstanding anything to the contrary herein, in the
event a Holder is entitled to collect liquidated damages hereunder
and liquidated damages pursuant to Section 4.1(d) of the Purchase
Agreement and/or Section 4(b)(ii) above, the Holder shall be limited
to collect, at its option, of such remedies, only one such remedy on
any given occasion.
(iv) Notwithstanding anything herein to the contrary, if after the
Effective Date the VWAP for any 15 consecutive Trading Days exceeds
150% of the then effective Set Price, the Company may, within 2
Trading Days 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)(i) and the Holder
shall surrender (if the entire Debenture is converted) this
Debenture to the Company for conversion within 5 Trading Days of the
Forced Conversion Notice Date. The Company may only effect a Forced
Conversion Notice if each of the following shall be true: (i) the
Company shall have duly honored all conversions occurring by virtue
of one or more Conversion Notices prior to the Forced Conversion
Date, (ii) there is an effective Underlying Shares Registration
Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the Underlying Shares issued
to the Holder and all of the Underlying Shares as are issuable to
the Holder upon conversion in full of this Debenture subject to the
Forced Conversion Notice (and the Company believes, in good faith,
that such effectiveness will continue uninterrupted for the
foreseeable future), (iii) the Common Stock is listed for trading on
a Principal Market (and the Company believes, in good faith, that
trading of the Common Stock on a Principal Market will continue
uninterrupted for the foreseeable future), (iv) all liquidated
damages and other amounts owing in respect of the Debentures and
Underlying Shares shall have been paid or will, concurrently with
the issuance of the Underlying Shares, be paid in cash; (v) there is
a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock for the issuance of all the
Underlying Shares as are issuable to the Holder upon conversion in
full of the Debentures subject to the Forced Conversion Notice; (vi)
no Event of Default nor any event that with the passage of time
would constitute an Event of Default has occurred
12
and is continuing; and (vii) no public announcement of a pending or
proposed Change of Control Transaction or Fundamental Transaction
has occurred that has not been consummated.
(c) (i) The conversion price in effect on any Conversion Date shall
be equal to $2.50 (subject to adjustment herein)(the "Set Price").
(ii) If the Company, at any time while the Debentures are
outstanding: (A) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any
other equity or equity equivalent securities payable in shares of
Common Stock, (B) subdivide outstanding shares of Common Stock into
a larger number of shares, (C) combine (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller
number of shares, or (D) issue by reclassification of shares of the
Common Stock any shares of capital stock of the Company, then the
Set Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend
or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
(iii) If the Company, at any time while Debentures are outstanding,
shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
VWAP at the record date mentioned below, then the Set Price shall be
multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such VWAP. Such
adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date
for the determination of stockholders entitled to receive such
rights, options or warrants.
(iv) If the Company or any subsidiary thereof, as applicable, at any
time while Debentures are outstanding, shall offer, sell, grant any
option to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer,
sale, grant or any option to purchase or other disposition) any
13
Common Stock or any equity or equity equivalent securities
(including any equity, debt or other instrument that is at any time
over the life thereof convertible into or exchangeable for Common
Stock) (collectively, "Common Stock Equivalents") entitling any
Person to acquire shares of Common Stock, at a price per share less
than the Set Price ("Dilutive Issuance"), as adjusted hereunder (if
the holder of the Common Stock or Common Stock Equivalent so issued
shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights
per share which is issued in connection with such issuance, be
entitled to receive shares of Common Stock at a price per share
which is less than the Set Price, such issuance shall be deemed to
have occurred for less than the Set Price), then, the Set Price
shall be reduced by multiplying the Set Price by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately prior to the Dilutive Issuance plus the
number of shares of Common Stock which the offering price for such
Dilutive Issuance would purchase at the Set Price, and the
denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the Dilutive Issuance
plus the number of shares of Common Stock so issued or issuable in
connection with the Dilutive Issuance. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
The Company shall notify the Holder in writing, no later than the
business day following the issuance of any Common Stock or Common
Stock Equivalent subject to this section, indicating therein the
applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms. Notwithstanding the
foregoing, no adjustment will be made under this sub section (iv) in
respect of (A) the granting of options to employees, officers and
directors of the Company pursuant to any stock option plan duly
adopted by the Company or to the issuance of Common Stock upon
exercise of such options or (B) the issuance of up to 100,000 shares
of Common Stock, in the aggregate, to consultants or advisors to the
Company for services to be rendered to the Company by such
consultants or advisors or (C) Convertible Securities outstanding as
of October 1, 2002.
