EXHIBIT 4.9
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE TRANSFERRED, ASSIGNED, SOLD
OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL, IN
FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED BECAUSE OF AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
THIS DEBENTURE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE DEBENTURE IN THE
EVENT OF A PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY
REDEMPTION OR CONVERSION OF ANY PORTION OF THIS DEBENTURE, THE OUTSTANDING
PRINCIPAL AMOUNT REPRESENTED BY THIS DEBENTURE MAY BE LESS THAN THE PRINCIPAL
AMOUNT AND ACCRUED INTEREST SET FORTH BELOW.
No. 1 U.S. $5,000,000
Dated: October 1, 2001
CONSTELLATION 3D, INC.
5% SENIOR SECURED CONVERTIBLE DEBENTURE DUE OCTOBER 1, 2006
This Debenture ("Debenture") is one of a duly authorized issue of
Debentures of CONSTELLATION 3D, INC. (the "Company"), a corporation duly
organized and existing under the laws of the State of Delaware, designated as
the Company's 5% Senior Secured Convertible Debentures Due October 1, 2006, in
an aggregate principal amount of Five Million U.S. Dollars (U.S. $5,000,000)
(the "Debentures").
For Value Received, the Company promises to pay to HALIFAX FUND, L.P., the
initial holder hereof, or its order (including successors-in-interest, the
"Holder"), the principal sum of FIVE MILLION U.S. DOLLARS (U.S. $5,000,000) on
October 1, 2006 (the "Maturity Date") and to pay interest on the principal sum
outstanding under this Debenture ("Outstanding Principal Amount"), at the rate
of 5% per annum, compounded semi-annually, payable in arrears on the last day of
March and September of each year and on the Maturity Date (each an "Interest
Payment Date"), with the first such payment due on March 31, 2002. Interest
shall accrue daily commencing on the date hereof and shall continue until
payment in full of all amounts due under this Debenture. The interest so payable
will be paid to the person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of the Debenture
(the "Debenture Register"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Exchange Agreement dated as of
October 1, 2001 between the Company and the Holder (the "Exchange Agreement") or
the Registration Rights Agreement dated as of August 23, 2000 between the
Company and the Holder (the "Registration Rights Agreement").
The interest on this Debenture is payable, at the Company's option:
(a) in such coin or currency of the United States which as of the
time of payment is legal tender for payment of public and private debts, at the
address last appearing on the Debenture Register of the Company as designated in
writing by the Holder hereof from time to time; or
(b) subject, to the conditions set forth below, by paying the amount
in shares of Common Stock, with certificates for such shares (the "Interest
Shares") to be delivered to the Holder on the Interest Payment Date. The number
of Interest Shares shall be determined by dividing the interest amount by 95% of
the average Market Price for Shares of Common Stock for the five (5) Trading
Days immediately preceding the Interest Payment Date ("Interest Conversion
Price"). The Company's ability to pay interest with Interest Shares is subject
to the following conditions:
(i) No Event of Default shall have occurred; and
(ii) There shall be Effective Registration (as defined in of the
Exchange Agreement) with respect to the Interest Shares and
all the shares of Common Stock issuable upon conversation
of this Debenture.
In the event that the Interest Shares are not delivered to Holder
within 3 Trading Days of the Interest Payment Date the interest shall be
automatically due and payable in cash pursuant to paragraph (a) above, or, in
the sole option of the Holder, shall be added to the Outstanding Principal
Amount of this Debenture.
Except as herein provided for interest, all amounts payable under this
Debenture shall be paid as provided in clause (a) above.
The Company shall exercise its option regarding its payment of interest
hereunder by delivering an irrevocable statement in the form of Exhibit 1 hereto
("Payment Statement") at least five (5) Trading Days prior to the applicable
Interest Payment Date. Each Payment Statement shall be applicable for the
immediately succeeding Interest Payment Date only. If the Payment Statement is
not timely delivered to the Holder as provided herein, the payment with respect
to such Interest Payment Date shall be in cash.
The Company will pay any principal due and all accrued and unpaid interest
due upon this Debenture to the person that is the Holder of this Debenture on
the records of the Company as of the applicable Interest Payment Date and
addressed to such Holder at the last address appearing on the Debenture
Register.
The Outstanding Principal Xxxxxx and interest due hereunder shall bear
interest, from and after the day following the occurrence and during the
continuance of an Event of Default hereunder, at the per annum rate equal to the
lower of the Citibank Prime Rate per annum plus six (6%) percent or the highest
rate permitted by law (the "Default Rate"). The Holder shall have the option to
receive such interest as cash interest, Interest Shares or by adding such
interest to the Outstanding Principal Amount and shall exercise its option by
delivering to the Company
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a statement in a form substantially similar to the Payment Statement which shall
be effective until the Holder delivers an additional statement to the contrary.
