Exhibit 10.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY
ACCEPTABLE TO THE BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT.
CONVERTIBLE DEBENTURE
Hackensack, New Jersey
September 5, 1997 $_________
FOR VALUE RECEIVED, IDT CORPORATION, a Delaware corporation
(hereinafter called the "Borrower") hereby promises to pay to the order of
______________________________ or registered assigns (the "Holder") the sum
of ____________________ Dollars ($____________), on September 5, 2000, and to
pay interest on the unpaid principal balance hereof at the rate of three
percent (3%) per annum from September 5, 1997 (the "Issue Date") until the
same becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal of or interest on this
Debenture which is not paid when due shall bear interest at the rate of ten
percent (10%) per annum from the due date thereof until the same is paid
("Default Interest"). Interest shall commence accruing on September 5, 1997,
shall be computed on the basis of a 365-day year and the actual number of
days elapsed and shall be payable at the time of optional or automatic
conversion of the principal to which such interest relates in accordance with
Article I below. All payments of principal and accrued interest (to the
extent not converted into common stock, par value $.01 per share, of the
Borrower (the "Common Stock") in accordance with the terms hereof) shall be
made in lawful money of the United States of America. All payments shall be
made at such address as the Holder shall hereafter give to the Borrower by
written notice made in accordance with the provisions of
this Debenture. Whenever any amount expressed to be due by the terms of
this Debenture is due on any day which is not a business day, the same shall
instead be due on the next succeeding day which is a business day and, in the
case of any interest payment date which is not the date on which this Debenture
is paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date. As
used in this Debenture, the term "business day" shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of New York, New
York are authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement, dated September
5, 1997, pursuant to which this Debenture was originally issued (the "Purchase
Agreement"). The Automatic Conversion Date is subject to extension pursuant to
Section 1.4 below.
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right.
The Holder shall have the right from time to time, and at any time
on or after the earliest of (i) ninety (90) days from the Issue Date, (ii) the
occurrence of an event described in Section 1.6, or (iii) the effective date of
registration statement to be filed pursuant to that certain Registration Rights
Agreement, dated as of September 5, 1997, executed in connection with the
initial issuance of this Debenture and the other Debentures issued on the Issue
Date (the "Registration Rights Agreement") and prior to the day that all of the
principal, accrued interest and other amounts payable hereunder are paid in
full, to convert at any time all or from time to time any part of the
outstanding and unpaid principal amount of this Debenture of at least $50,000,
or such lesser amount as shall remain unpaid at the time of the conversion
(together with accrued interest thereon, into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the date of issuance of
this Debenture, or any shares of capital stock of Borrower into which such
Common Stock shall hereafter be changed or reclassified (the "Common Stock") at
the conversion price determined as provided herein (the "Conversion Price");
provided, however, that unless the Holder delivers a waiver in accordance with
the immediately following sentence, in no event (other than in connection with
an Automatic Conversion (as defined in Section 1.4 below) on the Automatic
Conversion Date (as defined in Section 1.4 below)) shall the Holder be entitled
to convert any portion of this Debenture in excess of that portion of this
Debenture upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of this Debenture) and (2) the number of shares of Common
Stock
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issuable upon the conversion of the portion of this Debenture with respect
to which the determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the first proviso to the
immediately preceding sentence, (i) beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such proviso and (ii) the Holder may waive the limitations set
forth therein by written notice to the Borrower upon not less than sixty-one
(61) days prior notice (with such waiver taking effect only upon the expiration
of such 61 day notice period). The number of shares of Common Stock to be issued
upon each conversion of this Debenture shall be determined by dividing the
Conversion Amount (as defined below) by the Conversion Price in effect on the
date a notice of conversion, in the form attached hereto as Exhibit A (the
"Notice of Conversion"), is delivered to the Borrower by the Holder in
accordance with Section 1.4 below (the "Conversion Date"). The term "Conversion
Amount" means, with respect to any conversion of this Debenture, the sum of (1)
the principal amount of this Debenture to be converted in such conversion plus
(2) accrued and unpaid interest, if any, on such principal amount at the
interest rates provided in this Debenture to the Conversion Date plus (3)
Default Interest, if any, on the interest referred to in the immediately
preceding clause (2) plus (4) at the Holder's option, any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement.
