EXHIBIT 4.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES UNLESS THE ISSUER RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THIS NOTE REASONABLY SATISFACTORY TO THE ISSUER
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR THAT THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT.
ZYLAB INTERNATIONAL, INC.
SECURED CONVERTIBLE PROMISSORY NOTE
$350,000 December 24, 2001
FOR VALUE RECEIVED, Zylab International, Inc., a Virginia
corporation (the "Company" or the "Payor"), with an address at 00000 Xxxxxxxxxxx
Xxxx, Xxxxx 000 Xxxxxxxxxx, XX 00000 promises to pay to the order of
Authentidate Holding Corp. (the "Payee" or the "Holder"), the principal amount
of THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000) of principal and interest in
six (6) quarterly installments of $61,433.83 each commencing on June 30, 2002
with a final installment due and payable on November 30, 2003 (the "MATURITY
DATE"). Interest shall accrue and be payable at the rate of 6% per annum (except
as provided in Section 1.4), calculated for the actual number of days the
Principal is outstanding and interest is accrued and unpaid based on a 360-day
year, in accordance with the terms hereof. Payments of principal and interest
shall be made in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public or private debts
at such address of the Holder as set forth herein or that the Holder shall
hereafter give to the Payor by written notice made in accordance with the
provisions hereof.
1. Terms of Repayment
1.1 All payments received on account of this Note shall be
applied first to the payment of accrued interest on this Note and then to the
reduction of the unpaid principal balance of this Note. Interest shall be
computed on the basis of a year of 360 days, for the actual number of days
elapsed. Payor may prepay principal and interest on this Note upon 10 days prior
notice to the Holder.
1.2 If payment of the outstanding principal amount of this
Note, together with accrued unpaid interest thereon at the applicable rate of
interest (as set forth herein), is not made on the earlier to occur of (i) the
Maturity Date (as such date may be extended pursuant to the extension options
set forth in Section 4 hereof) and (ii) the Accelerated Maturity Date (defined
below), then interest shall accrue on the outstanding principal amount due under
this Note and on any unpaid accrued interest due on this date of the payment in
full of such amounts (including from and after the date of the entry of judgment
in favor of the Holder in an action to collect this Note) at an annual rate
equal to the lesser of 18% or the maximum rate of interest permitted by
applicable law.
1.3 Notwithstanding anything to the contrary contained in this
Note, Payor shall not be obligated pay, and the Holder shall not be entitled to
charge, collect, or receive, interest in excess of the maximum rate allowed by
applicable law. During any period of time in which the interest rate specified
herein exceeds such maximum rate, any amounts of interest collected by the
Holder in excess of such maximum rate shall be deemed to apply to principal and
all payments of interest and principal shall be recalculated to allow for such
characterization.
1.4 In the event that the date for the payment of any amount
payable under this Note falls due on a Saturday, Sunday or public holiday under
the laws of the State of New York, the time for payment of such amount shall be
extended to the next succeeding business day and interest shall continue to
accrue on any principal amount so effected until the payment thereof on such
extended due date.
2. Security. This Holder of this Note is entitled to the rights as set
forth in that certain Security Agreement between the Company and Authentidate
Holding Corp. of even date herewith (the "Security Agreement"), pursuant to
which the Holder has been granted a first priority security interest in the
assets of the Company. This Note is the direct obligation of the Company and is
secured by all of the Collateral contemplated by the Security Agreement. In
order to effectuate the purposes of the Security Agreement and this Note,
certain of the Collateral contemplated by the Security Agreement shall be
deposited with an escrow agent pursuant to the terms of the escrow agreement as
provided in the Security Agreement. A copy of the Security Agreement and escrow
agreement are available for inspection at the Company's principal office.
Reference to the Security Agreement and escrow agreement shall in no way impair
the absolute and unconditional obligation of the Company to pay both principal
and interest hereon as provided herein. All capitalized terms not defined herein
shall have the meanings ascribed thereto in the Security Agreement and Escrow
Agreement.
