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EXHIBIT 4.1
THIS DEBENTURE AND THE COMMON STOCK ("SHARES") ISSUABLE UPON CONVERSION OF THIS
DEBENTURE (COLLECTIVELY THE "SECURITIES") HAVE NOT BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC") UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF
ANY STATE UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED AND SOLD
PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S ("REGULATION S")
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN
REGULATION S) DURING THE RESTRICTED PERIOD, AND THEREAFTER ONLY IF THESE
SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS,
OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Debenture Certificate No. U.S. $
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U.S. TECHNOLOGIES INC.
4% CONVERTIBLE DEBENTURE DUE DECEMBER ___, 2001
FOR VALUE RECEIVED, U.S. Technologies Inc., a Delaware corporation
(the "Company"), promises to pay to __________ ("Purchaser"), or any subsequent
registered holder hereof (the "Holder"), the principal sum of U.S. Dollars (U.S.
$___________ ), together with interest on the principal sum outstanding at the
rate of four (4%) percent per annum, payable in U.S. Dollars, under the terms
and conditions set forth below. Accrual of interest on this Debenture shall
commence on the date hereof and shall continue to accrue until the Maturity Date
or if earlier, the Conversion Date, as those terms are defined below, as the
case may be. This Debenture is being issued pursuant to the Regulation S
Subscription Agreement between the Holder and the Company ("Subscription
Agreement"), and this Debenture is subject to all of the terms and conditions
thereof, all of which are hereby incorporated by reference.
SECTION 1. PAYMENT OF DEBENTURE. Subject to all of the terms and
conditions hereof, including the automatic conversion of the entire unconverted
principal amount at the Maturity Date as provided in Section 1 hereof, the
Company shall pay to the Holder the entire principal amount hereof and all
interest accrued thereon on December __, 2000 (the "Maturity Date"). All
interest or principal shall be paid to the person and at the address in whose
name this Debenture is registered on the records of the Company on the business
day immediately preceding the applicable payment date. As provided herein, the
principal and interest due hereunder may be converted into or redeemed for
shares of Common Stock, par value of $.02 per share, of the Company ("Shares"),
and such Shares shall be in the name of and forwarded to the person and
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at the address in whose name this Debenture is registered on the business day
immediately preceding the issuance date.
SECTION 2. SALE. TRANSFER OR EXCHANGE. This Debenture may be
transferred, exchanged or converted only in compliance with the Act, including
Regulation S and any applicable state securities laws. Any Holder of this
Debenture, by acceptance hereof, agrees to the representations, warranties and
covenants herein and in the Subscription Agreement. Prior to due presentment to
the Company for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly recorded on
the Company's records as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes.
SECTION 3. HOLDER CONVERSION.
A. Right to Convert; Conversion Rate. The Holder of this Debenture
shall be entitled to convert the entire principal amount of this Debenture at
any time during the period beginning forty-five (45) days after the date hereof
and prior to the Maturity Date into that number of Shares calculated in
accordance with the following formula:
Number of Shares issued upon Conversion = Principal (+ Interest, if
applicable)/Conversion Price, where
Principal = The Principal amount of the Debenture,
Interest = Principal x (N/365) x .04, where
N = the number of days between the date hereof and the Conversion Date
for the Debenture, and
Conversion Price = the lesser of (x) 100% of the average Closing Bid
Price, as that term is defined below, of the Shares for the fifteen (15)
trading days immediately preceding the date hereof, which price shall be US
$___ (the "Fixed Conversion Price") or (y) 65% of the average Closing Bid
Price, as that term is defined below, of the Shares for the fifteen (15)
trading days immediately preceding the day prior to the Conversion Date (the
"Variable Conversion Price"); provided that the Variable Conversion Price shall
not be available as a measure of conversion if the Holder, or any person acting
on behalf of the Holder, or any affiliate thereof, shall sell or short-sell any
shares of the Company's Common Stock within the fifteen (15) day period prior
to the Conversion Date; provided further that if the Holder requests conversion
and the average Closing Bid Price of the Shares for the fifteen (15) trading
days prior to the Conversion Date (the "Average Closing Bid Price") shall be
less than or equal to US $0.30, the Company may either (i) allow conversion
pursuant to the terms above in this Section 3.A.; or (ii) prepay to the Holder
an amount equal to the sum of (a) the unpaid principal amount of the Debenture
to be converted (the "Principal"), plus (b) the accrued and unpaid interest on
the unpaid amount of the Debenture to the date of payment, calculated in
accordance with the formula set forth above in this Section 3.A. (the
"Interest"), plus (c) the Return multiplied by the Principal, where the Return
(R) is calculated in accordance with the following formula:
R = d/1-d
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where d = the 35% discount to the Closing Bid Price, or 0.35.