(v) If the Company, at any time while Debentures are outstanding,
shall distribute to all holders of Common Stock (and not to Holders)
evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the
Set Price shall be determined by multiplying such price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP
on such record date less the then fair market value at such record
date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock
as determined by the Board of Directors in good faith. In either
case the adjustments shall be described in a statement provided to
the Holders of the portion of assets or evidences
14
of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holders shall
have the right thereafter to, at their option, (A) convert the then
outstanding principal amount, together with all accrued but unpaid
interest and any other amounts then owing hereunder in respect of
this Debenture only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of
the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event
to receive such amount of securities, cash or property as the shares
of the Common Stock of the Company into which the then outstanding
principal amount, together with all accrued but unpaid interest and
any other amounts then owing hereunder in respect of this Debenture
could have been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal amount
of Debentures, plus all interest and other amounts due and payable
thereon, at a price determined in accordance with Section 3(b). The
entire prepayment price shall be paid in cash. This provision shall
similarly apply to successive reclassifications or share exchanges.
(vii) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(viii) Whenever the Set Price is adjusted pursuant to any of Section
4(c)(ii) - (v), the Company shall promptly mail to each Holder a
notice setting forth the Set Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(ix) 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 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
15
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.
(x) Fundamental Transactions. 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 (other than the sale of capital stock
or assets of DJS Marketing Group, Inc.), (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
Underlying 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").
For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Common Stock in
such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of
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 Transaction, then the Holder shall be given the same
16
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 consistent
with the foregoing provisions and evidencing the Holder's right to
convert such debenture into Alternate Consideration. 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. If any Fundamental Transaction
constitutes or results in a Change of Control Transaction, then at
the request of the Holder delivered before the 90th day after such
Fundamental Transaction, the Company (or any such successor or
surviving entity) will purchase the Debenture 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 120% of the remaining unconverted
principal amount of this Debenture on the date of such request, plus
all accrued and unpaid interest thereon, plus all other accrued and
unpaid amounts due hereunder.
(xi) Notwithstanding the foregoing, no adjustment will be made under
this paragraph (c) in respect of (A) the granting of options to
employees, officers and directors of the Company pursuant to any
stock option plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for
such purpose, (B) the issuance of up to 100,000 shares of Common
Stock, in the aggregate, to consultants or advisors to the Company
for services to be rendered to the Company by such consultants or
advisors, (C) upon the exercise of this Debenture or any other
Debenture of this series or of any other series or security issued
by the Company in connection with the offer and sale of this
Company's securities pursuant to the Purchase Agreement, or (D) upon
the exercise of or conversion of any Convertible Securities, options
or warrants issued and outstanding on the Original Issue Date.
(e) 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 Debentures, 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 4(b)) 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 Underlying Shares Registration
Statement has
17
been declared effective under the Securities Act, registered for public
sale in accordance with such Underlying Shares Registration Statement.
(f) 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 VWAP 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.
(g) 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.
(h) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service or
sent by certified or registered mail, postage prepaid, addressed to the
Company, at the address set forth above, facsimile number (000) 000-0000,
Attn: Xxxxxx Xxxx 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 or sent by certified or registered mail, postage
prepaid, addressed to each Holder at the facsimile telephone number or
address of such Holder 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) four days after deposit in the
United States mail, (iv) the Business Day following the date of mailing,
if sent by nationally recognized overnight courier service, or (v) upon
actual receipt by the party to whom such notice is required to be given.
