EXHIBIT 10.2
NEITHER THESE SECURITIES NOR THE COMMON STOCK OF THE COMPANY 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
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OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE
OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND
THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES. THE PRINCIPAL AMOUNT REPRESENTED BY THIS DEBENTURE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION OR EXCHANGE HEREOF MAY
BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF.
Date of Issuance: June 30, 2003
$
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8.5% CONVERTIBLE EXCHANGEABLE DEBENTURE
DUE NOVEMBER 1, 2005
THIS DEBENTURE is one of a series of duly authorized and issued
Debentures of Applied Digital Solutions, Inc., a Missouri corporation,
having a principal place of business at 000 Xxxxx Xxxx Xxx, Xxxxx 000, Xxxx
Xxxxx, XX 00000 (the "Company"), designated as its 8.5% Convertible
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Exchangeable Debenture, due November 1, 2005 (the "Debentures").
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FOR VALUE RECEIVED, the Company promises to pay to
or its registered assigns (the "Holder"), the
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principal sum of $ on November 1, 2005 or such earlier date
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as the Debentures are required to be repaid as provided hereunder (the
"Maturity Date") and to pay interest to the Holder on the aggregate
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unconverted and then outstanding principal amount of this Debenture at the
rate of 8.5% per annum, payable quarterly on March 1, July 1, September 1
and December 1, beginning on September 1, 2003 and on each Monthly
Redemption Date (as to that principal amount then being redeemed) and on the
Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business
1
Day) (each such date, an "Interest Payment Date"), in cash or DOC Shares, or
---------------------
any combination thereof, at the Interest Conversion Rate; provided, however,
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payment in DOC Shares may only occur if on the Interest Payment Date and
during the 20 Trading Days prior to such date the DOC Equity Conditions have
been satisfied or waived by the Holder. Subject to the aforementioned
conditions, the decision whether to pay interest hereunder in DOC Shares or
cash shall be at the discretion of the Company. Not less than 20 Trading
Days prior to each Interest Payment Date, the Company shall provide the
Holder with written notice of its election to pay interest hereunder either
in cash or DOC Shares (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised), or any specified combination thereof. Failure to timely provide
such written notice shall be deemed an election by the Company to pay the
interest on such Interest Payment Date in cash. Interest shall be calculated
on the basis of a 360-day year and shall accrue daily commencing on the
Original Issue Date until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Payment of interest in DOC Shares shall otherwise
occur pursuant to Section 5(b), and for purposes of the payment of interest
in DOC Shares only, 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
or DOC Shares, as the case may be, within the time period required by
Sections 4(b)(i) and 5(b)(i), as applicable. Interest hereunder will be paid
to the Person in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of Debentures (the
"Debenture Register"). Except as otherwise provided herein, if at anytime
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the Company pays interest partially in cash and partially in DOC Shares,
then such payment shall be distributed ratably among the Holders based upon
the principal amount of Debentures originally purchased by each Holder. All
overdue accrued and unpaid interest to be paid hereunder shall entail a late
fee at the rate of 18% per annum (or such lower maximum amount of interest
permitted to be charged under applicable law) ("Late Fee") which will accrue
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daily, from the date such interest is due hereunder through and including
the date of payment. THE COMPANY MAY NOT PREPAY ANY PORTION OF THE PRINCIPAL
AMOUNT ON THIS DEBENTURE WITHOUT THE PRIOR WRITTEN CONSENT OF THE HOLDER.
This Debenture is subject to the following additional provisions:
Section 1) This Debenture is exchangeable for an equal aggregate
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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
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investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement and applicable federal and state securities laws and
regulations. Prior to due presentment to the Company for transfer of this
Debenture, the Company and any agent of the Company (including the Trustee)
may treat the Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Debenture
is overdue, and neither the Company nor any such agent shall be affected by
notice to the contrary.
2
Section 3) Events of Default.