3. Conversion Rights
3.1 The Holder shall have the right prior to the date on which
this Note is paid in full, to convert at any time as provided below, from time
to time, any part of the outstanding principal amount of this Note into fully
paid and non-assessable shares of the Common Stock, no par value per share
("Conversion Shares"), of Payor (the "CONVERSION RIGHTS") at the Conversion
Ratio (as defined below in Section 3.2) determined as provided in this Section
3. Promptly after the surrender of this Note, accompanied by a Notice of
Conversion of Convertible Note in the form
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attached hereto as Exhibit A, properly completed and duly executed by the Holder
(a "CONVERSION NOTICE"), Payor shall issue and deliver to or upon the order of
the Holder that number of shares of Common Stock for the balance of this Note
converted as shall be determined in accordance herewith. This Note shall be
convertible, at the option of the Holder commencing on the date which is the
earlier of (i) the date of termination of the Letter of Intent between the
Company and Authenticate Holding Corp dated as of December 14, 2001 unless the
Letter of Intent has been superceded by a definitive agreement between the
Company and Authenticate Holding Corp. providing for the acquisition of the
Company by Authenticate Holding Corp. or (ii) 90 days from the date hereof.
3.2 Conversion Ratio. The principal amount of this Note
outstanding may be converted, at the option of the Holder at any time, into
shares of Common Stock of Payor (or any successor entity). The number of shares
of Payor's Common Stock to be delivered to Payee upon conversion of the entire
original principal amount of this Note shall equal seventeen and one half
(17.5%) of the outstanding Common Stock of Payor, determined on a fully diluted
basis, as of the date of Conversion ("CONVERSION RATIO"). If less then the total
principal amount of this Note is converted by the Holder, the number of shares
to be delivered shall be reduced pro rata by the ratio by which the principal
amount to be converted bears to $350,000. Upon conversion, in whole or in part,
all accrued interest due and owing as of the date of conversion shall be paid in
full on the next scheduled quarterly installment date.
3.3 Subdivision. If the Company, at any time while Note
remains outstanding, shall (i) subdivide the Common Stock (or effect a similar
transaction), the Conversion Ratio shall be proportionately reduced or (ii)
effect a reverse stock split or similar transaction, the Conversion Ratio shall
be proportionately increased, as the case may be, as of the effective date of
such subdivision, reverse stock split or similar transaction, or, if the Company
shall take a record of holders of its Common Stock for the purpose of any such
transaction, as of such record date, whichever is earlier (provided if such
transaction does not actually occur, such adjustment shall not be made).
3.4 Stock Dividends. If the Company at any time while the Note
is outstanding shall pay a dividend in shares of, or make other distribution of
shares of, the Common Stock, then the Conversion Ratio shall be adjusted, as of
the date the Company shall take a record of the holders of its Common Stock for
the purpose of receiving such dividend or other distribution (or if no such
record is taken, as at the date of such payment or other distribution), to that
price determined by multiplying the Conversion Ratio in effect immediately prior
to such payment or other distribution by a fraction (a) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (b) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
dividend or distribution.
3.5 Reclassification, Consolidation or Merger. At any time
while this Note remains outstanding, in case of any reclassification or change
of Common Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of Common Stock) or in case of any consolidation or
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merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is a continuing corporation and which
does not result in any reclassification or change, other than a change in par
value, or from par value to no par value per share, or from no par value per
share to par value, or as a result of a subdivision or combination Common
Stock), or in the case of any sale or transfer to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
Company, or such successor or purchasing corporation, as the case may be, shall,
without payment of any additional consideration therefor, execute new notes
providing that the holders of the Note shall have the right to exercise such new
notes (upon terms not less favorable to the holders than those then applicable
to the Note) and to receive upon such exercise, in lieu of each share of Common
Stock theretofore issuable upon exercise of the Note, the kind and amount of
shares of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by the Holder
of one share of Common Stock issuable upon exercise of the Note had the Note
been converted immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new notes shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3. The provisions of this Section 3.5
shall similarly apply to successive reclassifications, changes, consolidations,
mergers, sales and transfers.
3.6 Method of Conversion. Except as otherwise provided in this
Note or agreed to by the Holder, this Note may be converted by the Holder in
whole or in part as permitted herein (provided such partial conversion is at
least $20,000) from time to time by (i) submitting to the Company a Conversion
Notice (by facsimile dispatched on the Conversion Date and confirmed by U.S.
mail or overnight mail service sent within two business days thereafter) and
(ii) surrendering this Note with the mailed confirmation of the Conversion
Notice at the principal office of the Company. Upon partial exercise of the
Conversion Rights, a new note containing the same date and provisions as this
Note shall be issued by the Company to the Holder for the balance due hereunder
which shall not have been converted.