The interest shall be payable on demand.
Subject to applicable law, any interest otherwise payable that is not paid
for any applicable period because it would exceed the highest rate permitted by
law shall become payable whenever the payment thereof, together with other
interest due for any such subsequent period, would not exceed such highest legal
rate.
The Holder of this Debenture is entitled to certain rights and remedies
pursuant to the Exchange Agreement and the Registration Rights Agreement. This
Debenture does not provide voting rights to the Holder.
This Debenture will rank senior to all equity and debt of the Company,
except that it shall rank pari passu with the Sands Debt.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debentures are exchangeable for an equal aggregate
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principal amount of Debentures of different denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. Transfers. This Debenture may be transferred or exchanged in the United
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States only in compliance with the 1933 Act and applicable state securities
laws, or applicable exemptions therefrom. Prior to due presentment for transfer
of this Debenture, 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, whether or not this
Debenture is overdue.
3. Definitions. For purposes hereof the following definitions shall apply:
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"1933 Act" shall mean the Securities Act of 1933, as amended.
"Affiliate" shall mean, with respect to any person or entity, another
person or entity that directly or indirectly controls, is controlled by, or is
under common control with that person or entity.
"Change in Control Consideration" shall have the meaning set forth in
Section 4 hereof.
"Change in Control Conversion Price" shall have the meaning set forth
in Section 4 hereof.
"Change in Control Transaction" shall mean any transaction pursuant to
which (i) the Company sells, leases, transfers, conveys or otherwise disposes
of, in one or more related transactions, all or substantially all of its assets
to any person or entity other than existing stockholders and their Affiliates;
(ii) any person or group (within the meaning of Section 13(d) of the Exchange
Act), together with its affiliates and associates (as such terms are defined in
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Rule 405 under the 1933 Act), obtains beneficial ownership of or is deemed to
beneficially own (as described in Rule 13d-3 under the Exchange Act; provided,
that for this purpose the right to acquire beneficial ownership, even if not
within 60 days, shall be deemed to convey beneficial ownership) in excess of 50%
of the Company's voting power; or (iii) there is a replacement of more than
one-half of the members of the Company's Board of Directors which is not
approved by those individuals who are members of the Company's Board of
Directors on the date thereof.
"Closing Date" shall mean the date of the original issuance of this
Debenture.
"Common Stock" shall mean the common stock, par value $0.00001, of the
Company.
"Conversion Notice" shall have the meaning set forth in Section 5(d).
"Conversion Price" shall have the meaning set forth in Section 5(c).
"Conversion Rate" shall have the meaning set forth in Section 5(b).
"Conversion Ratio" means at any time, a fraction of which the numerator
is the Outstanding Principal Amount of this Debenture plus all accrued but
unpaid interest and any unpaid default or delay payments thereon, and of which
the denominator is the then applicable Conversion Price.
"DTC" shall have the meaning set forth in Section 5(e).
"DWAC" shall have the meaning set forth in Section 5(e).
"Event of Default" shall have the meaning set forth in Section 17.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"FAST" shall have the meaning set forth in Section 5(e).
"Holder Conversion Date" shall have the meaning set forth in Section
5(d).
"Market Price" shall mean the price of one share of Common Stock
determined as follows:
(i) If the Common Stock is approved for trading on the Nasdaq
National Market System or the Nasdaq Small-Cap Market, the
last reported "bid" price thereon on the date of valuation;
(ii) If clause (i) does not apply and the Common Stock is listed
on NYSE or the American Stock Exchange, the closing bid
price on such exchange on the date of valuation;
(iii) If neither clause (i) nor clause (ii) applies but the
Common Stock is quoted in the over-the-counter market,
another recognized exchange, on the pink sheets or bulletin
board, (A) the last sales
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price on the date of valuation or, if there is no such sales
price, (B) the mean between the last reported "bid" and
"asked" prices thereof on the date of valuation; and
(iv) If neither clause (i), clause (ii) or clause (iii) above
applies, the market value as determined by a nationally
recognized investment banking firm or other nationally
recognized financial advisor retained by the Company for
such purpose, taking into consideration, among other
factors, the earnings history, book value and prospects for
the Company, and the prices at which shares of Common Stock
recently have been traded. Such determination shall be
conclusive and binding on all persons.
"NYSE" shall mean the New York Stock Exchange.
"Public Announcement" shall mean any public filing with the Securities
and Exchange Commission, any press release by either the Company or a third
party or any other public statement.