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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 on or liquidated damages in respect of, any
Debentures, free of any claim of subordination, as and
when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or
otherwise) which default is not cured, if possible to
cure, within 5 Trading Days of notice of such default sent
by the Holder;
ii) the Company shall fail to observe or perform
any other material covenant, agreement or warranty
contained in, or otherwise commit any material breach of
any of the Transaction Documents (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 10 Trading Days of
notice of such default sent by the Holder (within 5
Trading Days in the case of failure to deliver unlegended
Underlying Shares or shares of DOC Common Stock). For
clarity, any payment of cash dividends or a dividend in
the form of DOC Common Stock paid to the holders of Common
Stock shall be a material breach of covenant, or ;
iii) the Company or any of its Subsidiaries
shall commence, or there shall be commenced against the
Company or any such Subsidiary a case under any applicable
bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences
any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of
any jurisdiction whether now or hereafter in effect
relating to the Company or any Subsidiary thereof or there
is commenced against the Company or any Subsidiary thereof
any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the
Company or any Subsidiary thereof is adjudicated insolvent
or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the
Company or any Subsidiary thereof suffers any appointment
of any custodian or the like for it or any substantial
part of its property which continues undischarged or
unstayed for a period of 60 days; or the Company or any
Subsidiary thereof makes a general assignment for the
benefit of creditors; or the Company shall fail to pay, or
shall state that it is unable to pay, or shall be unable
to pay, its debts generally as they become due; or the
Company or any Subsidiary thereof shall call a meeting of
its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or
3
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 $500,000, 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")
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and shall not again be eligible for and quoted or listed
for trading thereon within ten Trading Days;
vi) the Company shall be a party to any Change
of Control Transaction, shall agree to sell or dispose of
all or in excess of 50% of its assets in one or more
transactions (whether or not such sale would constitute a
Change of Control Transaction) or shall redeem or
repurchase more than a de minimis number of its
outstanding shares of Common Stock or other equity
securities of the Company (other than redemptions of
Underlying Shares);
vii) an Underlying Shares Registration Statement
shall not have been declared effective by the Commission
on or prior to the 150th calendar day after the Original
Issue Date;
viii) if, during the Effectiveness Period (as
defined in the Registration Rights Agreement), the
effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be
permitted to resell Registrable Securities (as defined in
the Registration Rights Agreement) under the Underlying
Shares Registration Statement, in either case, for more
than 15 consecutive Trading Days or 20 non-consecutive
Trading Days during any 12 month period;
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
4
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 Effectiveness
Date (as defined in the Registration Rights Agreement), 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 fifth
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;
xi) the Company shall fail for any reason to deliver
the payment in cash pursuant to a Buy-In (as defined herein)
within five Trading Days after notice thereof is delivered
hereunder; or
xii) the Company's (A) failure to use best efforts
to provide the Trustee with any documentation or information
reasonably requested by the Trustee to cause a transfer of
the DOC Shares to the Holder within 5 Trading Days after
an Exchange Date or (B) notice, written or oral, to any
holder of the Debentures, including by way of a public
announcement or through any of its agents, at any time, of
its intention not to comply with a request for exchange of
any Debentures into DOC Shares that are tendered for
exchange in accordance with the provisions of the
Debentures.
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. 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 enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable
law. Such declaration may be rescinded and annulled by Xxxxxx at
any time prior to payment hereunder and the Holder shall have all
rights as a Debenture holder until such time, if any, as the full
payment under this Section shall have been received by it. No such
rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.
5
Section 4) Conversions into Common Stock.
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a) i) Conversions. At any time after the Closing Date,
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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
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principal amount of Debentures to be converted and the
date on which such conversion is to be effected (a
"Conversion Date"). If no Conversion Date is specified in
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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.
The Holder and the Company shall maintain records showing
the principal amount converted and the date of such
conversions. In the event of any dispute as to the number
of Underlying Shares issuable to the Holder in connection
with a Conversion Notice, the Company shall issue to the
Holder the number of Underlying Shares not in dispute and
resolve such dispute in accordance with Section 11. 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.
ii) Certain Conversion Restrictions.
-------------------------------
(A) A Holder may not convert Debentures or
receive shares of Common Stock as payment of interest
hereunder to the extent such conversion or receipt
of such interest payment would result in the Holder,
together with its Affiliates, beneficially owning
(as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated
thereunder) in excess of 4.99% 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
filings 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,
6
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. 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 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), if
required by the applicable rules and regulations
of the Principal Market (or any successor
entity), then the Company may not issue upon
conversion of the Debentures, in the aggregate,
in excess of (i) 19.99% of the number of shares
of Common Stock outstanding on the Trading Day
immediately preceding the Original Issue Date,
(ii) 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 or upon exercise of the
warrants issued to X.X. Xxxxx Securities, Inc.
for its services as placement agent under the
Purchase Agreement (the "Placement Warrant")
-----------------
(such number of shares, the "Issuable Maximum").
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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 aggregate
principal amount of all Debentures issued and
sold by the Company on the Original Issue Date.
