Exhibit 4.1
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING,
THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
No. [ ]
$[ ]
Date: [ ]
ONSTREAM MEDIA CORPORATION
8.0% SUBORDINATED SECURED CONVERTIBLE NOTE DUE ____
THIS NOTE
is one of a series of duly authorized and issued Notes of
Onstream Media Corporation, a Florida corporation (the "Company"),
designated as
its 8.0% Subordinated Secured Convertible Notes due 2008, in the
aggregate
principal amount of up to 2.5 Million with $1,000,000
over-allotment (the
"Notes"), subject to increase pursuant to the terms of a certain
Additional
Investment Right of even date herewith.
FOR VALUE
RECEIVED, the Company promises to pay to the order of [Holder]
or its registered assigns (the "Holder"), the principal sum of
[__________]
$(________), on [_____________] (the "Maturity Date"), or such
earlier date as
the Notes are required or permitted to be repaid as provided
hereunder, and to
pay interest to the Holder on the unconverted and then outstanding
principal
amount of this Note in accordance with the provisions hereof.
Notwithstanding
the foregoing, the Company hereby unconditionally promises to pay
to the order
of the Holder interest on any principal or interest payable
hereunder that shall
not be paid in full when due, whether at the time of any stated
interest payment
date or maturity or by prepayment, acceleration or declaration or
otherwise, for
the period from and including the due date of such payment to but
excluding the
date the same is paid in full, at a rate of 18% per annum (but in
no event in
excess of the maximum rate permitted under applicable law).
Interest
payable under this Note shall be computed on the basis of a
year
of 360 days and actual days elapsed (including the first day but
excluding the
last day) occurring in the period for which interest is
payable.
<PAGE>
Payments
of principal and interest shall be made in lawful money of the
United States of America to the Holder at its address as provided
in Section 14
or by wire transfer to such account specified from time to time by
the Holder
hereof for such purpose as provided in Section 14.
The holder
of this Note is entitled to the benefits of the Security
Agreement.
1.
Definitions. In addition to the terms defined elsewhere in this
Note,
the following terms have the meanings indicated:
"Company Prepayment Price" for any Notes which shall be subject
to
prepayment
pursuant to Section 8(a), shall equal the sum of: (i) 115% of
the
principal amount of Notes to be prepaid, plus all accrued and
unpaid
interest
thereon, and (ii) all other amounts, costs, expenses and
liquidated
damages due in respect of such Notes.
"Conversion Date" means the date a Conversion Notice is delivered
to
the
Company together with the Conversion Schedule pursuant to
Section
6(a).
"Conversion Notice" means a written notice in the form attached
hereto as
Schedule 1.
"Conversion Price" means $1.00, subject to adjustment from time
to
time
pursuant to Section 12.
"Equity Conditions" means, with respect to a specified issuance
of
Common
Stock, that each of the following conditions is satisfied: (i)
the
number of
authorized but unissued and otherwise unreserved shares of
Common
Stock is sufficient for such issuance; (ii) such shares of
Common
Stock are
registered for resale by the Holder and may be sold by the
Holders
pursuant to an effective Registration Statement covering the
Underlying
Shares or all such shares may be sold without volume
restrictions pursuant to Rule 144(k) under the Securities Act;
(iii) the
Common
Stock generally is listed or quoted (and is not suspended from
trading)
on an Eligible Market and such shares of Common Stock are
approved
for listing upon issuance; (iv) such issuance would be
permitted
in full
without violating Section 6(c) hereof or the rules or
regulations
of any
Trading Market; (v) no Bankruptcy Event has occurred; (vi) the
Company is
not in default with respect to any material obligation
hereunder
or under any other Transaction Document; and (vii) no public
announcement of a pending or proposed Change of Control transaction
has
occurred
that has not been consummated.