1.2 Conversion Price. The Conversion Price shall be the lesser of
(i) the Market Price, where the Market Price means the Low Closing Bid Price (as
defined below) of the Common Stock on Nasdaq National Market ("Nasdaq"), or on
the principal securities exchange or other securities market on which the Common
Stock is then being traded, for any one Trading Day during the twelve (12)
consecutive Trading Day period ending one Trading Day prior to the date the
Conversion Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date"), and (ii) $15.16 (subject, in each case, to equitable
adjustments for stock splits, stock dividends or rights offerings by the
Borrower relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). "Low Closing Bid Price" means,
for any security as of any date, the lowest closing bid price on Nasdaq as
reported by Bloomberg, L.P. ("Bloomberg") or, if Nasdaq is not the principal
trading market for such security, the lowest closing bid price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
lowest closing bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
lowest trading price is reported for such security by Bloomberg, then the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Low Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Low Closing Bid Price of such security on such date shall
be the fair market value as
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mutually determined by the Borrower and the Holders of a majority in
interest of Debentures being converted for which the calculation of the closing
bid price is required in order to determine the Conversion Price of such
Debentures. "Trading Day" shall mean any day on which the Common Stock is traded
for any period on Nasdaq, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded.
1.3 Authorized Shares. The Borrower covenants that during the period
the conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the full conversion of this Debenture and the other
Debentures issued on the Issue Date. As of the date of issuance of this
Debenture, 1,363,367 authorized and unissued shares of Common Stock have been
duly reserved for issuance upon conversion of this Debenture and the other
Debentures issued on the Issue Date (the "Reserved Amount"). The Borrower
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable. The Borrower (i) acknowledges that it has
irrevocably instructed its transfer agent to issue certificates for the Common
Stock issuable upon conversion of this Debenture and (ii) agrees that its
issuance of this Debenture shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates to execute
and issue the necessary certificates for shares of Common Stock in accordance
with the terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of
Conversion, the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article I (a "Conversion Default"), subject to Section
5.8, the Borrower shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of this
Debenture which the Holder included in its Conversion Notice and which
exceeds the amount which is then convertible into available shares of Common
Stock (the "Excess Amount") shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the Holder's option at any time after) the date
additional shares of Common Stock are authorized by the Borrower, at which
time the Conversion Price in respect thereof shall be the lower of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii)
the Conversion Price on the Conversion Date thereafter elected by the Holder
in respect thereof. The Borrower shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount of
(N/365) x .24 x the Excess Amount on the Conversion Date in respect of the
Conversion Default (the "Conversion Default Date"), where N = the number of
days from the Conversion Default Date to the date (the "Authorization Date")
that the Borrower authorizes a sufficient number of shares of Common Stock to
effect conversion of the full outstanding principal balance of this
Debenture. The Borrower shall use its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable following the earlier
of (i) such time that the Holder notifies the Borrower or that the Borrower
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otherwise becomes aware that there are or likely will be insufficient
authorized and unissued shares to allow full conversion thereof and (ii) a
Conversion Default. The Borrower shall send notice to the Holder of the
authorization of additional shares of Common Stock, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash or
shall be convertible into Common Stock (at such time as there are sufficient
authorized shares of Common Stock) at the Market Price, at the Holder's
option, as follows:
(a) In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event Holder elects to take such payment in Common
Stock, the Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of conversion) at any time after the
fifth day of the month following the month in which it has accrued (at such time
as there are sufficient authorized shares of Common Stock) in accordance with
the terms of this Article I.
The Holder's election shall be made in writing to the Borrower at
any time prior to 9:00 p.m., New York City Time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) due to the Borrower's
failure to maintain a sufficient number of authorized shares of Common Stock.