For purposes hereof, the term "Closing Bid Price" shall mean the
closing bid price on the market as reported by the OTC Bulletin Board or
NASDAQ's National Market System or Small Capitalization System (NASDAQ) or
American Exchange Emerging Company Marketplace or if then traded on a different
national securities exchange, the closing sales price on the principal national
securities exchange on which it is so traded and if not available, the mean of
the daily high and low sales prices on such securities exchange on which it is
traded.
B. Mechanics of Conversion. In order to convert the Debenture into
Shares, the Holder shall (i) fax a copy of an executed notice of conversion
("Notice of Conversion") to the Company at the office of the Company, which
notice shall specify that the Debenture shall be converted and shall contain a
calculation of the number of Shares to be issued in connection with the
conversion, and (ii) surrender the original Debenture to a common courier for
delivery to the office of the Company; provided, however, that the Company
shall not be obligated to issue certificates evidencing the Shares issuable
upon such conversion unless either the original Debenture is delivered to the
Company, or the Holder notifies the Company that such Debenture has been lost,
stolen or destroyed and the Holder has complied with Section 3.D. below. Upon
receipt by the Company of a facsimile copy of a Notice of Conversion, the
Company shall immediately send, via facsimile, confirmation of receipt of the
Notice of Conversion to Holder which shall specify that the Notice of
Conversion has been received and the name of a contact person at the Company
whom the Holder should contact regarding information related to the conversion.
In the case of a dispute as to the calculation of the Conversion Price or any
other issues related thereto, the Company shall promptly issue the number of
Shares that are not disputed. The Company shall submit the disputed
calculations to its independent auditors within two (2) business days of
receipt of Holder's Notice of Conversion. The Company shall cause the auditors
to perform the calculations and notify the Company and Holder of the results no
later than five (5) business days from the time such accountant receives the
disputed calculations. The auditor's calculation shall be deemed conclusive
absent manifest error.
C. Interest. Upon receipt of the Notice of Conversion, the Company
shall, at its option, either pay all interest accrued on the Debenture through
the Conversion Date in U.S. Dollars, or shall issue Shares in full satisfaction
of the accrued interest. The number of Shares to be issued shall be determined
pursuant to the formula described in Section 3.A. The Company shall notify the
Holder of its decision within two (2) business days following its receipt of
the Notice of Conversion.
D. Lost or Stolen Debentures. Upon receipt by the Company of evidence
of the loss, theft, destruction or mutilation of this Debenture, and (in case
of loss, theft or destruction) indemnity or security reasonably satisfactory to
the Company, and upon surrender and cancellation of the Debenture, if
mutilated, the Company shall execute and deliver a new Debenture of like tenor
and date without charge to Holder.
E. Delivery of Shares upon Conversion. The transfer agent or the
Company (as applicable) shall, no later than the close of business on the fifth
(5th) business day after delivery
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to the Company of the Debenture to be converted (or after provision for
security or indemnification, if required), issue a certificate for the number
of Shares to which the Holder shall be entitled as aforesaid and surrender such
original certificate to a common courier for either overnight or (if delivery
is outside the United States, then two (2) day delivery) to the Holder at the
address of the Holder on the books of the Company.
F. No Fractional Shares. No fractional Shares shall be issued upon
conversion of this Debenture. If any conversion of the Debenture would create a
fractional share or a right to acquire a fractional share, such fractional
shares, on an aggregate basis, shall be disregarded and the number of Shares
issuable upon conversion shall be, on an aggregate basis, the next lower number
of whole shares.
G. Date of Conversion. The date on which conversion occurs (the
"Conversion Date") shall be deemed to be the date (utilizing Atlanta, Georgia
time) the Notice of Conversion is faxed to the Company, and, provided, that the
original Debenture is surrendered by depositing such Debenture with a common
courier, as provided above, and received by the Company within three (3)
business days from the Conversion Date. The person or persons entitled to
receive the Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Shares on the Conversion Date.