"Redemption Price" shall have the meaning set forth in Section 4(a).
"Registration Statement" shall have the meaning set forth in the
Registration Rights Agreement.
"Restricted Ownership Percentage" shall have the meaning set forth in
Section 11.
"Sands Debt" shall have the meaning ascribed to such term in the
Exchange Agreement.
"Security Agreement" shall mean the Security Agreement by and between
the Holder and the Company dated as of the date of this Debenture with regard to
the payment obligations of the Company under this Debenture.
"Trading Day" shall mean a day on which the Common Stock is traded on
the Nasdaq National Market or such other principal exchange on which the Common
Stock is then listed or quoted (or any similar organization or agency succeeding
such market or exchange's functions of reporting prices).
4. Change in Control, Etc.
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(a) If at any time there occurs a Change in Control Transaction,
Holder shall be entitled, at its sole option, to have the Company redeem this
Debenture in whole or in part at a Redemption Price equal to 115% of the
Outstanding Principal Amount of this Debenture plus all accrued but unpaid
interest and default and delay payments on this Debenture (the "Redemption
Price"). Such Holder shall be entitled to make such election at any time after a
Public Announcement of a pending Change in Control Transaction and up to ten
days after the effective date of the Change in Control Transaction.
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(b) If at any time there occurs a Public Announcement of a pending
Change in Control Transaction in which the public shareholders of the Company
are to receive consideration, a portion of which is capital stock or any
security convertible into capital stock of another entity in exchange for shares
of Common Stock ("Change in Control Consideration"), then prompt provision shall
be made in a manner reasonably acceptable to the Holders so that each Holder
shall have the right (in addition to its other rights under this Debenture):
(i) following the closing of the transaction covered by such
Public Announcement, to convert its Debentures into the
Change in Control Consideration that such Holder would have
been or would be entitled to receive had it converted all of
its Debentures into Common Stock (notwithstanding any
restrictions imposed upon the Holder pursuant to this
Debenture or the Exchange Agreement in its ability to do so)
immediately prior to the Change in Control Transaction at
the Change in Control Conversion Price, and acquired the
Change in Control Consideration as a shareholder of the
Company, subject to adjustment thereafter pursuant to the
terms of the Debentures; or
(ii) following such Public Announcement, convert its Debentures
into Common Stock at the Change in Control Conversion Price.
The "Change in Control Conversion Price" shall mean a price,
subject to adjustments in the same manner as adjustments to the Conversion
Price, equal to the least of: (i) the then existing Conversion Price (as defined
in Section 5(c) below); (ii) 100% of the lowest Market Price for any of the four
Trading Days immediately preceding the Public Announcement of the Change in
Control Transaction; and (iii) 85% of the lowest Market Price on the three
Trading Days immediately following the Public Announcement. The Market Price
shall be appropriately adjusted for stock splits, reverse splits, stock
dividends and other dilutive events applicable to all stockholders, including
those events occurring in connection with the Change in Control Transaction,
that occur during the Trading Days referred to above.
Notwithstanding the above, if there is a Public Announcement that
such Change in Control Transaction has been definitively terminated or
abandoned, the Change in Control Conversion Price shall be effective for
conversions of Debentures only until the end of the 10th Trading Day following
such Public Announcement, and the Conversion Price following such time shall be
determined as if such Change in Control Transaction had not been publicly
announced.
5. Conversion at the Option of the Holder. The Holder of this Debenture
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shall have the following conversion rights:
(a) Xxxxxx's Right to Convert. The Holder shall have the right at any
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time and from time to time prior to payment in full of this Debenture, at the
Holder's option, to convert any or all of this Debenture for such number of
fully paid, validly issued and nonassessable shares of Common Stock as is
determined pursuant to this Section 5.
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(b) Conversion Rate. The Outstanding Principal Amount of this
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Debenture that is converted into shares of Common Stock at the option of the
Holder shall be convertible into the number of shares of Common Stock which
results from application of the following formula:
P + I + D
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Conversion Price
P = Outstanding Principal Amount of this Debenture submitted for
conversion as of the Holder Conversion Date
I = accrued but unpaid interest on P as of the Holder Conversion Date
D = default payments and delay payments due under this Debenture or the
other Transaction Documents
The number of shares of Common Stock into which each $1,000
principal amount of this
Debenture hereto may be converted pursuant to this paragraph hereof is hereafter
referred to as the "Conversion Rate."
(c) Conversion Price. (i) Subject to the adjustments set forth below,
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the "Conversion Price" shall be equal to $6.00.