If any Holder shall no longer hold Debentures,
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 Set Price then in effect
is such that the shares issuable under this
Debenture on any
7
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 would exceed
the Issuable Maximum, and (B) the Company
shall not have obtained Shareholder Approval,
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
accrued interest) then held by such Holder for
which a conversion in accordance with the
applicable conversion price would result in an
issuance of shares of Common Stock in excess of
such Holder's pro-rata portion (which shall be
calculated pursuant to the terms hereof) of the
Issuable Maximum (the "Excess Principal"), the
----------------
Company shall be prohibited from converting such
Excess Principal, and shall notify the Holder of
the reason therefor. This Debenture shall
thereafter be unconvertible into Underlying
Shares until and unless Shareholder Approval is
subsequently obtained or is otherwise not
required, but this Debenture shall otherwise
remain in full force and effect. The Company and
the Holder understand and agree that shares of
Common Stock issued to and then held by the
Holder as a result of conversions of Debentures
shall not be entitled to cast votes on any
resolution to obtain Shareholder Approval
pursuant hereto. For clarity, the failure of the
Company to actually obtain Shareholder Approval
shall not be a breach of covenant or Event of
Default under Section 3 of this Debenture.
iii) Shares Issuable Upon Conversion. The number
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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 Set Price.
b) i) Not later than three Trading Days after any
Conversion Date, the Company will deliver to the Holder 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.
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 fifth 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
8
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 third Trading Day after the
Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, for each
$5,000 of principal amount being converted, $50 per
Trading Day thereafter (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 third 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.
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 third Trading Day after the
Conversion Date, and if after such third Trading Day the
Holder is required by its brokerage firm to purchase (in
an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall
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(A) pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which
(x) the Holder's total purchase price (including brokerage
commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2)
the actual sale price of the Common Stock at the time of
the sale (including brokerage commissions, if any) giving
rise to such purchase obligation and (B) at the option of
the Holder, either reissue Debentures in principal amount
equal to the principal amount of the attempted conversion
or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Company timely
complied with its delivery requirements under Section
4(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 actual sale price of the Underlying
Shares at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase
obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts
payable to
9
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.
iv) Notwithstanding anything herein to the
contrary, if after the Effective Date the VWAP for any 15
consecutive Trading Days (such period, the "Forced
------
Conversion Condition Period") exceeds the then Set Price
---------------------------
by more than 200%, the Company may, within 2 Trading Days
of any such period, deliver a notice to the Holder (a
"Forced Conversion Notice" and the date such notice is
------------------------
received by the Holder, the "Forced Conversion Notice Date")
-----------------------------
to cause the Holder to immediately convert all or
part (and if part, pro-rata in proportion to each Holders
initial purchase of the Debentures relative to all
Debentures issued pursuant to the Purchase Agreement) of
the then outstanding principal amount of Debentures
pursuant to Section 4(a)(i). The Company may only effect a
Forced Conversion Notice if on each Trading Day during the
Forced Conversion Condition Period through the Forced
Conversion Notice Date all of the Company Equity
Conditions have been satisfied. If any of the Company
Equity Conditions shall cease to be satisfied at any time
during the required period, then the Holder may elect to
nullify the Forced Conversion Notice in which case such
forced conversion shall be null and void, ab initio.
Notwithstanding anything to the contrary in this Section
4, the Company's determination to deliver a Forced
Conversion Notice and effect a forced conversion 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 Debentures
of any Holder are no longer outstanding.
c) i) The conversion price in effect on any Conversion
Date shall be equal to $0.515 (subject to adjustment
herein)(the "Set Price").
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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 (which, for
avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to this Debenture,
including interest thereon), (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
10
outstanding after such event. Any adjustment made pursuant
to this Section shall become effective immediately after the
record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become
effective immediately after the effective date in the case
of a subdivision, combination or re-classification.
iii) If the Company, at any time while Debentures
are outstanding, shall issue rights, options or warrants to
all holders of Common Stock (and not to Holders) entitling
them to subscribe for or purchase shares of Common Stock
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 adjusted by multiplying the Set Price in
effect immediately prior to such record date 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 the
VWAP on the record date. 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 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 an effective
price per share less than 95% of the then 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 an effective 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 to equal 105% of the
effective conversion, exchange or purchase price for such
Common Stock or Common Stock Equivalents (including any
reset provisions thereof) at issue. Such adjustment shall
be made whenever such Common Stock or Common Stock
Equivalents are issued. The Company shall notify the
Holder in writing, no later than the Business Day
11
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.
v) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common
Stock (and not to Holders) evidences of its indebtedness
or assets or rights or warrants to subscribe for or
purchase any security, then in each such case the Set
Price shall be determined by multiplying such price in
effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall
be the VWAP determined as of the record date mentioned
above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such
record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments
shall be described in a statement provided to the Holders
of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become
effective immediately after the record date mentioned
above.
