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 CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Date of Issuance: May __, 2003
$_____,000
7% CONVERTIBLE DEBENTURE
DUE MAY ___, 2006
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 May 21, 2006 in the aggregate
principal amount of up to $2,725,300 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to _______________ or its
registered assigns (the "Holder"), the principal sum of $___,000 on May 21, 2006
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 September 1, 2003 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), (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 and (iv) such
issuance would be permitted in full without violating the limitations set forth
in clauses (A) of Section 4(a)(ii) and such issuance and the issuance of all
Underlying Shares, assuming conversion or exercise in full, as the case may be,
of the Debenture and Warrants would be permitted in full without violating the
limitations set forth in clause (B) of section 4(a)(ii). Except as provided in
Section 6 hereof, 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). Within 20 Trading
Days prior to an Interest 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 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. Payment of interest in shares of Common Stock
shall otherwise occur pursuant to Section 4(b) 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 Underlying
Shares within the time period required by Section 4(b)(i). 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
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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.
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
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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 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 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) and as provided for in Section 4.15 of the
Purchase Agreement);
(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
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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 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 180th 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
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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.
(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
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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. The Holder shall be entitled to rely on
the Company's public filing with respect to the
number of shares of Common Stock which are then
issued and outstanding, and the Holder may inquire
of the Company's Chief Financial Officer to obtain
a more current number, which shall be provided
within 2 Business Days of written request
therefor. To ensure compliance with this
restriction, the Holder will be deemed to
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. The
provisions of this Section 4(a)(ii)(A) may be
waived by the Holder at the election of the Holder
upon not less than 61 days' prior notice to the
Company, and the provisions of this Section
4(a)(ii)(A) shall continue to apply until such
61st day (or such later date, as determined by the
Holder, as may be specified in such
7
notice of waiver). No conversion of this Debenture
in violation of this Section 4(a)(ii)(A) but
otherwise in accordance with this Debenture shall
affect the status of the Underlying Shares as
validly issued, fully-paid and nonassessable.
(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
as payment of interest or to be issued upon
exercise of the Warrants issued to 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 Holder's remaining portion of the 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
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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 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
9
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 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.
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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 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
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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 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, which 15 Trading Day period shall not be deemed to have
begun prior to the Effective Date, 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
12
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 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 $2.60 (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
13
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 or Common
Stock Equivalents 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 Common Stock or any equity
or equity equivalent securities (including any equity, debt,
warrant, option 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
14
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 the date of the Purchase Agreement.
Notwithstanding anything to the contrary herein, in the event
of an adjustment under either subsections (iii) or (iv) under
this Section 4(c), a duplicative adjustment shall not be made
with respect to the other subsection.
(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,
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 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)
15
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 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.
16
(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 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
17
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) 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) the exercise of or conversion of any Convertible
Securities, options or warrants issued and outstanding on the
Original Issue Date, provided such securities have not been
materially amended to provide for an increase in the number of
shares of Common Stock issuable upon conversion or reduction
in the effective consideration to be paid per share of Common
Stock since the date of the Purchase Agreement.
(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 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
18
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 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
19
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.
"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.
20
"Optional Redemption Amount" shall mean the sum of (i) 100% 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 Debentures.
"Optional Redemption 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 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.
"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
21
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. Redemption
(a) Optional Redemption at Election of Company. Subject to the
provisions of this Section 6, the Company may, at any time prior to the
60th calendar day after the Closing Date, 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 30th 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 from the Optional Redemption Notice Date through to the
Optional Redemption Date, each of the following shall be true: (i) the
Company shall have duly honored all conversions and redemptions scheduled
to occur or occurring by virtue of one or more Conversion Notices prior to
the Optional Redemption Date, (ii) all liquidated damages and other
amounts owing in respect of the Debentures shall have been paid or will,
concurrently with the issuance of the Underlying Shares, be paid in cash;
(iii), no Event of Default has occurred and is continuing; and (iv) no
public announcement of a pending or proposed Fundamental Transaction or
acquisition transaction has occurred that has not been consummated. If any
of the foregoing conditions shall cease to be satisfied at any time during
the required period, then the Holder may elect to nullify the Optional
Redemption Notice in which case the Option Redemption Notice shall be null
and void, ab initio. The Company covenants and agrees that it will honor
all Conversion Notices tendered prior to the time of delivery of the
Optional Redemption Notice through the date all amounts owing thereon are
due and paid in full.
22
(b) Redemption Procedure. The payment of cash shall be made on the
Optional Redemption Date. If any portion of the cash payment for an
Optional Redemption 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, as applicable, plus all amounts
owing thereon is paid in full. In addition, 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. Notwithstanding anything to the
contrary in this Section 6, the Company's determination to redeem in cash
shall be applied ratably among the Holders based upon the principal amount
of Debentures initially purchased by each Holder, adjusted upward ratably
in the event all of the shares of Debentures of any Holder are no longer
outstanding.
Section 7. 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) except as provided in Section 4.15 of the Purchase
Agreement, 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 8. 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.
Section 9. 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.
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Section 10. 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 11. 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 12. 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 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
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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 13. 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.
*********************
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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 May ___, 2006, 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 May __, 2006, in the aggregate principal amount
of $____________ issued by Authentidate Holding Corp. This Conversion Schedule
reflects conversions made under Section 4 of the above referenced Debenture.
Dated:
Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Conversion
Original Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
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