(d) Mechanics of Conversion. In order to convert this Debenture (in
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whole or in part) into full shares of Common Stock, the Holder (i) shall give
written notice in the form of Exhibit 2 hereto (the "Conversion Notice") by
facsimile to the Company at the Company's principal office that the Holder
elects to convert the principal amount plus accrued but unpaid interest and
Delay Payments (as defined in the Registration Rights Agreement) specified
therein, which such notice and election shall be irrevocable by the Holder
unless the Common Stock shall not have been delivered within five Trading Days
of the date the Conversion Notice is delivered to the Company, and (ii) if the
entire Outstanding Principal Amount is being converted, as soon as practicable
after such notice, shall surrender this Debenture, duly endorsed, by either
overnight courier or 2-day courier, to the principal office of the Company;
provided, however, that the Company shall not be obligated to issue certificates
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evidencing the shares of the Common Stock issuable upon such conversion (where
the entire Outstanding Principal Amount is being converted) unless either the
Debenture evidencing the principal amount is delivered to the Company as
provided above, or the Holder notifies the Company that such Debenture(s) have
been lost, stolen or destroyed and promptly executes an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such lost, stolen or destroyed Xxxxxxxxx(s).
The Holder shall not be required to physically surrender this
Debenture to the Company unless the full Outstanding Principal Amount
represented by this Debenture is being converted. The Holder and the Company
shall maintain records showing the Outstanding
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Principal Amount so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Company, 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 Company shall be
controlling and determinative in the absence of manifest error. Notwithstanding
the foregoing, if this Debenture is converted as aforesaid, the Holder may not
transfer this Debenture unless the Holder first physically surrenders this
Debenture to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Debenture of like tenor, registered as the
Holder may request, representing in the aggregate the remaining Outstanding
Principal Xxxxxx represented by this Debenture. The Holder and any assignee, by
acceptance of this Debenture or a new Debenture, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of any portion
of this Debenture, the Outstanding Principal Amount represented by this
Debenture may be less than the Outstanding Principal Amount and the accrued
interest set forth on the face hereof.
The Company shall issue and deliver within three Trading Days of
the delivery to the Company of such Conversion Notice, to such Holder of
Debenture(s) at the address of the Holder, or to its designee, a certificate or
certificates for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid, together with a calculation of the Conversion Rate
and, if the Debenture has been surrendered and is being converted in part only,
a Debenture or Debentures for the principal amount of Debentures not submitted
for conversion. The date on which the Conversion Notice is given (the "Holder
Conversion Date") shall be deemed to be the date the Company received by
facsimile the Conversion Notice provided that if not received by 5:00 p.m. on
such date, the Holder Conversion Date shall be deemed to be the next Trading
Day. In the event that such Holder or its designee has not received such
certificate or certificates within five (5) calendar days of the Company's
receipt of the Conversion Notice, the Holder may, in addition to any other
rights or remedies it may have, revoke its Conversion Notice.
(e) In lieu of delivering physical certificates representing the
shares of Common Stock issuable upon conversion of this Debentures, provided the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the
Holder, the Company shall use its best efforts to cause its transfer agent to
electronically transmit the shares of Common Stock issuable upon conversion of
this Debenture to the Holder, by crediting the account of Holder's prime broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The
time periods for delivery described above shall apply to the electronic
transmittals through the DWAC system. The parties agree to coordinate with DTC
to accomplish this objective. The conversions pursuant to Sections 5 shall be
deemed to have been made immediately prior to the close of business on the
Holder Conversion Date. The person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares at the close of business on the
Holder Conversion Date.
(f) No Legends. The Debenture Shares issued upon the conversion of
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this Debenture shall be freely tradable and shall be issued without any legends
or stop transfer restrictions.
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6. Stock Splits; Dividends; Adjustments; Reorganizations.
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(a) If the Company, at any time while the Debentures are outstanding,
shall (i) pay a stock dividend or otherwise make a distribution or distributions
on any equity securities (including investments or securities convertible into
or exchangeable for such equity securities) in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock into a larger number of shares,
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, then the Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section 6(a)
shall become effective immediately after the record date for the determination
of shareholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of an
issuance, subdivision or combination.
