EXHIBIT 10-b
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE
SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
6 3/4 % CONVERTIBLE DEBENTURE
Company: Ultradata Systems, Incorporated
Company Address: 0000 Xxxxxxx Xxxxxxxxxx Xxxxx, Xx. Xxxxx, Xxxxxxxx 00000
Closing Date: February 14, 2005
Maturity Date: February 14, 2007
Principal Amount: $300,000
First Payment Due Date: March 15, 2005
Ultradata Systems, Incorporated, a Delaware corporation, and any
successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the assets or otherwise (the
"Company"), for value received, hereby promises to pay to the Holder (as such
term is hereinafter defined), or such other Person (as such term is
hereinafter defined) upon order of the Holder, on the Maturity Date, the
Principal Amount (as such term is hereinafter defined), as such sum may be
adjusted pursuant to Article 3, and to pay interest thereon from the Closing
Date, monthly in arrears, on the 15th day of each month (each an "Interest
Payment Due Date" and collectively, the "Interest Payment Due Dates"),
commencing on the First Payment Due Date, at the rate of six and three-quarter
percent (6 3/4 %) per annum (the "Debenture Interest Rate"), until the Principal
Amount of this Debenture has been paid in full. All interest payable on the
Principal Amount of this Debenture shall be calculated on the basis of a 360-
day year for the actual number of days elapsed. Payment of interest on this
Debenture shall be in cash or, at the option of the Holder, in shares of
Common Stock of the Company valued at the then applicable Conversion Price (as
defined herein). This Debenture may not be prepaid without the written consent
of the Holder.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever
used in this Debenture have the following respective meanings:
(i) "Affiliate" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
(ii) "Bankruptcy Code" means the United States Bankruptcy Code
of 1986, as amended (11 U.S.C. Sec. 101 et. seq.).
(iii) "Business Day" means a day other than Saturday, Sunday or
any day on which banks located in the State of California are authorized or
obligated to close.
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(iv) "Capital Shares" means the Common Stock and any other
shares of any other class or series of capital stock, whether now or hereafter
authorized and however designated, which have the right to participate in the
distribution of earnings and assets (upon dissolution, liquidation or winding-
up) of the Company.
(v) "Common Shares" or "Common Stock" means shares of the
Company's Common Stock.
(vi) "Common Stock Issued at Conversion", when used with
reference to the securities deliverable upon conversion of this Debenture,
means all Common Shares now or hereafter Outstanding and securities of any
other class or series into which this Debenture hereafter shall have been
changed or substituted, whether now or hereafter created and however
designated.
(vii) "Conversion" or "conversion" means the repayment by the
Company of the Principal Amount of this Debenture (and, to the extent the
Holder elects as permitted by Section 3.1, accrued and unpaid interest
thereon) by the delivery of Common Stock on the terms provided in Section 3.2,
and "convert," "converted," "convertible" and like words shall have a
corresponding meaning.
(viii) "Conversion Date" means any day on which all or any
portion of the Principal Amount of this Debenture is converted in accordance
with the provisions hereof.
(ix) "Conversion Notice" means a written notice of conversion
substantially in the form annexed hereto as Exhibit A.
(x) "Conversion Price" on any date of determination means the
applicable price for the conversion of this Debenture into Common Shares on
such day as set forth in Section 3.1(a).
(xi) "Current Market Price" on any date of determination means
the closing price of a Common Share on such day as reported on the NASDAQ
OTCBB Exchange; provided that, if such security is not listed or admitted to
trading on the NASDAQ OTCBB, as reported on the principal national security
exchange or quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the closing bid price of
such security on the over-the-counter market on the day in question as
reported by Bloomberg LP or a similar generally accepted reporting service, as
the case may be.
(xii) "Deadline" means the date that is the 90th from the
Closing Date; provided, however, that the Deadline shall be the the180th day
from the Closing Date so long as the Company files the appropriate
registration statement within 90 days of the Closing Date and thereafter
responds to all SEC comments within 10 business days of receipt thereof.
(xiii) "Debenture" or "Debentures" means this Convertible
Debenture of the Company or such other convertible debenture(s) exchanged
therefor as provided in Section 2.1.
(xiv) "Discount Multiplier" has the meaning set forth in
Section 3.1(a).
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(xv) "Event of Default" has the meaning set forth in Section 6.1.
(xvi) "Holder" means Golden Gate Investors, Inc., any successor
thereto, or any Person to whom this Debenture is subsequently transferred in
accordance with the provisions hereof.
(xvii) "Interest Payment Due Date" has the meaning set forth in
the opening paragraph of this Debenture.
(xviii) "Market Disruption Event" means any event that results in
a material suspension or limitation of trading of the Common Shares.
(xix) "Market Price" per Common Share means the lowest price of
the Common Shares during any Trading Day as reported on the NASDAQ OTCBB;
provided that, if such security is not listed or admitted to trading on the
NASDAQ OTCBB, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the lowest price of the Common Shares
during any Trading Day on the over-the-counter market as reported by Bloomberg
LP or a similar generally accepted reporting service, as the case may be.