1.4 Method of Conversion.
(a) Subject to Section 1.1, this Debenture may be converted by
the Holder in whole or in part (provided such partial conversion is at least
$50,000, or such lesser amount as shall remain unpaid at the time of the
conversion (together with accrued and unpaid interest thereon)) at any time from
time to time after the Issue Date, by (A) submitting to the Borrower a Notice of
Conversion (by facsimile or other reasonable means of communication dispatched
on the Conversion Date prior to 11:00 p.m., New York City Time) and (B) subject
to Section 1.4(b), surrendering this Debenture at the principal office of the
Borrower. So long as the registration statement filed pursuant to Section 2(a)
of the Registration Rights Agreement (the "Registration Statement") is effective
(or the Common Stock issuable upon conversion hereof may otherwise be resold
publicly without restriction) and there is not then a continuing Event of
Default, each Debenture issued and outstanding on September 5, 2000 (the
"Automatic Conversion Date"), automatically shall be converted into shares of
Common Stock on such date at the then effective Conversion Price in accordance
with, and subject to, the provisions of this Article I (the "Automatic
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Conversion"). The Automatic Conversion Date shall be the Conversion Date for
purposes of determining the Conversion Price and the time within which
certificates representing the Common Stock must be delivered to the holder.
Notwithstanding anything to the contrary contained herein, the Automatic
Conversion Date shall be extended for the aggregate number of days comprising
any Allowed Delays under the Registration Rights Agreement.
(b) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Debenture in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Debenture to the
Borrower unless the entire unpaid principal amount of this Debenture is so
converted. The Holder and the Borrower shall maintain records showing the
principal amount so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Borrower, so as
not to require physical surrender of this Debenture upon each such conversion.
In the event of any dispute or discrepancy, such records of the Borrower shall
be controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Debenture is converted as
aforesaid, the Holder may not transfer this Debenture unless the Holder first
physically surrenders this Debenture to the Borrower, whereupon the Borrower
will forthwith issue and deliver upon the order of the Holder a new note of like
tenor, registered as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the remaining unpaid
principal amount of this Debenture. The Holder and any assignee, by acceptance
of this Debenture, acknowledge and agree that, by reason of the provisions of
this paragraph, following conversion of a portion of this Debenture, the unpaid
and unconverted principal amount of this Debenture represented by this Debenture
may be less than the amount stated on the face hereof.
(c) The Borrower shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock or other securities or property on conversion of this
Debenture in a name other than that of the Holder (or in street name), and the
Borrower shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be held for the
Holder's account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
(d) Upon receipt by the Borrower from the Holder of a facsimile
transmission (or other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in this Section
1.4, the Borrower shall issue and deliver or cause to be issued and delivered to
the Holder certificates for the Common Stock issuable upon such conversion
within three (3) business days after such receipt (and, solely in the case of
conversion of the entire unpaid principal amount hereof,
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surrender of this Debenture) (such third business day being hereinafter
referred to as the "Deadline") in accordance with the terms hereof and the
Purchase Agreement (including, without limitation, in accordance with the
requirement that certificates for shares of Common Stock issued on or after the
effective date of the Registration Statement upon conversion of this Debenture
shall not bear any restrictive legend).
(e) Upon receipt by the Borrower of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common Stock issuable
upon such conversion, the outstanding principal amount and the amount of accrued
and unpaid interest on this Debenture shall be reduced to reflect such
conversion, and, unless the Borrower defaults on its obligations under this
Article I, all rights with respect to the portion of this Debenture being so
converted shall forthwith terminate except the right to receive the Common Stock
or other securities, cash or other assets, as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion as provided
herein, the Borrower's obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of the absence of
any action by the Holder to enforce the same, any waiver or consent with respect
to any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Borrower to the holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any other
circumstance which might otherwise limit such obligation of the Borrower to the
Holder in connection with such conversion. The date of receipt of such Notice of
Conversion shall be the Conversion Date so long as it is received before 11:00
p.m., New York City Time, on such date.
(f) In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Borrower's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the Holder and its compliance with
the provisions contained in Section 1.1 and in this Section 1.4, the Borrower
shall use its best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Holder by crediting
the account of Holder's Prime Broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system.