If the original Debenture is not received by the Company within three (3)
business days after the Conversion Date, the Notice of Conversion, at the
Company's option, may be declared null and void.
SECTION 4. AUTOMATIC CONVERSION. If the Debenture has not
been converted prior to the Maturity Date pursuant to Section 2 above, the
entire principal amount of the Debenture shall be automatically converted into
Shares on and as of such date. The number of Shares into which the Debenture
shall be converted shall be calculated in accordance with the formula in
Section 3.A. above as if the Maturity Date were the Conversion Date of the
Debenture. All interest accrued on the Debenture through the Maturity Date
shall be satisfied, at the Company's option, either through the issuance of
Shares pursuant to the formula set forth in Section 3.A. or by payment thereof
by the Company to the Holder in U.S. Dollars. The Company shall notify the
Holder of such election within two (2) business days after the Maturity Date.
The Company shall promptly deliver the Shares and, if applicable, the interest
payment, within five (5) business days following receipt of this Debenture from
the Holder.
SECTION 5. RESERVATION OF SHARES ISSUABLE UPON CONVERSION OR
REDEMPTION. The Company shall at all times reserve and keep available out of
its unissued Shares, solely for the purpose of effecting the conversion or
redemption of the entire principal amount of this Debenture, such number of its
Shares as shall from time to time be sufficient to effect the conversion or
redemption of this Debenture; and if at any time the number of authorized but
unissued Shares shall not be sufficient to effect the conversion or redemption
of this Debenture, the Company will immediately take such corporate action as
may be necessary to increase its authorized but unissued Shares to such number
of shares as shall be sufficient for such purpose. If such action shall not be
taken within sixty (60) days after notice from the Holder, then the Company
shall only at the option of the Holder deliver full payment in U.S. Dollars of
the
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outstanding principal amount of this Debenture and all accrued interest thereon
to the Holder within thirty (30) days following the expiration of such sixty
(60) day period; provided, however, that the Company, as soon as is practicable
following the issuance of the Debenture, shall deliver 2,500,000 shares of
Common Stock in escrow, to an escrow agent acceptable to the Company, and
further provided that, upon such delivery, the provisions of this section shall
be deemed satisfied if the shares issuable upon conversion shall be less than
or equal to 2,500,000.
SECTION 6. ADJUSTMENT TO CONVERSION PRICE.
A. Performance Adjustments to Original Fixed Conversion Price. In the
event that the Market Price of the Common Stock increases by more than thirty
percent (30%) above the original Fixed Conversion Price, the holders shall have
the right to receive in the form of an adjustment to the original Fixed
Conversion Price thirty percent (30%) of the amount in excess of thirty percent
(30%), and no more of such excess. In such event, the original Fixed Conversion
Price shall be adjusted to be:
C
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[0.3(C/F) + 0.7(1.3)]
Where: C = the average Closing Bid Price of the Common Stock at
the time of conversion; and
F = the original Fixed Conversion Price
B. Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If at any time when the Debenture is issued and outstanding, the
number of outstanding Shares is increased by a stock split, stock dividend, or
other similar event, the Fixed Conversion Price shall be proportionately
reduced, or if the number of outstanding Shares is decreased by a combination
or reclassification of shares, or other similar event, the Fixed Conversion
Price shall be proportionately increased.
C. Adjustment to Variable Conversion Price. If, at any time when the
Debenture is issued, the number of outstanding Shares is increased by a stock
split, stock dividend, or other similar event, which event shall have taken
place during the reference period for determination of the Conversion Price for
any conversion or redemption of the Debentures, then the Variable Conversion
Price shall be calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event for all five (5)
trading days immediately preceding the date prior to the Conversion Date, or
the Maturity Date, as the case may be.