(xx) "Maximum Rate" has the meaning set forth in Section 6.4.
(xxi) "Outstanding" when used with reference to Common Shares
or Capital Shares (collectively, "Shares") means, on any date of
determination, all issued and outstanding Shares, and includes all such Shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in such Shares; provided, however, that any such Shares
directly or indirectly owned or held by or for the account of the Company or
any Subsidiary of the Company shall not be deemed "Outstanding" for purposes
hereof.
(xxii) "Person" means an individual, a corporation, a
partnership, an association, a limited liability company, an unincorporated
business organization, a trust or other entity or organization, and any
government or political subdivision or any agency or instrumentality thereof.
(xxiii) "Principal Amount" means, for any date of calculation,
the principal sum set forth in the first paragraph of this Debenture (but only
such principal amount as to which the Holder has (a) actually advanced
pursuant to the Securities Purchase Agreement, and (b) not theretofore
furnished a Conversion Notice in compliance with Section 3.2).
(xxiv) "Registration Rights Agreement" means that certain
Registration Rights Agreement of even date herewith by and between the Company
and Holder, as the same may be amended from time to time.
(xxv) "SEC" means the United States Securities and Exchange
Commission.
(xxvi) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
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(xxvii) "Securities Purchase Agreement" means that certain
Securities Purchase Agreement of even date herewith by and among the Company
and Holder, as the same may be amended from time to time.
(xxviii) "Subsidiary" means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by the Company.
(xxix) "Trading Day" means any day on which (i) purchases and
sales of securities on the principal national security exchange or quotation
system on which the Common Shares are traded are reported thereon, or, if not
quoted or listed or admitted to trading on any national securities exchange or
quotation system, as reported by Bloomberg LP or a similar generally accepted
reporting service, as the case may be, (ii) at least one bid for the trading
of Common Shares is reported and (iii) no Market Disruption Event occurs.
(xxx) "Volume Weighted Average Price" per Common Share means
the volume weighted average price of the Common Shares during any Trading Day
as reported on the NASDAQ OTCBB; provided that, if such security is not listed
or admitted to trading on the NASDAQ OTCBB, as reported on the principal
national security exchange or quotation system on which such security is
quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system,
the volume weighted average price of the Common Shares during any Trading Day
on the over-the-counter market as reported by Bloomberg LP or a similar
generally accepted reporting service, as the case may be.
All references to "cash" or "$" herein means currency of the
United States of America.
ARTICLE 2
EXCHANGES, TRANSFER AND REPAYMENT
SECTION 2.1 Registration of Transfer of Debentures. This Debenture,
when presented for registration of transfer, shall (if so required by the
Company) be duly endorsed, or be accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company duly executed, by the
Holder duly authorized in writing.
SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Debenture and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Debenture, the Company shall make, issue and deliver, in
lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture
of like tenor and unpaid Principal Xxxxxx dated as of the date hereof (which
shall accrue interest from the most recent Interest Payment Due Date on which
an interest payment was made in full). This Debenture shall be held and owned
upon the express condition that the provisions of this Section 2.2 are
exclusive with respect to the replacement of a mutilated, destroyed, lost or
stolen Debenture and shall preclude any and all other rights and remedies
notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement of negotiable instruments or other
securities without the surrender thereof.
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SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the
Person in whose name this Debenture shall be registered upon the registry
books of the Company to be, and may treat it as, the absolute owner of this
Debenture (whether or not this Debenture shall be overdue) for the purpose of
receiving payment of or on account of the Principal Amount of this Debenture,
for the conversion of this Debenture and for all other purposes, and the
Company shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effectual to satisfy and
discharge the liability upon this Debenture to the extent of the sum or sums
so paid or the conversion or conversions so made.
SECTION 2.4 Repayment at Maturity. At the Maturity Date, the Company
shall repay the outstanding Principal Amount of this Debenture in whole in
cash, together with all accrued and unpaid interest thereon, in cash, to the
Maturity Date.
SECTION 2.5 Optional Redemption. For a period of twenty days after
the date that the outstanding Principal Amount of the Debenture is less than
$100,000, the Company may redeem this Debenture in whole in cash for the
outstanding Principal Amount plus accrued and unpaid interest.
ARTICLE 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price; Valuation Event.