vi) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or
property, the Holders shall have the right thereafter to,
at their option, (A) convert the then outstanding
principal amount, together with all accrued but unpaid
interest and any other amounts then owing hereunder in
respect of this Debenture only into the shares of stock
and other securities, cash and property receivable upon or
deemed to be held by holders of the Common Stock following
such reclassification or share exchange, and the Holders
of the Debentures shall be entitled upon such event to
receive such amount of securities, cash or property as the
shares of the Common Stock of the Company into which the
then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture could have
been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require
the Company to prepay the aggregate of its outstanding
principal amount of Debentures, plus all interest and
other amounts due and payable thereon, at a price
determined in accordance with Section 3(b). The entire
prepayment price shall be paid in cash. This provision
shall similarly apply to successive reclassifications or
share exchanges.
vii) All calculations under this Section 4 shall be
made to the nearest cent or the nearest 1/100th of a share,
as the case may be. For purposes of this Section 4, the
number of shares of Common Stock deemed to be outstanding
as of a given date
12
shall be the sum of the number of shares of Common Stock
(excluding treasury shares, if any) outstanding.
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.
x) If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B)
the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (C)
any tender offer or exchange offer (whether by the Company or
another Person) is completed pursuant to which holders of
Common Stock are
13
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
Set 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 Set 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 30 calendar days after such request (or, if later,
on the effective date of the Fundamental Transaction),
equal to the 100% of the remaining unconverted principal
amount of this Debenture on the date of such request, plus
all accrued and unpaid interest thereon, plus all other
accrued and unpaid amounts due hereunder.
xi) Notwithstanding the foregoing, no adjustment
will be made under this paragraph (c) in respect of (A) the
granting of options to employees, officers and directors
of the Company pursuant to any stock option plan duly
adopted by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the
members of a committee of non-employee directors
established for such purpose, (B)
14
upon the exercise of this Debenture or any other Debenture of
this series or of any other series or security issued by the
Company in connection with the offer and sale of this
Company's securities pursuant to the Purchase Agreement, or
(C) upon 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
amended since the date of the Purchase Agreement, or (D)
acquisitions or strategic investments, the primary purpose of
which is not to raise capital, or (E) any other Exempt
Transaction.
d) 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.
e) 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.
f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge
to the Holder for any documentary stamp or similar taxes that may
be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance
and delivery of any such certificate upon conversion in a name
other than that of the Holder 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.
15
Section 5) Exchanges into DOC Common Stock.
--------- -------------------------------
a) i) Exchanges. At any time after the Closing Date,
---------
this Debenture shall be exchangeable into DOC Shares at
the option of the Holder, in whole or in part at any time
and from time to time (subject to the limitations on
exchanges set forth in Section 5(a)(ii) hereof). Upon any
such transfer of any DOC Shares to the Holder upon an
exchange, the Holder shall have good and marketable title
to such shares, free and clear of any liens, encumbrances,
restrictions, rights of first refusal or rights of any
other Person and such shares shall be unrestricted and,
assuming Holder is not deemed to be an underwriter, freely
tradable on the Principal Market without any prospectus
delivery or other requirement whatsoever and without the
need for registration under the Securities Act or any
state securities laws. The Holder shall effect exchanges
by delivering to the Company the form of exchange notice
attached hereto as Annex B (an "Exchange Notice") with a
------- ---------------
copy to the Trustee, specifying therein the principal
amount of Debentures to be exchanged and the date on which
such exchange is to be effected (an "Exchange Date"). If
-------------
no Exchange Date is specified in a Exchange Notice, the
Exchange Date shall be the date that such Exchange Notice
is provided hereunder. To effect exchanges 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 exchanged. Exchanges
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 exchange. The Holder and the Company shall
maintain records showing the principal amount exchanged
and the date of such exchanges. In the event of any
dispute as to the number of DOC Shares issuable to the
Holder in connection with a Conversion Notice, the the
Trustee shall issue to the Holder the number of DOC Shares
not in dispute and resolve such dispute in accordance with
Section 11. The Holder and any assignee, by acceptance of
this Debenture, acknowledge and agree that, by reason of
the provisions of this paragraph, following exchange of a
portion of this Debenture, the unpaid and unexchanged
principal amount of this Debenture may be less than the
amount stated on the face hereof.