3.7 Restrictions on Shares. This Note has been issued by the
Company pursuant to the exemption from registration under the Securities Act of
1933 (the "ACT"). The shares of Common Stock issuable upon conversion of this
Note may not be offered, sold or otherwise transferred unless (i) they first
shall have been registered under the Act and applicable state securities laws or
(ii) the Company shall have been furnished with an opinion of legal counsel (in
form, substance and scope reasonably acceptable to the Company) to the effect
that such sale or transfer is exempt from the registration requirements of the
Act. Each certificate for shares of Common Stock issuable upon conversion of
this Note that have not been so registered and that have not been sold pursuant
to an exemption that permits removal of the applicable legend, shall bear a
legend substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED UNLESS THEY ARE REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND
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TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Note, the Company shall remove the
foregoing legend from the certificate or issue to such Holder a new certificate
therefor free of any transfer legend, if (i) with such request, the Company
shall have received an opinion of counsel, reasonably satisfactory to it in
form, substance and scope, to the effect that any such legend may be removed
from such certificate or (ii) a registration statement under the Act covering
the resale of such securities is in effect.
3.8 Reservation of Shares. The Company shall at all times have
authorized and reserved, for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the issuance of shares of Common Stock
underlying the then outstanding aggregate Principal amount of the Note. In the
event that at any time commencing on the date hereof that the Company does not
have an adequate and sufficient number of authorized shares of Common Stock
available to provide for issuance to Holder for the full conversion of this Note
as provided herein, then (i) the principal officers and/or shareholders of the
Company shall deliver to Holder, to be held in escrow (until an Event of Default
as provided in this Note), such number of shares representing the number of
shares by which the Company is deficient (the "Deficiency Shares"), together
with undated and executed stock powers, which shall be held in escrow until the
Company is able to deliver the fully authorized Deficiency Shares and (ii) the
Company and the officers and directors of the Company shall deliver written and
binding agreements by which each of them agree to use their best efforts to
obtain shareholder approval as soon as possible to authorize additional shares
of Common Stock of the Company and agree to vote all shares owned by them
(beneficially and of record) at the next meeting of shareholders (or by written
consent) in favor of authorizing a sufficient number of additional shares of
Common Stock to provide for at least the Deficiency Shares. The Company shall
procure a Certificate of Amendment to its Certificate of Incorporation providing
for the increase in its authorized capital and deliver such Certificate of
Amendment to the Holder no later than ten days from the date hereof.
4. Covenants. The Company covenants and agrees that for so long as any
portion of the indebtedness evidenced by this Note, whether principal, accrued
and unpaid interest or any other amount at any time due hereunder, remains
unpaid:
4.1 Negative Covenants. The Company will not, without the
prior written consent of the Holder:
(a) Sell, transfer or in any other manner dispose of, or
purchase or acquire, any business, assets, capital stock or other property,
except (i) in the ordinary course of its business, or (ii) if (A) the
transaction is a bona fide transaction in which fair market value is received by
the Company, (B) no Event of Default or Default (each defined hereinafter) has
occurred and is continuing or would occur after giving effect to such
transaction, and (C) payment of the principal amount of the Notes and accrued
and unpaid interest thereon through the date of such payment shall have been
made or provided for from the net proceeds of such transaction.
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(b) Make any loan or advance to any person who is or hereafter
becomes an officer, director or shareholder of the Company or any affiliate of
any such person, other than for reasonable advances for expenses to be incurred
by officers, directors, employees and consultants of the Company in the ordinary
course of the business of the Company.
(c) Purchase or otherwise redeem any Common Stock or other
equity securities of the Company or declare or pay any dividends in cash or
other assets on any of its Common Stock or other equity securities.
(d) Issue, create, incur, assume, permit, guarantee or suffer
to exist any indebtedness or other obligations for money borrowed or capital
lease obligations, except for (i) indebtedness under the Note and any extension,
renewal or refinancing thereof; (ii) trade indebtedness incurred in the ordinary
course of business; (iii) indebtedness or other obligations for money borrowed
which are subordinated in all respects, including, but not limited to, priority
upon liquidation, to the Note and (iv) account receivable financing in an amount
not to exceed $150,000 principal amount, and which account receivable financing
is secured by no other assets of the Company.
(e) Pay (other than in accordance with the terms thereof), or
voluntarily prepay, any amounts under any indebtedness or other obligations for
money borrowed, or capital lease obligations, whenever incurred or created and
whether or not such indebtedness becomes due, past due or accelerated, except
for (i) the Note, (ii) trade indebtedness incurred in the ordinary course of
business or (iii) regularly scheduled payments in connection with account
receivables financing which the Company may obtain in an amount not to exceed
$150,000.