All notices or other communications or deliveries
18
given hereunder, if delivered via facsimile, shall be followed with a copy
delivered by a U.S. nationally recognized overnight courier service.
Section 5. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"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.
"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,
(ii) a replacement at one time or within a one 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), (iii) the merger of the
Company with or into another entity that is not wholly-owned by the
Company, consolidation or sale of 50% or more of the assets of the Company
in one or a series of related transactions, or (iv) 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), (ii) or
(iii). Notwithstanding the foregoing, a "Change of Control Transaction"
shall not include a sale by the Company of the Company's DJS Marketing
Group, Inc. subsidiary, whether by way of merger, sale or stock or sale of
assets.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $0.001 par value 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)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Interest Conversion Rate" means 93% of the lesser of (i) the
average of the 15 VWAPs immediately prior to the applicable Interest
Payment Date or (ii) the average of the 15 VWAPs immediately prior to the
date the applicable interest payment shares are issued and delivered if
after the Interest Payment Date.
19
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the greater of: (A) 120% of the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon, plus all other
accrued and unpaid amounts due hereunder, or (B) the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon,
plus all other accrued and unpaid amounts due hereunder, divided by the
Conversion 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 less, multiplied by the VWAP 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.
"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 the Original Issue Date, 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 Original Issue Date, to which the Company and
the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Set Price" shall have the meaning set forth in Section 4(c)(i).
"Trading Day" means (a) a day on which the shares of Common Stock
are traded on the Principal Market on which the shares of Common Stock are
then listed or quoted, or (b) if the shares of Common Stock are not quoted
on a Principal Market, a day on which the shares of Common Stock are
quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, that in the event
that the shares of Common Stock are not listed or quoted as set forth in
(a), (b) and (c) hereof, then Trading Day shall mean a Business Day.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
20
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares
and naming the Holder as a "selling stockholder" thereunder.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Principal Market or the OTC Bulletin Board, the daily volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Principal Market (or OTC Bulletin Board) on which
the Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. ET to 4:02 p.m.
Eastern Time) using the VAP function; (b) if the Common Stock is not then
listed or quoted on a Principal Market or the OTC Bulletin Board and if
prices for the Common Stock are then reported in 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
(c) in all other cases, the fair market value of a share of Common Stock
as determined by a nationally recognized independent appraiser selected in
good faith by Purchasers holding a majority of the outstanding principal
amount of Debentures.
Section 6. 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 obligation of the
Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders, (a) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (b) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock or other equity securities other
than as to the Underlying Shares to the extent permitted or required under the
Transaction Documents; or (c) enter into any agreement with respect to any of
the foregoing.
Section 7. 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.
21
Section 8. No indebtedness of the Company is senior to this Debenture in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. The Company will not and will not permit any of its
subsidiaries 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 Debentures.
Section 9. 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.
Section 10. 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.
Section 11. 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
22
shall be found that any interest or other amount deemed interest due hereunder
shall violate 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 the Debentures 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.
Section 12. 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.
*********************
23
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
AUTHENTIDATE HOLDING CORP.
By:_____________________________________
Name:
Title:
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal and, if specified, interest
under the 7% Convertible Debenture of Authentidate Holding Corp., (the
"Company") due on October 22, 2005, into shares of common stock, $0.001 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 Company's 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 Kind [ ] Yes [ ] No
If yes, $ _______ of Interest Accrued on
Account of Conversion at Issue
Number of shares of Common Stock to be Issued:
Applicable Conversion Price:
Signature:
Name:
Address:
SCHEDULE 1
CONVERSION SCHEDULE
7% Convertible Debentures due on October 22, 2005, in the aggregate principal
amount of $ issued by Authentidate Holding Corp. This Conversion
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Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
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Aggregate Principal
Amount Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, (or original
Original Issue Date) Amount of Conversion Principal Amount) Company Attest
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