(g) Without in any way limiting the Holder's right to pursue
other remedies, including actual damages and/or equitable relief, the parties
agree that if delivery of the Common Stock issuable upon conversion of this
Debenture is more than one (1) business day after the Deadline (other than a
failure due to the circumstances described in Section 1.3 above, which failure
shall be governed by such Section) the Borrower shall pay to the Holder $500 per
day in cash, for each of the first two (2) days beyond the Deadline and $2,500
per day in cash for each day thereafter that the Borrower fails to deliver such
Common Stock. Such cash amount shall be paid to Holder by the fifth day of the
month
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following the month in which it has accrued or, at the option of the Holder
(by written notice to the Borrower by the first day of the month following
the month in which it has accrued), shall be added to the principal amount
of this Debenture, in which event interest shall accrue thereon in accordance
with the terms of this Debenture and such additional principal amount shall
be convertible into Common Stock in accordance with the terms of this
Debenture.
1.5 Concerning the Shares. The shares of Common Stock issuable upon
conversion of this Debenture may not be sold or transferred unless either (i)
such shares shall have been included in an effective registration statement
under the Act or (ii) the Borrower or its transfer agent shall have been
furnished with an opinion or other similar letter of legal counsel to the effect
that such sale or transfer is exempt from the registration requirements of the
Act or (iii) such shares are sold pursuant to Rule 144 under the Act (or a
successor rule). Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), each certificate for shares
of Common Stock issuable upon conversion of this Debenture that has not been so
included in an effective registration statement or that has not been sold
pursuant to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the following form,
as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY
ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT."
The legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any transfer legend if
(i) the Borrower or its transfer agent shall have received an opinion or other
similar letter of counsel, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and any applicable
state securities laws and the shares are so sold or transferred, or that the
Common Stock issuable upon conversion of this Debenture (to the extent such
securities are deemed to have been acquired on the same date) can be sold
pursuant to Rule 144 (or a successor rule thereto) without any restriction as to
the number of shares of Common Stock acquired as of a particular date that can
then be immediately sold or (ii) in the case of the Common Stock issuable upon
conversion of this Debenture, a registration statement under the Act covering
such securities is in effect. Nothing in this Debenture shall (i) limit the
Borrower's obligation under the Registration Rights Agreement or (ii) affect in
8
any way the Holder's obligations to comply with applicable prospectus delivery
requirements upon the resale of the securities referred to herein.
1.6 Effect of Certain Events.
(a) If, at any time when this Debenture is issued and
outstanding, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Debenture
shall thereafter have the right to receive upon conversion of this Debenture,
upon the bases and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore issuable upon conversion,
such stock, securities or assets which the Holder would have been entitled to
receive in such transaction had this Debenture been converted immediately prior
to such transaction, and in any such case appropriate provisions shall be made
with respect to the rights and interests of the Holder of this Debenture 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 of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the exercise hereof. The Borrower shall not effect any transaction described in
this Section 1.6 unless (a) it first gives, to the extent practicable, thirty
(30) days prior written notice (but in any event at least fifteen (15) days
prior written notice) of the record date of the special meeting of stockholders
to approve, or if there is no such record date, the consummation of, such
merger, consolidation, exchange of shares, recapitalization, reorganization or
other similar event or sale of assets (during which time the Holder shall be
entitled to convert this Debenture) and (b) the resulting successor or acquiring
entity (if not the Borrower) assumes by written instrument the obligations of
this Section 1.6(a). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(b) If the Borrower shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or otherwise (including
any dividend or distribution to the Borrower's shareholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off) (a "Distribution")), the Holder of this Debenture shall be entitled,
upon any conversion of this Debenture after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the Holder with respect to the shares of Common
Stock issuable upon such conversion had such Holder been the holder of such
shares of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
9
(c) If, at any time when any Debentures are issued and
outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the "Purchase Rights")
pro rata to the record holders of any class of Common Stock, then the Holder of
this Debenture will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Debenture (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
(d) Upon the occurrence of each adjustment or readjustment of the
Conversion Price as a result of the events described in this Section 1.6, the
Borrower, at its expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to the Holder of a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Borrower shall, upon the written
request at any time of the Holder, furnish to such Holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at
the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of the Debenture.