ii) Exchange Restriction. Notwithstanding
--------------------
anything herein to the contrary, (A) A Holder may not
exchange Debentures or receive shares of DOC Common Stock
as payment of interest hereunder to the extent such
exchange or receipt of such interest payment would result
in the Holder, together with its Affiliates, beneficially
owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder) in
excess of 4.99% of the then issued and outstanding shares
of DOC Common Stock, including shares issuable upon
exchange 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 DOC's public
filing with respect to the number of shares of DOC Common
Stock which are then issued and outstanding. In the event
of a merger or consolidation of DOC with or into another
Person, this paragraph shall not apply with respect to a
determination of the number of shares of DOC Common Stock
issuable upon exchange in full of
16
the Debentures if such determination is necessary to
establish the securities or other assets which the holder of
DOC Common Stock shall be entitled to receive upon the
effectiveness of such merger or consolidation. The provisions
of this Section 5(a)(ii) 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
5(a)(ii) shall continue to apply until such 61st day (or such
later date, as determined by the Holder, as may be specified
in such notice of waiver) and (B) the Company shall not honor
an exchange by the Holder to the extent such Exchange shall
cause the aggregate number of DOC Shares issued to the Holder
pursuant to the present exchange and all prior exchanges to
exceed the Holder's pro-rata share (as determined by such
Holder's initial purchases of Debentures pursuant to the
Purchase Agreement relative to all Debentures issued) of 15
million DOC Shares.
iii) The number of shares of DOC Common Stock
issuable upon a Exchange shall be determined by the
quotient obtained by dividing (x) the outstanding
principal amount of this Debenture to be converted and (y)
the Exchange Price.
b) i) Not later than five Trading Days after any
Exchange Date, the Company will cause the Trustee to
deliver to the Holder a certificate or certificates for
the shares of DOC Common Stock which shall be free of
restrictive legends and trading restrictions representing
the number of shares of DOC Common Stock being acquired
upon the exchange of Debentures.
c) i) The exchange price in effect on any Exchange Date
shall be equal to $2.20 as to the first 50% of the
original principal amount of this Debenture and $4.25 as
to the remaining 50% of the original principal amount of
this Debenture (all subject to adjustment herein)(the
"Exchange Price").
--------------
ii) If DOC, 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 DOC
Common Stock or any other equity or equity equivalent
securities payable in shares of DOC Common Stock (which,
for avoidance of doubt, shall not include any shares of
DOC Common Stock issued by DOC pursuant to this Debenture,
including interest thereon), (B) subdivide outstanding
shares of DOC Common Stock into a larger number of shares,
(C) combine (including by way of reverse stock split)
outstanding shares of DOC Common Stock into a smaller
number of shares, or (D) issue by reclassification of
shares of the DOC Common Stock any shares of capital stock
of DOC, then the Exchange Price shall be multiplied by a
fraction of which the numerator shall be the number of
shares of DOC Common Stock (excluding treasury shares, if
any) outstanding before such event and of which the
denominator shall be the number of shares of DOC 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
17
or distribution and shall become effective immediately after
the effective date in the case of a subdivision,
combination or re-classification.
iii) In case of any reclassification of the DOC
Common Stock or any compulsory share exchange pursuant to
which the DOC Common Stock is converted into other
securities, cash or property, the Holders shall have the
right thereafter to exchange the then outstanding principal
amount of this Debenture, together with all accrued but
unpaid interest and any other amounts then owing hereunder in
respect of this Debenture into the shares of stock and other
securities, cash and property receivable upon or deemed to be
held by holders of the DOC 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
DOC Common Stock 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 exchanged immediately prior to such
reclassification or share exchange. This provision shall
similarly apply to successive reclassifications or share
exchanges.
iv) If, at any time while this Debenture is
outstanding, (A) DOC effects any merger or consolidation of
DOC with or into another Person, (B) the DOC effects any sale
of all or substantially all of its assets in one or a series
of related transactions, (C) any tender offer or exchange
offer (whether by DOC or another Person) is completed
pursuant to which holders of DOC Common Stock are permitted
to tender or exchange their shares for other securities, cash
or property, or (D) DOC effects any reclassification of the
DOC Common Stock or any compulsory share exchange pursuant to
which the DOC Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such
case, a "DOC Fundamental Transaction"), then upon any
---------------------------
subsequent conversion of this Debenture, the Holder shall
have the right to receive, for each DOC Share that would have
been issuable upon such conversion absent such DOC
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 DOC Fundamental
Transaction if it had been, immediately prior to such DOC
Fundamental Transaction, the holder of one share of DOC
Common Stock (the "DOC Alternate Consideration"). For
---------------------------
purposes of any such conversion, the determination of the
Exchange Price shall be appropriately adjusted to apply to
such DOC Alternate Consideration based on the amount of DOC
Alternate Consideration issuable in respect of one share of
DOC Common Stock in such DOC Fundamental Transaction, and the
Trustee shall apportion the Exchange Price among the DOC
Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the DOC
Alternate Consideration.
18
d) Upon an exchange hereunder the Company shall not be
required to issue stock certificates representing fractions of shares
of the DOC Common Stock, but shall issue, in lieu of the final fraction
of a share, one whole share of DOC Common Stock.
e) The issuance of certificates for DOC Shares on exchange
of the Debentures shall be made without charge to the Holder
for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that
the Company shall not be required to pay any tax that may be payable
in respect of any transfer involved in the issuance and delivery
of any such certificate upon conversion in a name other than that
of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
Section 6) Redemption.