D. Adjustment Due to Merger, Consolidation. Etc. If at any time when
the Debenture is issued, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result
of which Shares shall be changed into the same or a different number of shares
of another class or classes of stock or securities of the Company or another
entity or there is a sale of all or substantially all the Company's assets,
then the Holder shall thereafter have the right to receive upon conversion or
redemption of the Debenture, upon
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the basis and upon the terms and conditions specified herein and in lieu of the
Shares immediately theretofore issuable upon conversion or redemption, such
Common Stock, securities and/or other assets which the holder would have been
entitled to receive in such transaction had the Debenture been converted and
redeemed immediately prior to such transaction, and in such case appropriate
provisions shall be made with respect to the rights and interests of the
Holders to the end that the provisions hereof (including, without limitation
provisions for adjustment of the Conversion Price and of the number of Shares
issuable upon conversion or redemption of the Debenture) shall thereafter be
applicable, as nearly as may be practicable in relation to any securities
thereafter deliverable upon the exercise hereof. The Company shall not effect
any transaction described in this subsection 6.D. unless it first gives not
less than fifteen (15) days prior notice of such merger, consolidation,
exchange of shares, recapitalization, reorganization, or other similar event
(during which time the Holder shall be entitled to convert its Debentures into
Shares).
SECTION 7. EXERCISE. The Holder hereof acknowledges that the Debenture
has been issued pursuant to Regulation S promulgated under the Act and neither
the Debenture nor the Shares have been registered under the Act or under any
state securities law. This Debenture may not be exercised by or on behalf of
any U.S. Person unless the Shares are registered under the Act or an exemption
from such registration is available. As required by Regulation S, at the time
of any exercise hereof, the Holder must deliver to the Company a written
certification that the Holder is not a U.S. Person and the Debenture is not
being exercised on behalf of a U.S. Person, or a written opinion of counsel,
which opinion is satisfactory to the Company, to the effect that the Debenture
and the Shares delivered upon the exercise of the Debenture have been
registered under the Act or are exempt from registration thereunder.
This Debenture may not be exercised within the United States and the
Shares may not be delivered within the United States upon exercise, other than
in connection with offerings deemed to meet the definition of "Offshore
Transactions" pursuant to paragraph (i)(3) of Rule 902 of Regulation S, unless
registered under the Act or an exemption from such registration is available.
In this regard, as a condition of the issuance of Shares upon the conversion or
redemption of the Debenture, the Holder shall execute and deliver to the
Company such representations, warranties, and covenants, that may be required
by applicable federal and state securities law, or that the Company determines
is reasonably necessary in connection with the issuance of such Shares. In
addition, the certificates representing the Shares shall contain such legends,
or restrictive legends, or be subject to such stop transfer instructions, as
shall be required by applicable Federal or state securities laws, or as shall
be reasonably required by the Company or its transfer agent.
It is the intent of Holder that upon the conversion of the Debenture
by Holder pursuant to Section 3, the issuance of the Shares to Holder would be
pursuant to Regulation S. If on the Conversion Date the issuance of the Shares
by the Company to the Holder would have qualified under Regulation S as in
effect on the date hereof but does not qualify thereunder on such date because
of an amendment to Regulation S promulgated after the date hereof, the Company
shall use its best efforts to register the Shares under the Act for resale by
the Holder, unless with the good faith cooperation of Holder the Shares may be
issued to Holder in a transaction exempt
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from registration (e.g., pursuant to Section 4(2), Section 4(6) or Regulation
D). Such registration shall be at the cost and expense of the Company. Except
as specifically described in this paragraph, the Company shall have no
obligation whatsoever to register the Debentures or the Shares under the Act.
SECTION 8. NO VOTING RIGHTS. Except as specifically provided herein,
this Debenture shall not entitle the Holder hereof to any of the rights of a
stockholder of the Company, including without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company.
SECTION 9. STATUS OF CONVERTED DEBENTURES. Upon the first to occur of
the Conversion Date, or Maturity Date, as the case may be, this Debenture shall
no longer be deemed to be outstanding and all rights hereof, shall forthwith
terminate as of such date except only the right of the Holder hereof to receive
Shares in exchange for such Debenture and, if applicable, a cash payment of any
accrued interest.
SECTION 10. EVENTS OF DEFAULT. Upon the occurrence of and during the
continuation of an Event of Default (as defined below), the Company shall pay
to the Holder an amount equal to the sum of (x) the unpaid principal amount of
this Debenture plus (y) the accrued and unpaid interest on the unpaid principal
amount of this Debenture to the date of payment, and such amounts shall
immediately become due and payable, all without demand, presentment, or notice,
all of which hereby are expressly waived, together with all costs, including,
without limitation, reasonable legal fees and expenses of collection, and the
Holder shall be entitled to exercise all other rights and remedies available at
law or equity.