1.7 Certain Payments in Lieu of Conversion. In no event shall the
Borrower issue more than the Maximum Share Amount (as defined below and subject
to adjustment as provided herein) upon conversion of this Debenture, unless the
Borrower shall have obtained Stockholder Approval (as defined below) or a waiver
of such requirement by the Nasdaq Stock Market. As used herein, Stockholder
Approval means approval by the stockholders of the Borrower in accordance with
Rule 4460(i) of the rules of the Nasdaq Stock Market. Once the Maximum Share
Amount has been issued (the date of which is hereinafter referred to as the
"Maximum Conversion Date"), unless the Borrower shall have obtained Stockholder
Approval or a waiver of such requirement by the Nasdaq Stock Market, in lieu of
any further right to convert this Debenture, and in full satisfaction of the
Borrower's obligations under this Debenture, the Borrower shall pay to the
Holder, within fifteen (15) business days of the Maximum Conversion Date, an
amount equal to the greater of (i) 130% times the sum of (a) the then
outstanding principal amount of this Debenture immediately following the Maximum
Conversion Date plus (b) accrued and unpaid interest on such principal amount
plus (c) accrued and unpaid Default Interest, if any, on the amount referred to
in the immediately preceding clause (b) at the rate provided in this Debenture
plus (d) any optional amounts that may be added thereto at the Maximum
Conversion Date by the Holder in accordance with the terms hereof (the then
outstanding principal amount of this Debenture immediately following the Maximum
Conversion Date plus the amounts referred to in clauses (b), (c) and (d) above
shall collectively be referred to as the "Remaining
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Convertible Amount"), or (ii) the Remaining Convertible Amount divided by
the Conversion Price (based on the twelve (12) consecutive Trading Days ending
on the Trading Day which is one (1) Trading Day prior to the date of payment)
multiplied by the Closing Price of the Common Stock on the Trading Day
immediately preceding the date of payment. The Maximum Share Amount shall mean
an aggregate of 4,360,077 shares of Common Stock (19.99% of the Borrower's
outstanding shares of Common Stock and Class A Common Stock, par value $.01 per
share, as of September 5, 1997), subject to equitable adjustment from time to
time for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the date hereof.
With respect to each Holder of Debentures, the Maximum Share Amount shall refer
to such Holder's pro rata share thereof determined in accordance with Section
5.8 below. In the event that Borrower obtains Stockholder Approval, the approval
of the Nasdaq Stock Market or otherwise concludes that it is able to increase
the number of shares to be issued above the Maximum Share Amount (such increased
number being the "New Maximum Share Amount"), the references to Maximum Share
Amount, above, shall be deemed to be, instead, references to the greater New
Maximum Share Amount. In the event that Stockholder Approval is not obtained or
a registration statement covering the additional shares of Common Stock which
constitute the New Maximum Share Amount is not effective prior to the Maximum
Share Amount being issued (if such registration statement is necessary to allow
for the public resale of such securities), the Maximum Share Amount shall remain
unchanged; provided, however, that the Holder may grant an extension of the
effective date of such registration statement. In the event that (a) the
aggregate number of shares of Common Stock issued pursuant to this Debenture and
the other Debentures issued on the Issue Date represents at least fifty percent
(50%) of the Maximum Share Amount and (b) the sum of (x) the aggregate number of
shares of Common Stock issued pursuant to this Debenture and the other
Debentures issued on the Issue Date plus (y) the aggregate number of shares of
Common Stock that remain issuable pursuant to this Debenture and the other
Debentures issued on the Issue Date, represents at least one hundred percent
(100%) of the Maximum Share Amount (the "Triggering Event"), the Borrower will
use its best efforts to seek and obtain Stockholder Approval (or obtain such
other relief as will allow conversions hereunder in excess of the Maximum Share
Amount) as soon as practicable following the Triggering Event and before the
Maximum Conversion Date.
1.8 Status as Stockholder. Upon submission of a Notice of Conversion
by a Holder, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such Holder's
allocated portion of the Reserved Amount) shall be deemed converted into shares
of Common Stock and (ii) the Holder's rights as a Holder of such converted
portion of this Debenture shall cease and terminate, excepting only the right to
receive certificates for such shares of Common Stock and to any remedies
provided herein or otherwise available at law or in equity to such Holder
because of a failure by the Borrower to comply with the terms of this Debenture.
