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4% CONVERTIBLE DEBENTURE

This is an actual contract by Brilliant Digital.
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Sectors: Media
Governing Law: New York, View New York State Laws
Effective Date: October 29, 1999
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CONVERTIBLE DEBENTURE



NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR CANADIAN PROVINCE, OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.



No. 1 US $1,000,000



BRILLIANT DIGITAL ENTERTAINMENT, INC.



4% CONVERTIBLE DEBENTURE DUE OCTOBER 29, 2000



THIS DEBENTURE is issued by BRILLIANT DIGITAL ENTERTAINMENT, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company") and is designated as its 4% Convertible Debenture Due October 29,



FOR VALUE RECEIVED, the Company promises to pay to ROSEWORTH GROUP, LTD., or permitted assigns (the "Holder"), the principal sum of ONE MILLION and 00/100 (US $1,000,000) Dollars on the later of (1) October 29, 2000 or (2) six months after the date that the Securities and Exchange Commission first declares the Registration Statement to be effective, but in no event later than December 31, 2000 (the "Maturity Date") and to pay interest on the principal sum outstanding from time to time quarterly in arrears at the rate of 4% per annum accruing from the date of initial issuance. Accrual of interest shall commence on the first business day to occur after the date of initial issuance and continue until payment in full of the principal sum has been made or duly provided for. Quarterly interest payments shall be due and payable on January 1, April 1, July 1 and October 1 of each year, commencing with January 1, 2000. If any interest payment date or the Maturity Date is not a business day in the State of New York, then such payment shall be made on the next succeeding business day. Subject to the provisions of Paragraph 4 below, the interest on this Debenture is payable at the option of the Company, in cash or in shares of Common Stock of the Company, $.001 par value per share ("Common Stock") valued at the Conversion Price (as defined herein) on the interest payment date, at the address last appearing on the Debenture Register of the Company as designated in writing by the Holder from time to time. The Company will pay the principal of and any accrued but unpaid interest due upon this Debenture on the Maturity Date, less any amounts required by law to be deducted, to the registered holder of this Debenture as of the tenth day prior to the Maturity Date and addressed to such holder at the last address appearing on the Debenture Register. The forwarding of such check, or the required number of shares of Common Stock determined pursuant to the provisions of Paragraph 4 below, shall constitute a payment of principal and interest hereunder and shall satisfy and discharge the liability for principal and









interest on this Debenture to the extent of the sum represented by such check or the equivalent Conversion Price value of such shares of Common Stock (as defined in Paragraph 3 below) plus any amounts so deducted.



This Debenture is subject to the following additional provisions:



1. The Company shall be entitled to withhold from all payments of principal of, and interest on, this Debenture any amounts required to be withheld under the applicable provisions of the United States income tax laws or other applicable laws at the time of such payments, and Holder shall execute and deliver all required documentation in connection therewith.



2. This Debenture has been issued subject to investment representations of the original purchaser hereof and may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (the "Act"), and other applicable state and foreign securities laws. The Holder shall deliver written notice to the Company of any proposed transfer of this Debenture. In the event of any proposed transfer of this Debenture, the Company may require, prior to issuance of a new Debenture in the name of such other person, that it receive reasonable transfer documentation including legal opinions that the issuance of the Debenture in such other name does not and will not cause a violation of the Act or any applicable state or foreign securities laws. Prior to due presentment for transfer of this Debenture, the Company and any agent of the Company may treat the person in whose name this Debenture is duly registered on the Company's Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. This Debenture has been executed and delivered pursuant to the Debenture and Warrant Purchase Agreement dated as of October 29, 1999 between the Company and the original Holder (the "Purchase Agreement"), and is subject to the terms and conditions of the Purchase Agreement, which are, by this reference, incorporated herein and made a part hereof. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement.