(f) (i) Amend its certificate or articles of incorporation or
by-laws in any manner which would impair or reduce the rights of the holders of
the Note, (ii) effect a merger or consolidation in which the Company is not the
surviving entity or (iii) liquidate, wind up its affairs or dissolve.
(g) Create, permit or suffer to exist any lien, charge or
security interest in any of its assets, except for (i) the security interest
created by the Security Agreement; and (ii) Permitted Liens. As used herein,
"Permitted Liens" means any of the following: (a) liens for taxes, assessments
and governmental charges or levies (i) not yet in default or (ii) that are being
contested in good faith and by appropriate proceedings diligently conducted,
provided that in the case of liens under this clause (ii), reserves or other
appropriate provisions shall have been established therefor in accordance with
generally accepted accounting principles ("GAAP") and enforcement of any such
liens shall have been effectively stayed or fully bonded pending the final
determination of such proceeding, (b) liens imposed by law, such as
materialmen's, mechanics' carriers', workmen's and repairmen's liens and other
similar liens arising in the ordinary course of business securing obligations
that are not overdue for a period of more than 60 days or which, if overdue, are
being contested in good faith and by appropriate proceedings diligently
conducted, provided that reserves or other appropriate provisions shall have
been established therefor in accordance with GAAP and enforcement of any such
lien is effectively stayed or fully bonded pending the final determination of
such proceeding, (c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure
6
public or statutory obligations; (d) easements, zoning restrictions or other
restrictions, rights-of-way, minor encroachments, covenants or encumbrances on
real property imposed by law or arising in the ordinary course of business that
do not arise out of the incurrence of any indebtedness and that do not and could
not reasonably be expected to materially detract from the value of the affected
property or interfere materially with the ordinary conduct of business of the
Company or materially impair the use thereof to the indebtedness; (e) judgments
and other similar liens arising in connection with court proceedings in an
amount not in excess of $50,000, provided the execution or other enforcement of
such liens is effectively stayed or fully bonded pending the final determination
of the proceeding referred to below and the claims secured thereby are being
contested in good faith and by appropriate proceedings; and (f) liens (other
than liens created or imposed under the Employee Retirement Income Security Act
of 1974, as amended) incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tender,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar obligations
(exclusive in any case of obligations incurred in connection with the borrowing
of money or the obtaining of advances or credit).
(h) Directly or indirectly, enter into any transaction with or for the
benefit of an affiliate (other than the reasonable compensation of an affiliate
for services as an officer, director or employee).
4.2 Affirmative Covenants. The Company will:
(a) Pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon it, upon its income and profits or
upon any of its assets, before the same shall become in default, as well as all
lawful claims for labor, materials and supplies which, if unpaid, might become a
lien or charge upon such properties or any part thereof, provided, however, that
the Company will not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as (i) the validity, applicability and/or the
amount thereof shall be contested in good faith by appropriate proceedings, (ii)
the Company, shall have set aside on its books adequate reserves in accordance
with GAAP with respect to any such tax, assessment, charge, levy or claim so
contested, and (iii) enforcement of any lien on any assets of the Company
associated with any such taxes, assessments, charges, levies or claims shall
have been effectively stayed or fully bonded pending the final determination of
any such proceedings.
(b) Do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights and franchises
and to comply in all material respects with all laws, regulations and orders of
each governmental authority having jurisdiction over the Company (it being
acknowledged that the Company may nevertheless effectuate its Reincorporation).
(c) Promptly following the occurrence of a Default (as defined
herein), furnish to the Holder and the Secured Party a statement of the
Company's President or Chief Financial Officer setting forth the details of such
Default and the action which the Company proposes to take with respect thereto.
7
(d) At all times maintain true and complete records and books
of account in which all of the financial transactions of the Company are duly
recorded in conformance with GAAP.
(e) Within 90 days of the date hereof, at all times reserve
and keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon conversion of this Note, such number of shares of
Common Stock as shall be issuable upon the conversion of this Note.;
(f) Take all action which may be necessary or expedient to
assure that, upon conversion of this Note, all Conversion Shares issuable upon
such conversion will be duly and validly issued, fully paid, non-assessable and
not subject to the preemptive rights of any stockholder.