"Event Equity Value" means 115% of the average of the Closing
Prices
for the
five Trading Days preceding the date of delivery of the notice
requiring
payment of the Event Equity Value, provided that if the Company
does not
make such required payment (together with any other payments,
expenses
and liquidated damages then due and payable under the
Transaction
Documents)
when due or, in the event the Company disputes in good faith
the
occurrence of the Triggering Event pursuant to which such
notice
relates,
does not instead deposit such required payment (together with
such other
payments, expenses and liquidated damages then due) in escrow
with an
independent third-party escrow agent within five Trading Days
of
the date
such required payment is due, then the Event Equity Value shall
be 115% of
the greater of (a) the average of the Closing Prices for the
five
Trading Days preceding the date of delivery of the notice
requiring
payment of the Event
Equity Value and (b) the average of the Closing
Prices for
the five Trading Days preceding the date on which such required
payment
(together with such other payments, expenses and liquidated
damages)
is paid in full.
2
<PAGE>
"Original Issue Date" means the date of the first issuance of
any
Notes,
regardless of the number of transfers of any particular Note.
"Principal Payment Date" means any date on which payment of a
principal
amount of this Note shall be due and payable by the Company in
accordance
with Section 9.
"Triggering Event" means any of the following events: (a) the
Common
Stock is
not listed or quoted, or is suspended from trading, in each
case,
on an
Eligible Market for a period of 20 or more Trading Days (which
need
not be
consecutive Trading Days); (b) the Company fails for any reason
to
deliver a
certificate evidencing any Securities to a Purchaser within
five
Trading
Days after delivery of such certificate is required pursuant to
any
Transaction Document or the exercise or conversion rights of
the
Holders
pursuant to any Transaction Document are otherwise suspended
for
any
reason; (c) the Company fails to have available a sufficient number
of
authorized
but unissued and otherwise unreserved shares of Common Stock
available
to issue Underlying Shares upon any exercise of the Note; (d)
the
Company effects or publicly announces its intention to effect
any
exchange,
recapitalization or other transaction that effectively requires
or rewards
physical delivery of certificates evidencing the Common Stock;
(e) the
effectiveness of the Registration Statement lapses for any
reason
or the
Holder shall not be permitted to resell any Underlying Shares
under
the
Registration Statement, in either case, for 30 or more
consecutive
days in
any 12 month period or for more than twice any 12 month period;
(f) the
Company fails to make any cash payment required under the
Transaction Documents and such failure is not cured within five
days after
notice of
such default is first given to the Company by a Purchaser; or
(g) the
Company defaults in the timely performance of any other
obligation
under the
Transaction Documents and such default continues uncured for a
period of
20 days after the date on which notice of such default is first
given to
the Company by a Purchaser (it being understood that no prior
notice
need be given in the case of a default that cannot reasonably
be
cured
within 20 days).
3
<PAGE>
2.
Principal and Interest.
(a) The Company shall pay interest to the Holder on the
aggregate
unconverted and then outstanding principal amount of this Note at
the rate of
8.0% per annum, payable quarterly in arrears, except if such date
is not a
Trading Day, in which case such interest shall be payable on the
next succeeding
Trading Day (each, an "Interest Payment Date"). The first Interest
Payment Date
shall be one hundred eighty (180) days after the final closing of
the offering
and quarterly thereafter.
(b) Subject to the conditions and limitations set forth below,
the
Company may pay interest or principal on this Note in (i) cash or
(ii) shares of
Common Stock, subject to any limitations upon share issuances,
imposed by the
Nasdaq Stock Market. The Company must deliver written notice to the
Holder
indicating the manner in which it intends to pay interest and
principal at least
15 Trading Days prior to each Interest Payment Date or the
Principal Payment
Date, respectively, but the Company may indicate in any such notice
that the
election contained therein shall continue for subsequent Interest
Payment Dates
or Principal Payment Dates until revised. Failure to timely provide
such written
notice shall be deemed an election by the Company to pay the amount
of any
interest or principal in cash.