(b) Conversion Price Adjustment. In the event that the Company issues
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or sells any shares of Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any warrants
or other rights to subscribe for or to purchase or any options for the purchase
of its Common Stock or any such convertible securities (other than (A) shares or
options issued or which may be issued pursuant to (i) the Company's current or
future employee or director option plans or shares issued upon exercise of
options, warrants, rights or convertible notes or debentures outstanding on the
date of the Agreement and listed in the Company's most recent periodic report
filed under the Exchange Act, (ii) arrangements with the Purchaser, or (iii)
acquisitions of other entities by the Company, or (B) sales of Common Stock (in
one or more tranches to the same or different purchasers) with a fair market
value, in the aggregate, of less than $100,000 at the time they are sold) at an
effective exercise price per share ("Effective Price") which is less than the
then current Market Price or the Conversion Price then in effect, then the
Conversion Price in effect immediately prior to such issue or sale shall be
reduced effective concurrently with such issue or sale to an amount determined
by multiplying such Conversion Price by a fraction, (x) the numerator of which
is the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale, plus (2) the number of shares of Common Stock which
the aggregate consideration received by the Company for such additional shares
would purchase at the Market Price or Conversion Price then in effect, as the
case may be; and (y) the denominator of which is the number of shares of Common
Stock of the Company outstanding immediately after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the
issuance of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("Convertible Securities"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities.
For purposes of this Section 6(b), if an event occurs which triggers
more than one of the above adjustment provisions, then only one adjustment shall
be made and the calculation method that yields the greatest downward adjustment
in the Conversion Price shall be used.
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(c) In the event that at any time or from time to time after the
Closing Date, the Common Stock issuable upon the conversion of the Debentures is
changed into the same or a different number of shares of any class or classes of
stock, whether by merger, consolidation, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Section 6), then and as a
condition to each such event provision shall be made in a manner reasonably
acceptable to the Holders of Debentures so that each Holder of Debentures shall
have the right thereafter to convert such Debenture into the kind of stock
receivable upon such recapitalization, reclassification or other change by
holders of shares of Common Stock, all subject to further adjustment as provided
herein. In such event, the formulae set forth herein for conversion and
redemption shall be equitably adjusted to reflect such change in number of
shares or, if shares of a new class of stock are issued, to reflect the market
price of the class or classes of stock (applying the same factors used in
determining the Conversion Price) issued in connection with the above described
transaction.
(d) Whenever any element of the Conversion Price is adjusted pursuant
to this Section 6, the Company shall promptly mail to each Holder of the
Debentures, a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(e) In the event of any taking by the Company of a record date of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, any
security or right convertible or exchangeable into or entitling the holder
thereof to receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall deliver
to each Holder of Debentures at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right and the amount
and character of such dividend, distribution, security or right.
(f) If the Company, at any time while the Debentures are outstanding,
shall distribute to all holders of Shares of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 6(c) above) then the Holder
shall participate in such distribution on a pro rata basis with the holders of
shares of Common Stock entitled to receive such dividend, distribution,
issuance, subdivision or combination as if the Holder held that number of shares
of Common Stock that the Holder would have been entitled to receive hereunder
upon conversion of the Debenture (without regard to Section 11) immediately
prior to the record date fixed for determination of shareholders entitled to
receive such dividend, at the Conversion Price then in existence.
7. Fractional Shares. No fractional shares of Common Stock or scrip
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representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up to the nearest whole share.
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8. Reservation of Stock Issuable Upon Conversion.
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(a) Reservation Requirement. The Company covenants that it will at
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all times reserve and keep available out of its authorized and unissued Common
Stock solely for the purpose of the payment of Interest Shares and issuance upon
conversion of the Debentures as herein provided, free from preemptive rights or
any other present or contingent purchase rights of persons other than the
Holders of the Debentures, 200% of the maximum number of shares of Common Stock
as shall be issuable (taking into account the adjustments of Sections 5 and 6
hereof) upon the conversion of all of the Debentures pursuant hereto. The
Company covenants that all shares of Common Stock that shall be so issuable
shall upon issuance, be duly and validly authorized, issued and fully paid and
nonassessable.
(b) Deficiency. If the Company does not have a sufficient number of
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shares of Common Stock available to satisfy the Company's obligations to a
Holder of Debentures upon receipt of a Conversion Notice or is otherwise unable
to issue such shares of Common Stock in accordance with the terms of this
Agreement such Holder shall be entitled to the rights and remedies set forth in
the Registration Rights Agreement.
9. No Reissuance of the Debenture. No Debentures acquired by the Company
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by reason of conversion, redemption, purchase, exchange or otherwise shall be
reissued, and all such Debentures shall be retired.
10. No Impairment. The Company shall not knowingly and intentionally take
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any action which would impair the rights and privileges of the Debentures set
forth herein or the Holders thereof.