Notwithstanding the foregoing, if a Holder has not received certificates for all
shares of Common Stock prior to
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the tenth (10th) business day after the expiration of the Deadline with
respect to a conversion of any portion of this Debenture for any reason, then
(unless the Holder otherwise elects to retain its status as a holder of Common
Stock by so notifying the Borrower), the Holder shall regain the rights of a
Holder of this Debenture with respect to such unconverted portions of this
Debenture and the Borrower shall, as soon as practicable, return such
unconverted Debenture to the holder or, if the Debenture has not been
surrendered, adjust its records to reflect that such portion of this Debenture
has not been converted. In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Section 1.3) for the Borrower's failure to convert this
Debenture.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the aggregate
principal amount of the Debentures outstanding is greater than or equal to one
million dollars ($1,000,000), the Borrower shall not without the Holder's
written consent (a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock.
2.2 Restriction on Stock Repurchases. So long as the aggregate
principal amount of the Debentures outstanding is greater than or equal to one
million dollars ($1,000,000), the Borrower shall not without the Holder's
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of
Default") shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails (a) to
pay the principal hereof when due, whether at maturity, upon mandatory
prepayment pursuant to Section 1.7, upon acceleration or otherwise or (b) to pay
any installment of interest hereon
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when due and, in the case of this clause (b) only, such failure continues
for a period of ten (10) days after the due date thereof;
3.2 Conversion and the Shares. The Borrower fails to issue shares of
Common Stock to the Holder (or announces that it will not honor its obligation
to do so) upon exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Debenture (for a period of at least ninety
(90) days, if such failure is solely as a result of the circumstances governed
by Section 1.3 and the Borrower is using its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable), fails to
transfer any certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture and when required by this Debenture or the
Registration Rights Agreement, or fails to remove any restrictive legend on any
certificate for any shares of Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this Debenture, the Purchase Agreement
or the Registration Rights Agreement and any such failure shall continue uncured
(or any announcement not to honor conversions shall not be rescinded) for ten
(10) days after the Borrower shall have been notified thereof in writing by the
Holder.
3.3 Failure to Effect Registration. The Borrower fails to obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement prior to February 5, 1998 or the Registration Statement lapses in
effect (or sales cannot otherwise be made thereunder) for more than thirty (30)
consecutive Trading Days or sixty (60) Trading Days in any twelve month period
after the Registration Statement becomes effective excluding Allowed Delays (as
defined in Section 3(f) of the Registration Rights Agreement);
3.4 Breach of Covenants. The Borrower breaches any material covenant
or other material term or condition contained in Sections 1.3, 1.6, 1.7 or 4.1
of this Debenture, or Sections 4(e), 4(h), 4(i) or 4(j) of the Purchase
Agreement and such breach continues for a period of ten (10) days after written
notice thereof to the Borrower from the Holder;
3.5 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has (or with the passage of time will have) a
material adverse effect on the rights of the Holder with respect to this
Debenture, the Purchase Agreement or the Registration Rights Agreement;
3.6 Receiver or Trustee. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the
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appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed;
3.7 Judgments. Any money judgment, writ or similar process shall be
entered or filed against the Borrower or any subsidiary of the Borrower or any
of its property or other assets for more than $1,000,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;
3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower or any subsidiary of the Borrower; or
3.9 Delisting of Common Stock. The Common Stock is not listed on at
least one of the Nasdaq National Market, Nasdaq Small Cap Market, the New York
Stock Exchange, or the American Stock Exchange;
then, upon the occurrence and during the continuation of any
Event of Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7 or 3.9, at
the option of the Holders of a majority of the aggregate principal amount of
the outstanding Debentures issued pursuant to the Securities Purchase
Agreement, the Borrower shall, and upon the occurrence of an Event of Default
specified in Section 3.6 or 3.8, the Debentures shall become immediately due
and payable and the Borrower shall pay to the Holder, in full satisfaction of
its obligations hereunder, an amount equal to the greater of (i) 130% times
the sum of (w) the then outstanding principal amount of this Debenture plus
(x) accrued and unpaid interest on the unpaid principal amount of this
Debenture to the date of payment plus (y) Default Interest, if any, on the
interest referred to in the immediately preceding clause plus (z) any amounts
owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
Section 2(c) of the Registration Rights Agreement (the then outstanding
principal amount of this Debenture to the date of payment plus the amounts
referred to in clauses (x), (y) and (z) shall collectively be known as the
"Default Sum") or (ii) the Default Sum divided by the then applicable
Conversion Price (based on the lesser of $15.16 and the price derived from
the twelve (12) consecutive Trading Days ending one (1) Trading Day prior to
the date the Holders exercise their option pursuant to this paragraph or the
date of the occurrence of an event referred to in Section 3.6 or 3.8)
multiplied by the Closing Price of the Common Stock on the date the Holders
exercise their option pursuant to this paragraph or the date of the
occurrence of an event referred to in Section 3.6 or 3.8 (the "Default
Amount") and all other amounts payable hereunder 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,
legal fees and expenses, of collection, and the Holder shall be entitled to
exercise all other rights and remedies available at law or in equity.