(c) Notwithstanding the foregoing, the Company may not pay
interest
or principal by issuing shares of Common Stock unless all of the
Equity
Conditions have been satisfied; provided, however, that prior to
the Effective
Date, the Company shall be permitted to pay the first interest
payment in shares
of unregistered Common Stock to the extent such shares will be
included in the
Registration Statement. If the Company is required to pay interest
in cash on
any Interest Payment Date but fails to do so, the Holder may (but
shall not be
required to) treat such interest as if it had been added to the
principal amount
of this Note as of such Interest Payment Date or accept any number
of shares of
Common Stock in lieu of such interest payment.
(d) In the event that the Company elects to pay interest on any
Interest Payment Date or Principal Payment Date in shares of Common
Stock, the
number of shares of Common Stock to be issued to each Holder as
such interest or
principal shall be (i) with respect to interest, determined by
dividing the
aggregate amount of interest then payable to such Holder by the
Market Price (as
defined below) as of the applicable Interest Payment Date, and
rounding up to
the nearest whole share, (ii) with respect to principal, determined
as set forth
in Section 9(c) hereof, and (iii) paid to such Holder in accordance
with Section
2(e) below. The term "Market Price" shall mean 85% of the
arithmetic average of
the VWAP for the 20 Trading Days prior to the applicable Interest
Payment Date
or Principal Payment Date, as the case may be (not including such
date).
(e) In the event that any interest or principal are paid in
Common
Stock, the Company shall on such Interest Payment Date or Principal
Payment Date
(i) issue and deliver to such Holder a certificate, registered in
the name of
the Holder or its designee, for the number of shares of Common
Stock to which
the Holder shall be entitled or (ii) at all times after the Holder
has notified
the Company that this clause (ii) shall apply, credit the number of
shares of
Common Stock to which the Holder shall be entitled to the Holder's
or its
designee's balance account with The Depository Trust Company
through its Deposit
Withdrawal Agent Commission System.
4
<PAGE>
3. Ranking
and Covenants.
(a) Except as set forth in Schedule 3.1(a) or as otherwise
permitted
on Schedule 3.1(a) (the "Existing Indebtedness"), no indebtedness
of the Company
is senior to this Note in right of payment, whether with respect to
interest,
damages or upon liquidation or dissolution or otherwise. Other than
the Existing
Indebtedness and any renewal, refinancing or replacement thereof
that does not
exceed the aggregate amount of the Existing Indebtedness and the
borrowing
availability under the related credit or loan agreements on the
date hereof, the
Company will not, and will not permit any Subsidiary 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 Notes,
other than
indebtedness secured by purchase money security interests (which
will be senior
only as to the underlying assets covered thereby) and indebtedness
under capital
lease obligations (which will be senior only as to the assets
covered thereby).
(b) Except as set forth on Schedule 3(b), so long as any Notes
are
outstanding, neither the Company nor any Subsidiary shall, directly
or
indirectly, (i) redeem, purchase or otherwise acquire any capital
stock or set
aside any monies for such a redemption, purchase or other
acquisition or (ii)
issue variable priced equity securities or variable priced equity
linked
securities.
(c) The Company covenants that it will at all times reserve and
keep
available out of its authorized but unissued and otherwise
unreserved Common
Stock, solely for the purpose of enabling it to issue Underlying
Shares as
required hereunder, the number of Underlying Shares which are then
issuable and
deliverable upon the conversion of (and otherwise in respect of)
this entire
Note (taking into account the adjustments set forth in Section 12
and
disregarding any limitations set forth in Section 6(b)), free from
preemptive
rights or any other contingent purchase rights of Persons other
than the Holder.
The Company covenants that all Underlying Shares so issuable and
deliverable
shall, upon issuance in accordance with the terms hereof, be duly
and validly
authorized and issued and fully paid and nonassessable.
(d) The Company covenants that it will not redeem, repurchase
or
otherwise acquire all or any portion of the Series A-10 Preferred
Stock or any
other preferred stock, common stock or other equity equivalent of
the Company,
on or prior to the earlier of (i) the Maturity Date hereof or (ii)
the date on
which all of the Notes shall have been converted into Common Stock,
without the
prior written consent of the holders of 51% of the aggregate
principal value of
the then outstanding Notes (the "Majority Holders").