(g) Use the proceeds from the sale of the Notes primarily for
working capital requirements and for repayment of debt payable to third parties,
but not debt to officers or directors or their affiliates, except as follows: an
aggregate amount of $25,000 may be paid to Xxxxxxxx Xxxxxx in repayment for
loans made by Xx. Xxxxxx to the Company; and fifty percent of an aggregate of
$99,787 payable for salary deferred by certain officers of the Company, not
including any federal tax payable thereon, may be paid upon the Company's
receipt of the proceeds from the sale of the Notes and the remaining fifty
percent of such deferred salaries may be paid in equal installments over the
three month period commencing on the date hereon in accordance with the
Company's regular payroll periods; provided however, that, if the closing of the
sale of assets contemplated in the Letter of Intent dated December 14, 2001,
between the Company and Authentidate Holding Corp. shall occur prior to the
expiration of the aforementioned three month period, then the Company may use
the proceeds from the sale of the Notes to pay all deferred salary of the
Company's officers simultaneously with said closing.
(h) Commencing on December 31, 2001, provide the Holder with
monthly financial statements prepared in accordance with generally accepted
accounting principals consistently applied including a balance sheet and
statements of income and cash flow, as well as detailed aging of accounts
receivable and accounts payable.
(i) Furnish to the Payee such reports as to the Collateral (as
defined in the Security Agreement) for the Notes as the Holder may reasonably
request from time to time.
(j) Cooperate with the Holder and execute such further
instruments and documents as the Holder shall reasonably request to carry out to
their satisfaction the transactions contemplated by this Note.
(k) Permit the Holder to visit and inspect any of the
properties of the Company to examine the books of account of the Company (and to
make copies thereof and extracts therefrom), and to discuss the affairs,
finances and accounts of the Company with, and to be advised as to the same by,
its and their officers, at all such reasonable times and intervals as the Holder
may reasonably request.
8
(l) Comply in all material respects with (i) the applicable
laws and regulations wherever its business is conducted, (ii) the provisions of
its charter documents and by-laws, (iii) all agreements and instruments by which
it or any of its properties may be bound and (iv) all applicable decrees, orders
and judgements.
(m) Continue to retain Xxxxxxxx Xxxxxx as the [Chairman and
Chief Executive Officer] of the Company.
(n) Cause any Subsidiary organized after the date of the Note
to be bound by the terms hereof and the Security Agreement to the same extent as
the Company.
(o) Deliver to the Holder, upon request, a detailed statement
reflecting the number of shares of Common Stock outstanding and the number of
all convertible securities with the terms of such conversion.
(p) Submit, within 45 days of the date hereof, for approval of
shareholders, a resolution to approve an increase in the authorized common stock
of the Company or obtain written consents for such approval within 45 days of
the date hereof.
(q) Along with Xxxxxxxx Xxxxxx, use commercially reasonable
efforts to obtain a term life insurance policy on the life of Xx. Xxxxxx, for
the benefit of Holder in the amount of $500,000. Such policy may be made payable
to the Company only if the Company collaterally assigns such proceeds to the
Holder sufficient proceeds, up to $500,000, to satisfy any outstanding Notes (as
defined in the Security Agreement dated December 24, 2001, between Company and
Authentidate Holding Corp.), which proceeds shall be applied to repay said
Notes.