--------- ----------
a) Monthly Redemption. On each Monthly Redemption Date, the
Company shall redeem each Holder's Pro Rata Portion of the Monthly
Redemption Amount plus accrued but unpaid interest, the sum of all
liquidated damages and any other amounts then owing to such Holder
in respect of the Debenture (or such lesser amount as is then
outstanding). For purposes of this subsection 6(a) only, "Pro Rata
--------
Portion" is the ratio of (x) the principal amount of this
-------
Debenture on the Original Issue Date and (y) the sum of the
aggregate original principal amounts of the Debentures issued to
all Holders on the Closing. If any Holder shall no longer holds
Debentures, then the Pro Rata Portion shall be recalculated to
exclude such Holder's principal amount from clause (y) above. The
Monthly Redemption Amount due on each Monthly Redemption Date
shall, except as provided in this Section, be paid in cash. As to
any Monthly Redemption and upon at least 20 Trading Days' prior
written irrevocable notice ("Monthly Notice Redemption Period")
--------------------------------
and subject to the applicable Equity Conditions, in lieu of a cash
redemption payment the Company may elect to pay 100% of a Monthly
Redemption in either (i) Underlying Shares based on a conversion
price equal to the lesser of (A) 90% of the average of the lowest
10 of the 20 VWAPs immediately prior to the applicable Monthly
Redemption Date (subject to adjustment for any stock dividend,
stock split, stock combination or other similar event affecting
the Common Stock during such 20 Trading Day period) and (B) the
Set Price (the "Monthly Conversion Price") or (ii) DOC Shares
------------------------
based on an exchange price equal to the lesser of (A) 90% of the
average of the lowest 10 of the 20 DOC VWAPs immediately prior to
the applicable Monthly Redemption Date (subject to adjustment for
any stock dividend, stock split, stock combination or other
similar event affecting the Common Stock during such 20 Trading
Day period) and (B) the Exchange Price (the "Monthly Exchange
----------------
Price"). For clarity, the Company's notice shall specify whether
-----
such amounts shall be paid in Underlying Shares, DOC Shares, or a
specific combination thereof. Notwithstanding anything herein to
the contrary, unless waived by the Holder, the Company may not pay
the Monthly Redemption Amount in DOC Shares unless the average
daily trading volume of DOC Common Stock is at least 50,000 shares
and the
19
average of the DOC VWAPs is at least $1.50 (subject to reverse
and forward stock splits and the like) for each of the 10 Trading
Days preceding the Monthly Notice and on each Trading Day
during the Monthly Notice Redemption Period through the Monthly
Redemption Date the DOC Equity Conditions have been satisfied.
Issuances of Underlying Shares hereunder or transfers of DOC
Shares hereunder shall be made otherwise pursuant to the
provisions of Section 4 and Section 5, as applicable. The Holders
may convert, pursuant to Section 4(a)(i), or exchange, pursuant to
Section 5(a)(i), any principal amount of the Debenture subject to
a Monthly Redemption at any time prior to the date that the
Monthly Redemption Amount and all amounts owing thereon are due
and paid in full. The Company covenants and agrees that it will
honor all Conversion Notices and Exchange Notices tendered up
until such amounts are paid in full.
b) Redemption Procedure. The payment of cash, issuance of
Common Stock or transfer of DOC Shares, as the case may be,
pursuant to a Monthly Redemption shall be made on the Monthly
Redemption Date. If any portion of the cash payment for a Monthly
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 Monthly Redemption Amount, plus all
amounts owing thereon is paid in full. In addition, if any portion
of the Monthly 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, shares of Common Stock or DOC Shares 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) Definitions. For the purposes hereof, in addition to the
--------- -----------
terms defined elsewhere in this Debenture: (a) capitalized terms not
otherwise defined herein have the meanings given to such terms in the
Purchase Agreement, and (b) the following terms shall have the following
meanings:
"Business Day" means any day except Saturday, Sunday and
------------
any day which shall be a federal legal holiday in the United States
or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"Change of Control Transaction" means the occurrence after
-----------------------------
the date hereof of any of (i) an acquisition after the date hereof
by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective
control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33%
of the voting securities of the Company, or (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
20
who are members of the board of directors on the date hereof
(or by those individuals who are serving as members of the board
of directors on any date whose nomination to the board of
directors was approved by a majority of the members of the board
of directors who are members on the date hereof), or (iii) the
execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set
forth above in (i) or (ii).