14
If the Borrower fails to pay the Default Amount within five (5)
business days of written notice that such amount is due and payable, then the
Holder shall have the right at any time, so long as the Borrower remains in
default (and so long and to the extent that there are sufficient authorized
shares), to require the Borrower, upon written notice, to immediately issue, in
lieu of the Default Amount, the number of shares of Common Stock of the Borrower
equal to the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. REDEMPTION
4.1 Redemption. So long as no Event of Default shall have occurred
and be continuing and so long as the Registration Statement is then in effect
and has been in effect and sales can be made thereunder for at least twenty (20)
days prior to the Redemption Date (as defined below), on or after six (6) months
following the Issue Date, in the event that the closing bid price of the Common
Stock is at least $22.73 for ten (10) consecutive Trading Days, then the
Borrower may redeem, in whole but not in part, this Debenture upon twenty (20)
days prior written notice (a "Redemption Notice") in accordance with this
Section 4.1. Any Redemption Notice shall be delivered to the Holder at its
registered address appearing on the records of the Borrower and shall state (1)
that the Borrower is exercising its right to redeem this Debenture and all other
Debentures issued on the Issue Date and (2) the date of redemption. On the date
fixed for redemption (the "Redemption Date"), the Borrower shall make payment of
the Redemption Amount (as hereinafter defined) in cash to or upon the order of
the Holder as specified by the Holder in writing to the Borrower at least one
business day prior to the Redemption Date. The Redemption Amount shall be equal
to 130% times the sum of (a) the then outstanding principal amount of this
Debenture plus (b) accrued and unpaid interest on the unpaid principal amount of
this Debenture to the date of payment plus (c) Default Interest, if any, on the
interest referred to in the immediately preceding clause plus (d) any amounts
owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
Section 2(c) of the Registration Rights Agreement. Notwithstanding anything to
the contrary contained in this Section 4.1, the Holder shall at all times prior
to the Redemption Date maintain the right to convert all or any part of this
Debenture in accordance with Article I and any amounts so converted after
receipt of a Redemption Notice and prior to the Redemption Date set forth in
such notice and payment of the Aggregate Redemption Amount shall be deducted
from the amount which is otherwise subject to redemption pursuant to the
Redemption Notice.
ARTICLE V. MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege
15
preclude other or further exercise thereof or of any other right, power or
privileges. All rights and remedies existing hereunder are cumulative to, and
not exclusive of, any rights or remedies otherwise available.
5.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or sent
by United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be IDT
Corporation, 190 Main Street, Hackensack, New Jersey 07601, facsimile number:
(201) 907-5165. Both the Holder and the Borrower may change the address for
service by service of written notice to the other as herein provided.
5.3 Amendments. This Debenture and any provision hereof may only be
amended by an instrument in writing signed by the Borrower and the Holder. The
term "Debenture" and all reference thereto, as used throughout this instrument,
shall mean this instrument (and the other Debentures issued pursuant to the
Purchase Agreement) as originally executed, or if later amended or supplemented,
then as so amended or supplemented.