5. Events of Default. If any of the following events (each an "Event of
Default") shall occur:
5.1 The Company fails to pay the principal of, any installment
of principal and/or interest accrued on, or any other amount at anytime owing
under, the Note, as and when the same becomes due and payable hereunder or
thereunder and/or under the Security Agreement; or
5.2 The Company defaults in the due observance or performance
of or breach any of its covenants contained in this Note or the Security
Agreement, (other than a Default involving the payment of money due under this
Note), and such default is not cured within 10 business days after the
occurrence of such default; or
5.3 The Company or any Subsidiary thereof shall (i) becomes
insolvent, (ii) apply for or consent to the appointment of, or the taking of
possession by, a receiver, trustee or similar official of or for itself or of or
for all or a substantial part of its property, (iii) make an assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Federal
Bankruptcy Code, as now or hereafter in effect (the "Code"), (v) file a petition
seeking to take advantage of any other bankruptcy, insolvency, moratorium,
reorganization or other similar law of any jurisdiction ("Other
9
Laws"), (vi) acquiesce as to, or fail to controvert in a timely or appropriate
manner, an involuntary case filed against the Company or such Subsidiary under
the Code, or (vii) take any corporate action in furtherance of any of the
foregoing; or
5.4 A proceeding or involuntary case shall be commenced,
without the application or consent of the Company or any Subsidiary thereof, in
any court of competent jurisdiction (i) under the Code, (ii) seeking
liquidation, reorganization, dissolution, winding up or composition or
readjustment of its debts under any Other Laws, or (iii) seeking the appointment
of a trustee, receiver or similar official for it or for all or any substantial
part of its assets, and any such proceeding or case shall continue undismissed,
or unstayed and in effect, for a period of 60 days; or
5.5 A final judgment for the payment of money shall be
rendered by a court of competent jurisdiction against the Company or any
Subsidiary thereof, and the Company or such Subsidiary shall not discharge the
same, or procure a stay of execution thereof within 30 days from the date of
entry thereof and within such 30 day period or such longer period during which
execution of such judgment shall have been stayed, appeal therefrom and cause
the execution thereof to be stayed during such appeal, and such judgment,
together with all other judgments against the Company (including all
subsidiaries), shall exceed in the aggregate $50,000 in excess of any insurance
as to the subject matter of such judgments, as to which coverage has not been
declined or the underlying claim rejected by the applicable insurer; or
5.6 The liquidation or dissolution of the Company or any
Subsidiary thereof or any vote in favor thereof by the board of directors and
shareholders of the Company; or
5.7 A proceeding is commenced to foreclose a security interest
in or lien on any asset of the Company or any Subsidiary thereof as a result of
a default in the payment or performance of any indebtedness of the Company or
such Subsidiary; or
5.8 An attachment or garnishment is levied against the assets
of the Company or any Subsidiary thereof involving an amount in excess of
$25,000 and the lien created by such levy is not vacated, bonded or stayed
within 10 business days after such lien has attached to such assets; or
5.9 The Company or any Subsidiary thereof defaults in the
payment (regardless of amount) when due of the principal of, interest on, or any
other liability on account of, any indebtedness of the Company or such
Subsidiary (other than the Notes) having an unpaid principal amount in excess of
$50,000, or a default occurs in the performance or observance by the Company or
any Subsidiary thereof of any covenant or condition (other than for the payment
of money) contained in any note (other than this Note) or agreement evidencing
or pertaining to any such indebtedness, which causes the maturity of such
indebtedness to be accelerated or permits the holder or holders of such
indebtedness to declare the same to be due prior to the stated maturity thereof;
5.10 Any representation, warranty or statement of fact made by
the Company in this Note, or the Security Agreement or in any certificate or
financial statement delivered by the
10
Company to the Holder at any time proves to be false or misleading in any
material respect when made or deemed made by the Company;
5.11 The Company or any of its Subsidiaries sells all or
substantially all of its assets or merges or is consolidated with another
corporation in which the Company or such Subsidiary, as the case may be, is not
the surviving corporation;
5.12 The Company grants a security interest in any of its
assets while any principal or interest on this Note remains outstanding
provided, however, the Company may grant a security interest of up to $150,000
with respect to account receivable financing; or
5.13 The Company fails to obtain shareholder approval to amend
its certificate of incorporation within 90 days of the date hereof to provide
for an increase in the number of authorized shares of Common Stock in an amount
at least equal to the number of shares issuable upon conversion of this Note.
then, and in any such event the Holder of this Note may by written notice to the
Company declare the entire unpaid principal amount of this Note outstanding
together with accrued interest thereon due and payable, and the same shall,
unless such default be cured within ten (10) days after such notice, forthwith
become due and payable upon the expiration of such ten (10) day period, without
presentment, demand, protest, or other notice of any kind, all of which are
expressly waived.
As used in this Note, "Accelerated Maturity Date" means any
date prior to the Maturity Date on which the principal of and any accrued and
unpaid interest on this Note is declared to be, or becomes, due pursuant to this
Section 4 and "Default" means any event that is or, with the passage of time or
the giving of notice or both, would be, an Event of Default.
6. Suits for Enforcement and Remedies. If any one or more Events of
Default shall occur, the Holder may proceed to (i) protect and enforce Holder's
rights either by suit in equity or by action at law, or both, whether for the
specific performance of any covenant, condition or agreement contained in this
Note or in any agreement or document referred to herein or in aid of the
exercise of any power granted in this Note or in any agreement or document
referred to herein, (ii) enforce the payment of this Note, or (iii) enforce any
other legal or equitable right of the Holder. No right or remedy herein or in
any other agreement or instrument conferred upon the Holder of this Note is
intended to be exclusive of any other right or remedy, and each and every such
right or remedy shall be cumulative and shall be in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
7. Restriction on Transfer. This Note has been acquired for investment
and has not been registered under the securities laws of the United States of
America or any state thereof. Accordingly, neither this Note nor any interest
therein may be offered for sale, sold or transferred in the absence of
registration and qualification of this Note under applicable federal and state
11
securities laws or an opinion of counsel of the Holder reasonably satisfactory
to the Company that such registration and qualification are not required.