(a) At the option of the Holder, this Debenture may be converted, either
in whole or in part, up to the full Principal Amount hereof (in increments of
$1,000 in Principal Amount) into Common Shares (calculated as to each such
conversion to the nearest 1/100th of a share), at any time and from time to
time on any Business Day, subject to compliance with Section 3.2. The number
of Common Shares into which this Debenture may be converted is equal to the
dollar amount of the Debenture being converted multiplied by eleven, minus the
product of the Conversion Price times the dollar amount of the Debenture being
converted, and the entire foregoing result shall be divided by the Conversion
Price. In addition, the Company shall pay to the Holder on the Conversion
Date, in cash, any accrued and unpaid interest on the Debenture being
converted not included at the option of the Holder in clause (i) of the
immediately preceding sentence. The "Conversion Price" shall be equal to the
lesser of (i) $1.25, or (ii) 80% of the average of the 3 lowest Volume
Weighted Average Prices during the 20 Trading Days prior to Holder's election
to convert (the percentage figure being a "Discount Multiplier"); provided,
that in the event the Registration Statement has not been declared effective
by the SEC by the Deadline then the applicable Discount Multiplier shall
decrease by three percentage points for each month or partial month occurring
after the Deadline that the Registration Statement is not effective or, if the
Registration Statement has theretofore been declared effective but is not
thereafter effective, then the applicable Discount Multiplier shall decrease
by three percentage points for each week or partial week occurring after the
Deadline that the Registration Statement is not effective.
Beginning in the first full calendar month after the Registration Statement is
declared effective, Holder shall convert at least 3% of the face value of the
Debenture per calendar month into Common Shares of the Company, provided that
the Common Shares are available, registered and freely tradable. If Holder
converts more than 3% of the face value of the Debenture in any calendar
month, the excess over 3% shall be credited against the next month's minimum
conversion amount. In the event Holder does not convert at least 3% of the
Debenture in any particular calendar month, Holder shall not be entitled to
collect interest on the Debenture for that month if the Company gives Holder
written notice, at least 5 business days prior to the end of the month, of
Xxxxxx's failure to convert the minimum required amount for that month.
If the Holder elects to convert a portion of the Debenture and, on the day
that the election is made, the Volume Weighted Average Price is below $0.50,
the Company shall have the right to prepay that portion of the Debenture that
Holder elected to convert, plus any accrued and unpaid interest, at 125% of
such amount. In the event that the Company elects to prepay that portion of
the Debenture, Holder shall have the right to withdraw its Conversion Notice.
Provided, however, that if, at anytime during the month, the Volume Weighted
Average Price is below $0.50: (i) Holder shall not be obligated to convert any
portion of the Debenture during that month, (ii) until 90 days after the
Deadline, Holder, at the Company's written request, shall limit conversions to
no more than 3% of the face value of the Debenture during that month without
the Company having the right to prepay the Debenture, and (iii) after 90 days
from the Deadline, Holder may elect to convert up to $100,000 Principal Amount
of the Debenture only per month (without the Company having the right to
prepay the Debenture), without exercising the related Warrants, and in such
case, the number of Common Shares that Holder receives upon conversion of the
Debenture shall be the amount of the Debenture being converted divided by the
Conversion Price. In the event that Xxxxxx's election pursuant to option
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"(iii)" in the preceding sentence would reduce the Principal Amount of the
Debenture below $100,000, then within two business days after receipt of the
conversion notice, the Company may notify the Holder of its intention to
exercise its right of redemption pursuant to Section 2.5 hereof. If the
Company gives such a notice, then the conversion notice shall be deemed
modified to provide for conversion of the Principal Amount in excess of
$100,000 only. If, however, the Company fails to pay the redemption amount
pursuant to Section 2.5, then on the twenty-first day after receipt of the
Holder's notice, the Company shall implement the unconverted portion of the
conversion notice, unless the Holder shall withdraw that portion of the
conversion notice.
If the Holder elects to convert a portion of the Debenture at anytime that is
more than 90 days after the Deadline and, on the day that the election is
made, the Volume Weighted Average Price is below $0.20, the Company shall have
the right to prepay that portion of the Debenture that Holder elected to
convert, plus any accrued and unpaid interest, at 100% of such amount. In the
event that the Company elects to prepay that portion of the Debenture, Holder
shall have the right to withdraw its Conversion Notice.
(b) Notwithstanding the provisions of Section 3.1(a), in the
event the Company's Registration Statement has not been declared effective by
the Deadline or, if the Registration Statement has theretofore been declared
effective but is not thereafter effective, the following will also apply in
addition to any damages incurred by the Holder as a result thereof:
(i) The Holder may demand repayment of one hundred and
fifty percent (150%) of the Principal Amount of the Debenture, together with
all accrued and unpaid interest thereon, in cash, at any time prior to the
Company's Registration Statement being declared effective by the SEC or during
the period that the Company's Registration Statement is not effective, such
repayment to be made within three (3) business days of such demand. In the
event that the Debenture is so accelerated, in addition to the repayment of
one hundred and fifty percent (150%) of the Principal Amount together with
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accrued interest as aforesaid, the Company shall immediately issue and pay, as
the case may be, to the Holder 50,000 Shares of Common Stock and $15,000 for
each thirty (30) day period, or portion thereof, during which the Principal
Amount, including interest thereon, remains unpaid, with the monthly payment
amount to increase to $20,000 for each thirty (30) day period, or portion
thereof, after the first ninety (90) day period;