11. Limitations on Holder's Right to Convert.
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(a) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the Holder upon
conversion of this Debenture pursuant to the terms hereof shall not exceed a
number that, when added to the total number of shares of Common Stock deemed
beneficially owned by such Holder (other than by virtue of the ownership of
securities or rights to acquire securities that have limitations on the holder's
right to convert, exercise or purchase similar to the limitation set forth
herein), together with all shares of Common Stock deemed beneficially owned at
such time (other than by virtue of the ownership of securities or rights to
acquire securities that have limitations on the right to convert, exercise or
purchase similar to the limitation set forth herein) by the Holder's
"affiliates" (as defined in Rule 144 of the 1933 Act) ("Aggregation Parties")
that would be aggregated for purposes of determining whether a group under
Section 13(d) of the Exchange Act, exists, would exceed 9.99% of the total
issued and outstanding shares of the Common Stock (the "Restricted Ownership
Percentage"). Each Holder shall have the right (i) at any time and from time to
time to reduce its Restricted Ownership Percentage immediately upon notice to
the Company and (ii) (subject to waiver) at any time and from time to time, to
increase its Restricted Ownership Percentage immediately in the event of the
announcement as pending or planned, of a Change of Control Transaction.
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(b) The Company's obligation to issue shares of Common Stock which
would exceed such limits referred to in this Section 11 shall be suspended to
the extent necessary until such time, if any, as shares of Common Stock may be
issued in compliance with such restrictions.
12. Security The obligations of the Company pursuant to this Debenture are
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secured pursuant to the terms of the Security Agreement.
13. Obligations Absolute. No provision of this Debenture, the Exchange
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Agreement or the Registration Rights Agreement shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest and delay payments on, this Debenture or to issue
shares of Common Stock in response to a Conversion Notice at the time, place and
rate, and in the manner, herein prescribed, except that if the Company disputes
the Holder's calculation of the number of shares to be issued upon a conversion,
the Company shall deliver to Holder the number of shares not in dispute and the
parties shall have the calculation dispute resolved by a third party mutually
acceptable to them.
14. Waivers of Demand, Etc. The Company hereby expressly and irrevocably
----------------------
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder.
15. Replacement Debenture. In the event that any Holder notifies the
---------------------
Company that its Debenture(s) have been lost, stolen or destroyed, replacement
Debenture(s) identical in all respects to the original Debenture(s) (except for
registration number and Outstanding Principal Amount, if different than that
shown on the original Debenture(s)), shall be issued to the Holder, provided
that the Holder executes and delivers to the Company an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such Debenture.
16. Payment of Expenses; Issue Taxes. The Company agrees to pay all debts
--------------------------------
and expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Exchange Agreement, any Warrant or the
Registration Rights Agreement. The Company shall pay any and all issue and other
taxes (excluding any income, franchise or similar taxes) that maybe payable in
respect of any issue or delivery of shares of Common Stock on conversion of any
Debenture pursuant hereto.
17. Defaults. If one or more of the following described "Events of
--------
Default" shall occur with respect to any of the Debentures:
(a) the Company shall default in the payment of (i) interest on this
Debenture or any other Debenture issued pursuant to the Exchange
Agreement, and such default shall continue for five Trading Days
after notice thereof is received by the Company of such default,
or (ii) the principal of this
12
Debenture or any other Debenture issued pursuant to the Exchange
Agreement; or
(b) the Company shall fail to deliver the proper amount of Debenture
Shares to the Holder within five Trading Days following the Holder
Conversion Date; or
(c) any of the representations or warranties made by the Company in any of
the Debentures, in the Exchange Agreement, the Registration Rights
Agreement, the Security Agreement, any Warrant or in any certificate
or financial or other statements heretofore or hereafter furnished by
or on behalf of the Company in connection with the execution and
delivery of this Debenture or such other documents shall be false or
misleading at the time made; or
(d) the Company shall fail to materially perform or observe any covenant
or agreement in the Exchange Agreement, the Security Agreement, any
Warrant or the Registration Rights Agreement, or any other covenant,
term, provision, condition, agreement or obligation of the Company
under any of the Debentures and such failure shall continue uncured
for a period of 20 calendar days after notice of such failure; or
(e) the Company shall (1) admit in writing its inability to pay its debts
generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply
for or consent to the appointment of a trustee, liquidator or receiver
for it or for a substantial part of its property or business; or
(f) a trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its
consent and shall not be discharged within forty-five (45) days after
such appointment; or
(g) any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of
the Company and shall not be dismissed within forty-five (45) days
thereafter; or
(h) the Company shall, in one or a series of transactions, sell or