8. Prepayment. The principal of and accrued interest on this Note may
be prepaid in full at any time without premium or penalty.
9. Holder Deemed Owner. The Company may deem and treat the registered
Holder hereof as the absolute owner of this Note (whether or not this Note shall
be overdue and notwithstanding any notice of ownership or writing hereon made by
anyone other than the Company, for the purpose of receiving payment hereof or
thereof or on account hereof and for all other purposes) and the Company shall
not be affected by notice to the contrary.
10. Corporate Obligation. It is expressly understood that this Note is
solely a corporate obligation of the Company, and that any and all personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every promoter, subscriber,
incorporator, shareholder, officer, or director, as such, are hereby expressly
waived and released by the Holder hereof by the acceptance of this Note and as a
part of the consideration for the issue hereof.
11. Miscellaneous
11.1 The obligations to make the payments provided for in this
Note are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. No provision of
this Note shall alter or impair the obligations of the Company hereby.
11.2 If, following the occurrence of an Event of Default, the
Holder of this Note shall seek to enforce the collection of any amount of
principal and/or accrued interest on this Note, there shall be immediately due
and payable by the Company, in addition to the then unpaid principal of, and
accrued unpaid interest on, this Note, all costs and expenses incurred by the
Holder of this Note in connection therewith, including, without limitation,
reasonable attorneys' fees and disbursements.
11.3 No forbearance, indulgence, delay or failure to exercise
any right or remedy with respect to this Note shall operate as a waiver or as an
acquiescence in any Default, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy.
11.4 This Note may not be modified or discharged (other than
by payment), except by a writing duly executed by the Company and Holder.
12
11.5 The headings of various sections and subsections of this
Note are for convenience of reference only and shall in no way modify any of the
terms or provisions of this Note.
11.6 All notices required to be given to any of the parties
hereunder shall be in writing and shall be deemed to have been sufficiently
given for all purposes when presented personally to such party, sent by
telecopier (with the original timely mailed), or sent by registered, certified
or express mail, return receipt requested, to such party at its address set
forth below:
If to the Company, to: With a copy to:
Zylab International, Inc. Xxxxxx X. Xxxxx, Esq.
00000 Xxxxxxxxxxx Xxxx Xxxxx & Xxxxx, X.X.
Suite 000 0000-X Xxxxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000 XxXxxx, Xxxxxxxx 00000
Attn: Xxxx Xxxxxx Telecopier No.: (000) 000-0000
Telecopier No.: (000) 000-0000
If to the Payee, to: With a copy to:
Xxxxxx X. Xxxx, Chief Financial Officer Xxxxx X. Xxxxxxxx, Esq.
Authentidate Holding Corp. Xxxxxxxxx & XxXxxxx, LLP
0000 Xxxxxxxxxx Xxxxx 000 Xxxxxxxxx Xxxxxx-00xx Xxxxx
Xxxxxxxxxxx, XX 00000 Xxx Xxxx, XX 00000
Telecopier: (000) 000-0000 Telecopier No.: (000) 000-0000
or hereafter given to the other party hereto pursuant to the provisions of this
Note.
11.7 The Company may not delegate its obligations under this
Note and such attempted delegations shall be null and void. The Holder may
assign, pledge or otherwise transfer this Note without prior written consent of
the Company. This Note inures to the benefit of Payee, its successors and its
assignee of this Note and binds the Company, and its successors and assigns, and
the terms "Payee" and "the Company" whenever occurring herein shall be deemed
and construed to include such respective successors and assigns.
11.8 This Note shall continue to be effective or be
reinstated, as the case may be, if at any time any payment made pursuant to it
is rescinded or must otherwise be returned by the Holder upon bankruptcy or
reorganization or otherwise of the Company, all as though such payment had not
been made.