If the Company fails to pay any amounts due pursuant to this Section
10 within five (5) business days of such amounts being due and payable, then
the Holder shall have the right at any time, so long as the Company remains in
default, to require the Company, upon written notice, to immediately issue, in
lieu of such amounts, the number of Shares equal to the amounts owned divided
by the Conversion Price then in effect.
The Company shall be required promptly upon its knowledge of an Event
of Default hereunder to give notice of such Event of Default to the Holder
hereof.
An "Event of Default" shall mean the following:
A. Conversion. If the Company fails to issue Shares to Holder upon
conversion of this Debenture by the Holder in accordance with the terms of this
Debenture, fails to transfer any certificate for Shares issued to the Holder
upon conversion of this Debenture and when required by this Debenture or fails
to remove any restrictive legend on any certificate or any stop transfer order
on any Shares issued to the Holder upon conversion of this Debenture as and
when required in accordance with applicable law and by this Debenture or any
Subscription Agreement by and by and between Company and Holder, and any such
failure shall continue uncured for five (5) business days;
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B. Breach of Covenant. If the Company breaches any material term or
condition of this Debenture (other than as specifically provided in subsection
10.A. hereof), or the Subscription Agreement by and between Company and Holder
(including, subject to Section 5 hereof, the failure to have enough Shares
available for issuance upon conversion), and the breach of which would have a
material adverse effect on the Company or the prospects of the Company or a
material adverse effect on the Holder or the rights of the Holder with respect
to this Debenture or the Shares issuable upon conversion of this Debenture, and
such breach continues for a period of five (5) business days after written
notice thereof to the Company from the Holder;
C. Breach of Representations and Warranties. Any representation or
warranty of the Company made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, any Subscription Agreement by and between
Company and Holder), shall be false or misleading in any material respect when
made and the breach of which would have a material adverse effect on the
Company or the prospects of the Company or a material adverse effect on the
Holder or the rights of the Holder with respect to this Debenture or the Shares
issuable upon conversion of this Debenture.
D. Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceeding for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by the Company, or an involuntary
case is commenced against the Company and the petition is not dismissed within
sixty (60) days.
SECTION 11. GOVERNING LAW. This Debenture shall be governed by and
construed in accordance with the laws of the United States and the State of
Delaware without giving effect to the principles of conflicts of laws.
SECTION 12. BUSINESS DAY DEFINITION. For purposes hereof, the term
"business day" shall mean any day on which banks are generally open for
business in the State of Delaware, USA excluding any Saturday and Sunday.
SECTION 13. NOTICES. Any notices or other communication required or
permitted to be given hereunder shall be given as provided herein or delivered
against receipt, if to (i) the Company at 3901 Roswell Road, Suite 300,
Marietta, Georgia 30062, Attn: Kenneth H. Smith, President and Chief Executive
Officer, Telephone No. (770) 565-4311, Telecopy No. (770) 565-8815; or (ii) the
Holder of this Debenture, to such holder at _____________ (or to such other
address as the party shall have furnished in writing as its new address in
accordance with the provisions of this Section 13). Any notice or other
communication may be made by facsimile and delivery shall be deemed given,
except as otherwise required herein, at the time of transmission of said
facsimile. Any notice given on a day that is not a business day shall be
effective upon the next business day.
SECTION 14. WAIVER OF ANY BREACH TO BE IN WRITING. Any waiver by the
Company or the Holder hereof of a breach of any provision of the Debenture
shall not operate as, or be construed to be a waiver of any breach of such
provision or any breach of any other provision of the Debenture. The failure of
the Company or the Holder hereof to insist upon strict
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adherence to any term of the 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 term of the Debenture. Any waiver
must be in writing.
SECTION 15. UNENFORCEABLE PROVISIONS. 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 applicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons and
circumstances.
SECTION 16. WITHHOLDING. Company shall be entitled to withhold all
payments of principal and interest on this Debenture for any amounts required
to be withheld under the applicable provisions of the Internal Revenue Code of
the United States of America, or other applicable laws, at the time of such
payments. Holder shall, prior to any transfer hereof, deliver to the Company, a
fully completed Form W-8 for such transferee if required under applicable law.
The Holder shall pay any other taxes, charges or levies in connection with the
issuance and transfer thereof.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by an officer hereunto duly authorized.
U.S. TECHNOLOGIES INC.
Dated: January __, 1998 By:
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Title:
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