5
<PAGE>
(e) The Holder acknowledges and agrees that the Debentures shall
be
subordinate to the Existing Indebtedness as set forth in a
subordination
agreement dated the date hereof.
4.
Registration of Notes. The Company shall register the Notes
upon
records to be maintained by the Company for that purpose (the "Note
Register")
in the name of each record holder thereof from time to time. The
Company may
deem and treat the registered Holder of this Note as the absolute
owner hereof
for the purpose of any conversion hereof or any payment of interest
or principal
hereon, and for all other purposes, absent actual notice to the
contrary.
5.
Registration of Transfers and Exchanges. The Company shall register
the
transfer of any portion of this Note in the Note Register upon
surrender of this
Note to the Company at its address for notice set forth herein.
Upon any such
registration or transfer, a new Note, in substantially the form of
this Note
(any such new Note, a "New Note"), evidencing the portion of this
Note so
transferred shall be issued to the transferee and a New Note
evidencing the
remaining portion of this Note not so transferred, if any, shall be
issued to
the transferring Holder. The acceptance of the New Note by the
transferee
thereof shall be deemed the acceptance by such transferee of all of
the rights
and obligations of a holder of a Note. This Note is exchangeable
for an equal
aggregate principal amount of Notes of different authorized
denominations, as
requested by the Holder surrendering the same. No service charge or
other fee
will be imposed in connection with any such registration of
transfer or
exchange.
6.
Conversion.
(a) At the Option of the Holder. All or any portion of this
Note
shall be convertible into shares of Common Stock (subject to the
limitations set
forth in Section 6(c)), at the option of the Holder, at any time
and from time
to time from and after the Original Issue Date. The number of
Underlying Shares
issuable upon any conversion hereunder shall equal the outstanding
principal
amount of this Note to be converted, plus the amount of any accrued
but unpaid
interest on this Note through the Conversion Date, divided by the
Conversion
Price on the Conversion Date. The Holder shall effect conversions
under this
Section 6(a) by delivering to the Company a Conversion Notice
together with a
schedule in the form of Schedule 2 attached hereto (the "Conversion
Schedule").
If the Holder is converting less than all of the principal amount
of this Note,
or if a conversion hereunder may not be effected in full due to the
application
of Section 6(c), the Company shall honor such conversion to the
extent
permissible hereunder and shall promptly deliver to the Holder a
Conversion
Schedule indicating the principal amount (and accrued interest)
which has not
been converted.
(b) Automatic Conversion. At any time following the Original
Issue
Date, the Company shall have the right to cause an amount (the
"Converted
Amount") of this Note then outstanding equal to the lesser of (A)
the principal
amount outstanding under this Note and (B) 20% of the product of
(x) the total
volume of Common Stock traded on the company's Trading Market for
the 30 day
period preceding the Automatic Conversion Date (as defined below),
(y) the
arithmetic average of the VWAP for such 30 day period and (z) the
quotient of
(I) the outstanding principal amount of this Note on the Automatic
Conversion
Date and (II) the outstanding principal amount of all of the Notes
issued
pursuant to the Transaction Documents on the Automatic Conversion
Date (such
amount being the Holder's "Pro Rata Amount"), to be automatically
converted into
fully paid non-assessable shares of Common Stock (such conversion,
an "Automatic
Conversion") at the Conversion Price (subject to the limitations
set forth in
Sections 6(c)), by delivery of a 10 day advance written notice (the
"Automatic
Conversion Notice") to the Holder.
6
<PAGE>
Notwithstanding anything to the contrary, the Company may not
cause
an Automatic Conversion unless each of the following conditions are
satisfied:
(A) as of the Automatic Conversion Date (as defined below), no
Triggering Event
has occurred (after giving effect to any addition to principal
under the Notes);
(B) each of the Equity Conditions are satisfied with respect to all
of the
Common Stock issuable on the Automatic Conversion Date; and (C) the
Closing
Price of the Common Stock on each of the 20 out of any 30
consecutive days
preceding the Automatic Conversion Notice is greater than $1.50 per
share (as
adjusted for stock splits, stock combinations or other similar
recapitalization
or event).