11.9 THE COMPANY AND THE HOLDER EACH (I) AGREES THAT ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE SHALL BE INSTITUTED
EXCLUSIVELY IN THE APPROPRIATE STATE COURT, COUNTY OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, (II) WAIVES ANY
OBJECTION WHICH THE COMPANY MAY HAVE NOW OR HEREAFTER BASED UPON FORUM NON
CONVENIENS OR TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND (III)
IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE STATE COURT, COUNTY OF NEW YORK,
NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK IN ANY SUCH SUIT,
13
ACTION OR PROCEEDING. THE COMPANY AND THE HOLDER EACH FURTHER AGREES TO ACCEPT
AND ACKNOWLEDGE SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING IN THE STATE COURT, COUNTY OF NEW YORK OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND AGREES
THAT SERVICE OF PROCESS UPON THE COMPANY OR THE HOLDER, MAILED BY CERTIFIED MAIL
TO THEIR RESPECTIVE ADDRESSES, SUCH SERVICE TO BECOME EFFECTIVE THREE BUSINESS
DAYS AFTER SUCH MAILING, WILL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE COMPANY OR THE HOLDER, AS THE CASE MAY BE, IN ANY SUIT, ACTION
OR PROCEEDING. FURTHER, BOTH THE COMPANY AND THE HOLDER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION TO ENFORCE THIS NOTE AND IN CONNECTION WITH ANY DEFENSE,
COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH ACTION.
11.10 This Note is exchangeable, without expense, upon the
surrender hereof by the Holder at the principal executive office of the Company,
for two or more new Notes of like tenor and date (except for the principal
amounts thereof) representing in the aggregate the same principal amount as this
Note, in such denominations as shall be designated by the Holder thereof at the
time of such surrender, provided that such new Notes shall be issuable in
minimum denominations of $10,000 and integral multiples thereof.
11.11 This Note shall be construed in accordance with and
governed by the laws of the State of New York without regard to principles of
conflicts of law, and cannot be changed, discharged or terminated orally but
only by an instrument in writing signed by the party against whom enforcement of
any change, discharge or termination is sought.
11.12 Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Note,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Note, if
mutilated, the Company will make and deliver a new Note of like date and tenor,
in lieu hereof.
11.13. Payor may not delegate its obligations under this Note
and such attempted delegations shall be null and void. The Payor may assign,
pledge or otherwise transfer this Note without prior written consent of Payor.
This Note inures to the benefit of Payee, its successors and its assignee of
this Note and binds Payor, and its successors and assigns, and the term
"Payee"whenever occurring herein shall be deemed and construed to include such
respective successors and assigns.
11.14. The obligations to make the payments provided for in
this Note are absolute and unconditional and not subject to any defense,
set-off, counterclaim, rescission, recoupment or adjustment whatsoever. No
provision of this Note shall alter or impair the obligations of the Payor
hereby.
11.15. No forbearance, indulgence, delay or failure to
exercise any right or remedy with respect to this Note shall operate as a waiver
or as an acquiescence in any Event of Default, nor
14
shall any single or partial exercise of any right or remedy preclude any other
or further exercise thereof or the exercise of any other right or remedy.
PAYOR:
ZYLAB INTERNATIONAL, INC.
By:______________________________
Xxxxxxxx Xxxxxx, President
15
EXHIBIT 1
NOTICE OF CONVERSION
OF CONVERTIBLE NOTE
TO: [______________________]
(A) Pursuant to the terms of the attached
Convertible Note (the "Note"), the
undersigned hereby elects to convert $
principal amount of the Note into shares of
Common Stock of Zylab International, Inc.
(the "Maker"). Capitalized terms used herein
and not otherwise defined herein have the
respective meanings provided in the Note.
(B) Please issue a certificate or certificates
for the number of shares of Common Stock
into which such principal amount of the Note
is convertible in the name(s) specified
immediately below or, if additional space is
necessary, on an attachment hereto:
---------------------- -------------------------
Name Name
---------------------- -------------------------
Address Address
---------------------- -------------------------
SS or Tax ID Number SS or Tax ID Number
(C) In the event of partial exercise, please
reissue an appropriate Note(s) for the
balance that shall not have been converted.
(D) The undersigned represents and warrants that
(i) all of the requirements of the
Securities Act of 1933, as amended (the
"ACT"), applicable to the undersigned have
been complied with by the undersigned and
(ii) the undersigned has not engaged in any
transaction or series of transactions that
is a part of or a plan or scheme to evade
the registration requirements of the Act.
---------------- ---------------------------
Date Signature of Registered Holder
(Must be signed exactly as name
appears in the Note. The
signature must be notarized.)
16