otherwise transfer all or substantially all of its assets; or
(i) bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings, or relief under any bankruptcy law or any law for
the relief of debt shall be instituted by or against the Company and,
if instituted against the Company shall not be dismissed within
forty-five (45) days after such institution, or the Company shall by
any action or answer approve of, consent to, or acquiesce in any such
proceedings or admit to any material
13
allegations of, or default in answering a petition filed in any
such proceeding; or
(j) the Company shall be in default of any other of its indebtedness
exceeding $500,000, or any other event shall have occurred such
that as a result thereof the holders thereof shall have
accelerated or shall have the right (upon the giving of notice,
the passage of time, or both) to accelerate such indebtedness; or
(k) any money judgment, writ or warrant of attachment, or similar
process in excess of $500,000 in the aggregate shall be entered
or filed against the Company or any of its properties or other
assets and shall remain unpaid, unvacated, unbonded and unstayed
for a period of forty-five (45) days; or
(l) the Public Announcement of a "going private" transaction under
Rule 13e-3 promulgated pursuant to the Exchange Act;
then, or at any time thereafter, in the case of Events of Default arising
----
from the events described in paragraphs (a), (b), (c), (g), (i), (j), (k) and
(l), unless such Event of Default shall have been waived in writing by the
Holder (which waiver shall not be deemed to be a waiver of any subsequent
default) at the option of the Holder and in the Holder's sole discretion, the
Holder may declare the Debenture immediately due and payable and concurrently
demand payment thereof, and the Holder may immediately, and without expiration
of any period of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law. In the event of
Events of Default arising from the events described in paragraphs (d), (e), (f)
or (h) above, this Debenture shall become immediately due and payable without
further action or notice. Notwithstanding the above, in the event of any Event
of Default, the amount due and owing to the Holder under this Debenture shall be
the greater of (i) the Redemption Price and (ii) the product of (A) the higher
of (x) the highest Market Price during the five Trading Days immediately
preceding the event giving rise to the Event of Default and (y) the highest
Market Price during the period commencing with the five Trading Days immediately
preceding the Holder's acceleration of this Debenture and ending on (and
including) the date on which the amount due and owing under this Debenture is
paid to the Holder, and (B) the Conversion Ratio. In any event, the Company
shall pay interest on such amount in cash at the Default Rate to the Holder if
such amount is not paid in full within seven calendar days of Xxxxxx's request
therefore. The remedies under this Debenture shall be cumulative.
18. Savings Clause. In case any provision of this Debenture is held by a
--------------
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby, and such provision shall remain effective in
all other jurisdictions.
19. Entire Agreement. This Debenture and the agreements referred to in this
----------------
Debenture constitute the full and entire understanding and agreement between the
Company and the Holder with respect to the subject hereof. Neither this
Debenture nor any term hereof may be
14
amended, waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
20. Assignment, Etc. The Holder (but not the Company) may without notice,
----------------
transfer or assign this Debenture or any interest herein and may mortgage,
encumber or transfer any of its rights or interest in and to this Debenture or
any part hereof and, without limitation, each assignee, transferee and mortgagee
(which may include any affiliate of the Holder) shall have the right to transfer
or assign its interest. Each such assignee, transferee and mortgagee shall have
all of the rights of the Holder under this Debenture. The Company agrees that
after receipt by the Company of written notice of assignment from the Holder or
from the Holder's assignee, all principal, interest and other amounts which are
then and thereafter become due under this Debenture shall be paid to such
assignee at the place of payment designated in such notice. This Debenture shall
be binding upon the Company and its successors and affiliates and shall inure to
the benefit of the Holder and its successors and assigns.
21. No Waiver. No failure on the part of the Holder to exercise, and no
---------
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
22. Certificate. The Company shall, upon the written request at any time of
-----------
any Holder of Debentures, furnish or cause to be furnished to such Holder a
certificate prepared by the chief financial officer of Company setting forth any
adjustments or readjustments of the Conversion Price pursuant to this Debenture
and any right of the Holder to receive additional shares of Common Stock or any
other equity or debt security pursuant to Section 6.
23. Notices. The Company shall distribute to the Holders of Debentures
-------
copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common Stock of the Company, at such times and by
such method as such documents are distributed to such holders of such Common
Stock, but shall not directly or indirectly provide material non-public
information to the Holder without such Holder's prior written consent.
24. Specific Enforcement. The Company agrees that irreparable damage would
--------------------
occur in the event that any of the provisions of this Debenture were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the Holders of Debentures shall be entitled to
specific performance, injunctive relief or other equitable remedies to prevent
or cure breaches of the provisions of this Debenture and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled under agreement, at law or in equity.