Upon an Automatic Conversion in accordance with the procedures
specified in this Section 6(b), and effective as of the close of
business on the
Automatic Conversion Date, the Converted Amount shall be converted
into fully
paid and non-assessable shares of Common Stock automatically
without the need
for any further action by the Holder. Upon the occurrence of such
Automatic
Conversion of the Converted Amount, there shall be (A) issued and
delivered to
the Holder a certificate or certificates for the number of shares
of Common
Stock into which this the Converted Amount was convertible on the
Automatic
Conversion Date or (B) at all times after the Holder has notified
the Company
that this clause (ii) shall apply, credited the number of shares of
Common Stock
to which the Holder shall be entitled to the Holder's or its
designee's balance
account with The Depository Trust Company through its Deposit
Withdrawal Agent
Commission System. For purposes of this Section 6(b), the
"Automatic Conversion
Date" shall mean the 10th day following the date on which the
Automatic
Conversion Notice is either: (x) delivered to the Holder by
personal delivery,
or (y) delivered to the Holder by facsimile transmission to the
facsimile
telephone number of such Holder appearing on the signature page to
the Purchase
Agreement (with confirmation of receipt), or (z) deposited with a
recognized
express courier for express delivery, fees prepaid, addressed to
such registered
holder at the address of such holder appearing on the signature
page to the
Purchase Agreement.
(c) Certain Conversion Restrictions.
Relating to the Number of Shares.
7
<PAGE>
(A) Subject to Section 6(c)(i)(B), the number of shares of
Common
Stock that may be acquired by a Holder upon any conversion of
Notes
(or
otherwise in respect hereof) shall be limited to the extent
necessary
to insure
that, following such conversion (or other issuance), the total
number of
shares of Common Stock then beneficially owned by such Holder
and its
Affiliates and any other Persons whose beneficial ownership of
Common
Stock would be aggregated with such Holder's for purposes of
Section
13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum
Percentage") of the total number of issued and outstanding shares
of
Common
Stock (including for such purpose the shares of Common Stock
issuable
upon such conversion). For such purposes, beneficial ownership
shall be
determined in accordance with Section 13(d) of the Exchange Act
and the
rules and regulations promulgated thereunder. Each delivery of
a
Conversion
Notice hereunder will constitute a representation by the
applicable
Holder that it has evaluated the limitations set forth in this
Section
6(c)(i)(A) and has determined that issuance of the full number
of
Underlying
Shares issuable in respect of such Conversion Notice does not
violate
the restrictions contained in this Section 6(c)(i)(A). If at
any
time the
limits in this Section 6(c) make this Note inconvertible in
whole
or in
part, the Company shall not by reason thereof be relieved of
its
obligation
to issue shares of Common Stock at any time or from time to
time
thereafter but prior to the Maturity Date upon conversion of
this
Note as
and when shares of Common Stock may be issued in compliance
with
such
restrictions.
(B) Trading Market Limitations. Notwithstanding anything
herein to
the contrary, if the Company has not obtained shareholder
approval
and if required by the applicable rules and regulations of the
Nasdaq
Stock Market (or any successor entity), then until such time as
shareholder approval is obtained or is not otherwise required,
this
Debenture
shall not be convertible into Conversion Shares beyond any such
limitation.
7.
Mechanics of Conversion.
(a) Upon conversion of this Note, the Company shall promptly (but
in
no event later than three Trading Days after the Conversion Date)
issue or cause
to be issued and cause to be delivered to or upon the written order
of the
Holder and in such name or names as the Holder may designate a
certificate for
the Underlying Shares issuable upon such conversion, free of
restrictive legends
unless a registration statement covering the