3. The Holder of this Debenture is entitled, at its option, to convert at any time commencing on the date hereof, the principal amount of this Debenture or any portion thereof, together with accrued but unpaid interest, provided that the portion of the principal amount so converted is Five Thousand Dollars (US $5,000) or a multiple thereof (unless if at the time of such election to convert the aggregate principal amount of this Debenture is less than Five Thousand Dollars (US $5,000), then the whole amount thereof) into shares of Common Stock of the Company ("Conversion Shares") at a conversion price for each share of Common Stock ("Conversion Price") equal to the lower of (a) 95% of the Market Price at the Conversion Date (as defined in Section 8 hereof) or (b) $6.00. The term "Market Price" shall have the meaning set forth in the Purchase Agreement.











4. The entire unpaid balance of this Debenture and accrued interest thereon outstanding on the Maturity Date hereof shall automatically convert into Common Stock at the Conversion Price on the Maturity Date.



5. If the closing price per share of the Common Stock on the Principal Market is equal to or less than $1.00 for 10 or more consecutive Trading Days, the Company shall have the right within 3 Trading Days after the date any such triggering event occurs to deliver to the Holder a written notice of the Company's intent to redeem the entire outstanding amount of this Debenture. Within 3 Trading Days following its receipt of such notice, the Holder shall elect (by delivering written notice to the Company ) either (a) to have the Company redeem the Debenture for a cash payment equal to 120% of the outstanding principal amount of this Debenture and all accrued and unpaid interest thereon, or (b) to agree not to convert all or any portion of this Debenture for a thirty-day period commencing upon the Holder's receipt of the Company's notice pursuant to the preceding sentence. If the Holder fails to deliver its notice to the Company within such 3 Trading Day Period, the Company may elect to have the provisions of clause (a) or (b) of the preceding sentence apply by delivering written notice to the Holder within Three Trading Days following the expiration of the Holder's notice period. If the Holder or the Company elects to have this Debenture redeemed, the Company shall make the redemption payment to the Holder within 5 Trading Days following its receipt of the Holder's notice electing redemption or the Company's delivery of its notice to the Holder electing redemption, as applicable.



6. Notwithstanding anything to the contrary contained herein, in the event that a conversion (when aggregated with all prior conversions of portions of this Debenture) requires the Company to issue a number of shares of Common Stock which would exceed 19.5% of the number of shares of Common Stock issued and outstanding on the date of this Debenture, the Company shall issue only such number of shares of Common Stock as shall not exceed such limit and shall pay the Holder cash in the amount of the Volume Adjusted Price on the Conversion Date for the number of shares of Common Stock in excess of such number of shares into which this Debenture (or the portion thereof then being converted) is then convertible at the Conversion Price. Any payments under this Paragraph 6 shall be made to a U.S. account designated in writing by the Holder to the Company when the Notice of Conversion is given. The rights of all holders of Convertible Debentures issued under the Purchase Agreement to convert their Convertible Debentures into shares of Common Stock shall be prorated among such holders based on their respective percentage holdings at the time of conversion of the aggregate outstanding amount of all Convertible Debentures in order to comply with the aforesaid overall limitation. Any conversion which is paid in cash under this Paragraph 6 shall be paid within five (5) Business Days of the Conversion Date, or else the Company shall thereafter be unable to exercise its redemption rights under Paragraph 5 with respect to the outstanding Debentures.



7. In the event that the Conversion Price of the Common Stock is less than $3.00 per share on any Conversion Date, or in the event a registration statement permitting the immediate resale of the Conversion Shares by the Holder is not effective on such Conversion Date, the Company may elect to deliver to the Holder in consideration of any such conversion cash, Conversion Shares or any combination thereof. The amount of cash to be delivered shall













equal the Volume Adjusted Price on the Conversion Date of the number of shares of Common Stock as would have been issued at the Conversion Price upon such conversion. The Company's ability to deliver cash as full or partial conversion consideration in accordance with this Section 7 shall be conditioned on the Company's delivery of notice to the Holder of such election by the Company no later than twenty-four (24) hours following the Company's receipt of a Notice of Conversion. The Holder shall then have a further twenty-four (24) hour period in which to withdraw his Notice of Conversion, or else the Holder shall be deemed to have accepted such alternative cash consideration.



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