25. Miscellaneous. Unless otherwise provided herein, any notice or other
-------------
communication to a party hereunder shall be sufficiently given if in writing and
personally delivered, facsimiled or mailed to said party by certified mail,
return receipt requested, at its address set forth herein or such other address
as either may designate for itself in such notice to
15
the other and communications shall be deemed to have been received when
delivered personally or, if sent by mail or facsimile, then when actually
received by the party to whom it is addressed. Whenever the sense of this
Debenture requires, words in the singular shall be deemed to include the plural
and words in the plural shall be deemed to include the singular. Paragraph
headings are for convenience only and shall not affect the meaning of this
document.
26. GOVERNING LAW; CONSENT TO JURISDICTION. THIS DEBENTURE SHALL BE
--------------------------------------
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS TO BE EXECUTED AND PERFORMED ENTIRELY WITHIN
SUCH STATE. THE COMPANY (I) HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW
YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATED TO THIS DEBENTURE AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN
ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT
TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER. THE COMPANY CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AS PROVIDED
HEREIN AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE
OF PROCESS AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT
ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
Signature Page Follows
16
In Witness Whereof, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
CONSTELLATION 3D, INC.
By: /s/ Xxxxxx Xxxxxx
-----------------
Name:
Title: Chief Executive Officer
Signature page to 5% Senior Secured Convertible Debenture of CONSTELLATION
3D, INC.
17
EXHIBIT 1
PAYMENT STATEMENT
-----------------
Date:______________
To: [Name of Holder of Debenture] ("Holder")
Re: 5% Senior Secured Convertible Debenture Due October 1, 2006 ("Debenture")
of CONSTELLATION 3D, INC. (the "Company"), in the Outstanding Principal Amount
of U.S.$__________.
The Company hereby irrevocably elects to pay interest on the
Debenture, for the Interest Payment Date indicated below, in the following
manner (the Company should check its selection):
____ cash interest; or
____ Interest Shares.
Interest Payment Date: _________________________
If the selection above is Interest Shares, the Company should fill in
the following:
Interest Conversion Price: U.S.$_________________
Number of Interest Shares: U.S.$_________________
The Company hereby certifies to the Holder, its successors and assigns
that the Outstanding Principal Amount due under the Debenture after delivery of
this Payment Statement equals the amount indicated below. Capitalized terms used
in this Payment Statement and not otherwise defined shall have the meaning
ascribed thereto in the Debenture.
Outstanding Principal Amount
Due Under the Debenture
After Delivery
Of This Payment Statement: U.S.$__________________
18
IN WITNESS WHEREOF, this Payment Statement has been duly executed and
delivered on the date first written above.
CONSTELLATION 3D, INC.
By: _________________________________
Name:
Title:
19
EXHIBIT 2
(To be Executed by Registered Holder
in order to Convert Debenture)
CONVERSION NOTICE
FOR
5% SENIOR SECURED CONVERTIBLE DEBENTURE DUE OCTOBER 1, 2006
The undersigned, as Holder of the 5% Senior Secured Convertible Debenture
Due October 1, 2006 of CONSTELLATION 3D, INC. (the "Company"), in the
outstanding principal amount of U.S. $_____________ (the "Debenture"), hereby
elects to convert that portion of the outstanding principal amount of the
Debenture shown on the next page into shares of Common Stock, $0.00001 par value
per share (the "Common Stock"), of the Company according to the conditions of
the Debenture, as of the date written below. The undersigned hereby requests
that share certificates for the Common Stock to be issued to the undersigned
pursuant to this Conversion Notice be issued in the name of, and delivered to,
the undersigned or its designee as indicated below. If shares are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any.
Conversion Information: NAME OF HOLDER: ____________________________
By: ______________________________________________
Print Name:
Print Title:
Print Address of Holder:
____________________________________________
____________________________________________
Issue Common Stock to: _____________________
at: ________________________________________
Electronically transmit and credit Common
Stock to:
___________________ at: ____________________
____________________________________________
Date of Conversion
____________________________________________
Applicable Conversion Rate
THE COMPUTATION OF THE NUMBER OF COMMON SHARES TO
BE RECEIVED IS SET FORTH ON THE ATTACHED PAGE
Page 2 to Conversion Notice for: ____________________________________________
(Name of Holder)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
-----------------------------------------------------
A. Outstanding Principal Amount converted: $______
B. Accrued, unpaid interest on Outstanding Principal Amount converted: $______
Total dollar amount converted (total of A + B) $______
========
Conversion Price $_____
Number of Shares of Common Stock = Total dollar amount converted = $
----------------------------- ------
Conversion Price $
Number of shares of Common Stock = _____________________________
If the conversion is not being settled by DTC, please issue and deliver _____
certificate(s) for shares of Common Stock in the following amount(s):
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Please issue and deliver _____ new Debenture(s) in the following amounts:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