"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.
"Company Equity Conditions" shall mean all of the
-------------------------
following: (i) the Company shall have duly honored all conversions
or exchanges occurring by virtue of one or more Conversion Notices
or Exchange Notices prior to the date in question, (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 (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 event subject to this condition will 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; (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; (vii) such
issuance would be permitted in full without violating the
limitations set forth in clauses (A) or (B) of Section 4(a)(ii) and
(viii) no public announcement of a pending or proposed Change of
Control Transaction or Fundamental Transaction has occurred that
has not been consummated.
"Conversion Date" shall have the meaning set forth in
---------------
Section 4(a)(i) hereof.
"Conversion Notice" shall have the meaning set forth in
-----------------
Section 4(a)(i) hereof.
"DOC" shall mean Digital Angel Corporation.
---
"DOC Common Stock" means the common stock, $0.005 par
----------------
value per share, of DOC and stock of any other class into which
such shares may hereafter have been reclassified or changed.
21
"DOC Equity Conditions" shall mean all of the following:
---------------------
(i) the Company shall have duly honored all conversions or
exchanges occurring by virtue of one or more Conversion Notices or
Exchange Notices prior to the date in question, (ii) there is an
effective registration statement with the Commission pursuant to
which the Holder is permitted to utilize the prospectus thereunder
to resell all of the DOC Shares transferred to the Holder (and the
Company believes, in good faith, that such effectiveness will
continue uninterrupted for the foreseeable future), (iii) the DOC
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 event subject to this
condition will be paid in cash; (v) 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 (vi) such issuance
would be permitted in full without violating the limitations set
forth in Section 4(a)(ii).
"DOC VWAP" means, for any date, the price determined by
--------
the first of the following clauses that applies: (a) if the DOC
Common Stock is then listed or quoted on a Principal Market or the
OTC Bulletin Board, the daily volume weighted average price of the
DOC Common Stock for such date (or the nearest preceding date) on
the Principal Market (or OTC Bulletin Board) on which the DOC
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 DOC Common
Stock is not then listed or quoted on a Principal Market or the OTC
Bulletin Board and if prices for the DOC 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 DOC Common Stock so reported; or (c) in all other
cases, the fair market value of a share of DOC Common Stock as
determined by a nationally recognized independent appraiser
selected in good faith by Purchasers' Representative.
"DOC Shares" means the shares of DOC Common Stock pledged
----------
to the Holders of the Debentures pursuant to the terms of the
Pledge Agreement entered into in connection with the Purchase
Agreement, which shares when transferred in accordance with the
terms hereunder shall be fully paid and nonassessable.
"Exchange Act" means the Securities Exchange Act of 1934,
------------
as amended.
"Exchange Date" shall have the meaning ascribed to such
-------------
term in Section 5(a)(i).
"Exchange Notice" shall have the meaning ascribed to such
---------------
term in Section 5(a)(i).
"Exchange Price" shall have the meaning set forth in
--------------
Section 5(c)(i) hereof.
22
"Interest Conversion Rate" means, (i) as to shares of
------------------------
Common Stock, 90% of the lesser of (A) the average of the lowest 10
of the 20 VWAPs immediately prior to the applicable Interest
Payment Date or (B) the average of the 20 VWAPs immediately prior
to the date the applicable interest payment shares are issued and
delivered if after the Interest Payment Date and, (ii) as to DOC
Shares, 90% of the lesser of (A) the average of the lowest 10 of
the 20 DOC VWAPs immediately prior to the applicable Interest
Payment Date or (B) the average of the 20 DOC VWAPs immediately
prior to the date the applicable interest payment shares are issued
and delivered if after the Interest Payment Date.
"Late Fees" shall have the meaning set forth in the second
---------
paragraph to this Debenture.
"Mandatory Prepayment Amount" for any Debentures shall
---------------------------
equal the sum of (i) the greater of: (A) 110% of the principal
amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, (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 Set
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, or (C) 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
Exchange 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 DOC
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.
"Monthly Conversion Price" shall have the meaning set
------------------------
forth in Section 6(a) hereof.
"Monthly Redemption" shall mean the redemption of the
------------------
Debenture pursuant to Section 6(a) hereof.
"Monthly Redemption Amount" shall mean, as to a Monthly
-------------------------
Redemption, $400,000, in the aggregate among all Holders or such
lesser amount if the total principal amount outstanding among all
Debentures is less than $400,000.
"Monthly Redemption Date" means the 1st of each month,
-----------------------
commencing on November 1, 2003 and ending upon the full redemption
of this Debenture.
23
"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).