5.4 Assignability. This Debenture shall be binding upon the Borrower
and its successors and assigns, and shall inure to be the benefit of the Holder
and its successors and assigns. Each transferee of this Debenture must be an
"accredited investor" (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Debenture to the contrary, this Debenture may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.
5.5 Cost of Collection. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
5.6 Governing Law. This Debenture shall be governed by the internal
laws of the State of Delaware, without regard to the principles of conflict of
laws.
5.7 Certain Amounts. Whenever pursuant to this Debenture the
Borrower is required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time) plus accrued
and unpaid interest plus Default Interest on such interest, the Borrower and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be so
paid by the Borrower represents stipulated damages and not a penalty and is
16
intended to compensate the Holder in part for loss of the opportunity to convert
this Debenture and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Debenture at a price in excess of the price
paid for such shares pursuant to this Debenture. The Borrower and the Holder
hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Debenture into shares of Common
Stock.
5.8 Allocations of Maximum Share Amount and Reserved Amount. The
Maximum Share Amount and the Reserved Amount (including any increases thereto)
shall be allocated pro rata among the Holders of Debentures based on the
principal amount of Debentures then held by each Holder relative to the
aggregate principal amount of the Debentures then outstanding.
5.9 Damages Shares. The shares of Common Stock that may be issuable
to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to Section
2(c) of the Registration Rights Agreement ("Damages Shares") shall be treated as
Common Stock issuable upon conversion of this Debenture for all purposes hereof
and shall be subject to all of the limitations and afforded all of the rights of
the other shares of Common Stock issuable hereunder, including without
limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("Damages Amounts")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.
5.10 Denominations. At the request of the Holder, upon surrender of
this Debenture, the Borrower shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $100,000 as the Holder shall request.
5.11 Purchase Agreement. By its acceptance of this Debenture, each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.
5.12 Notice of Corporate Events. Except as otherwise provided below,
the Holder of this Debenture shall have no rights as a Holder of Common Stock
unless and only to the extent that it converts this Debenture into Common Stock.
The Borrower shall provide the Holder with prior notification of any meeting of
the Borrower's shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger,
17
consolidation, reclassification or recapitalization) any share of any
class or any other securities or property, or to receive any other right, or for
the purpose of determining shareholders who are entitled to vote in connection
with any proposed sale, lease or conveyance of all or substantially all of the
assets of the Borrower or any proposed liquidation, dissolution or winding up of
the Borrower, the Borrower shall mail a notice to the Holder, at least twenty
(20) days prior to the record date specified therein (or thirty (30) days prior
to the consummation of the transaction or event, whichever is earlier), of the
date on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
5.12.
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IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed
in its name by its duly authorized officer this 5th day of September, 1997.
IDT CORPORATION
By:_____________________________________
James Courter
President
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Exhibit A
NOTICE OF CONVERSION
OF CONVERTIBLE DEBENTURE
TO: IDT Corporation
(1) Pursuant to the terms of the attached Convertible Debenture (the
"Debenture"), the undersigned hereby elects to convert $__ principal amount of
the Debenture into shares of Common Stock of IDT Corporation, a Delaware
corporation (the "Borrower"). Capitalized terms used herein and not otherwise
defined herein have the respective meanings provided in the Debenture.
(2) Please issue a certificate or certificates for the number of
shares of Common Stock into which such principal amount of the Debenture (plus
interest thereon to the extent not paid in cash in accordance with the terms of
the Debenture) is convertible (_____ shares, based on the Holder's calculation
attached hereto) 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
(3) Holder acknowledges and affirms that the Common Stock issued
pursuant to this Notice of Conversion has been or will be sold in accordance
with the requirements of the 1933 Act, if applicable, or pursuant to an
exemption under the 1933 Act.
(4) Capitalized terms used in this Notice of Conversion and not
otherwise defined herein shall have the respective meanings provided in the
Debenture.
Date_________________ _______________________________________
Signature of Registered Holder (must be
signed exactly as name appears in the
Debenture).
20