"Shareholder Approval" means such approval as may be
--------------------
required by the applicable rules and regulations of the Principal
Market (or any successor entity) form the shareholders of the
Company with respect to the transactions contemplated by the
Transaction Documents, including the issuance of all of the
Underlying Shares and shares of Common Stock issuable upon exercise
of the Warrants.
"Trading Day" means (a) a day on which the shares of
-----------
Common Stock and DOC Common Stock are traded on the Principal
Market, or (b) if the shares of Common Stock or shares of DOC
Common Stock are not quoted on a Principal Market, a day on which
the such shares 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).
"Transaction Documents" shall have the meaning set forth
---------------------
in the Purchase Agreement.
"Trust Agreement" means that certain Trust Agreement of
---------------
the Digital Angel Share Trust between Wilmington Trust Company and
the Company, dated as of March 1, 2002, as amended June 30, 2003.
"Trustee" means Wilmington Trust Company, a Delaware banking
-------
corporation.
"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
24
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' Representative.
Section 8) Except as expressly provided herein, no provision of this
---------
Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks pari passu with all other
---- -----
Debentures now or hereafter issued under the terms set forth herein. The
Company agrees and acknowledges the obligations of the Company under this
Debenture are secured by 15 million shares of DOC Common Stock pursuant to
the terms of the Pledge Agreement and that such shares also comprise the DOC
Shares which are exchangeable pursuant to the terms of Section 5 and which
are transferable upon exercise of the warrants issued in connection with the
Purchase Agreement. As long as there are Debentures outstanding, the Company
shall not and shall cause it Subsidiaries not to, without the consent of the
Holders, (a) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holders; (b) repay,
repurchase or offer to repay, repurchase or otherwise acquire shares of its
Common Stock or other equity securities other than as to the Underlying
Shares to the extent permitted or required under the Transaction Documents;
(c) enter into any agreement with respect to any of the foregoing; or (d)
issue any variable priced equity securities or variable priced equity linked
securities.
Section 9) 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.
25
Section 10) The Company will not and will not permit any of its
----------
Subsidiaries to, directly or indirectly, enter into, create, incur, assume
or suffer to exist any indebtedness of any kind, on or with respect to any
of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom that is senior in any respect to
the Company's obligations under the Debentures.
Section 11) 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 12) 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 13) If any provision of this Debenture is invalid, illegal or
----------
unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due
hereunder violates applicable
26
laws governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Debentures as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which
may affect the covenants or the performance of this indenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any power
herein granted to the Holder, but will suffer and permit the execution of
every such as though no such law has been enacted.
Section 14) 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.
Section 15) 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:
DEBENTURE DEPARTMENT, WITH A COPY OF SUCH NOTICE E-MAILED TO
xxxxxxxxxx@xxxx.xxx, AND WITH A COPY OF ANY NOTICE (OTHER THAN CONVERSION
NOTICE) TO HOLLAND & KNIGHT, FACSIMILE NUMBER 000-000-0000, ATTN: XXXXXX
XXXXXXX, 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 and to THE TRUSTEE AT C/O WILMINGTON TRUST COMPANY, XXXXXX
SQUARE NORTH, 0000 XXXXX XXXXXX XXXXXX, XXXXXXXXXX, XX 00000, ATTN:
CORPORATION TRUST ADMINISTRATION, FACSIMILE NUMBER . 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) on a
Trading Day, (ii) the Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New York
City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.
Section 16) This Debenture, and all other Debentures of this series,
----------
are secured by a Pledge Agreement and Security Agreement of even date
herewith.
*********************
27
IN WITNESS WHEREOF, the Company has caused this Exchangeable
Debenture to be duly executed by a duly authorized officer as of the date
first above indicated.
APPLIED DIGITAL SOLUTIONS, INC.
By: /s/ Xxxxx Xxxxxxxxx
---------------------------------
Name: Xxxxx Xxxxxxxxx
Title: CEO
28
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal and, if specified,
interest under the 8.5% Exchangeable Debenture of Applied Digital Solutions,
Inc., (the "Company") due on June 29, 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 Common Stock / / 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:
Taxpayer ID#
Address:
29
ANNEX B
NOTICE OF EXCHANGE
The undersigned hereby elects to exchange principal and, if specified,
interest under the 8.5% Exchangeable Debenture of Applied Digital Solutions,
Inc., (the "Company") due on June 29, 2006, into shares of common stock,
$0.005 par value per share (the "Common Stock"), of Digital Angel
Corporation 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 Exchange the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, specified under Section 5 of this Debenture.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted
Payment of Interest in Common Stock / / Yes / / No
If yes, $_______ of Interest Accrued on
Account of Conversion at Issue
Number of shares of Common Stock to be Issued:
Applicable Conversion Price:
Signature:
Name:
Address:
30
