Exhibit 22.0
ANNEX I
TO
SECURITIES PURCHASE AGREEMENT
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 UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD,
PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
No. 001 US $ 400,000
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HOT PRODUCTS, XXX.XXX
9% CONVERTIBLE DEBENTURE DUE _August 27, 2001
THIS DEBENTURE is one of a duly authorized issue of up to $400,000 in
Debentures of HOT PRODUCTS, XXX.XXX, a Arizona corporation organized and
existing under the laws of the State of Arizona (the "Company") designated as
its 9% Convertible Debentures. Such Debentures may be issued in series, each of
which may have a different maturity date, but which otherwise have substantially
similar terms.
FOR VALUE RECEIVED, the Company promises to pay to Ashfield Investments
Corp., the registered holder hereof (the "Holder"), the principal sum of Four
Hundred Thousand and 00/100 Dollars (US $ 400,000) on August 27, 2001 (the
"Maturity Date") and to pay interest in cash on the principal sum outstanding
from time to time in arrears (i) prior to the Maturity Date, quarterly, on the
last day of March, June, September and December of each year, (ii) upon
conversion as provided herein, (iii) on the Maturity Date, or (iv) upon
Redemption as provided herein at the rate of 9% per annum. Accrual of interest
shall commence on the first such business day to occur after the date hereof and
shall continue to accrue on a daily basis until payment in full of the principal
sum has been made or duly provided for.
This Debenture is subject to the following additional provisions:
________________
1 Insert a date which is 18 months from the closing date
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1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Notes are exchangeable for an
equal aggregate principal amount of Notes of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be
made for such registration or transfer or exchange.
2. 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.
3. 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. 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.
4. A. The Holder of this Debenture is entitled, at its option,
subject to the following provisions of this Section 4, to convert all or a
portion of this Debenture into shares of Common Stock of the Company, $.01 par
value per share ("Common Stock") at a conversion price for each share of Common
Stock (the "Conversion Rate") equal to the lower of (x)$.80 (the "Fixed
Conversion Rate"); or (y) eighty (80%) percent of the Market Price (as defined
below) on the Conversion Date.
B. For purpose of this Debenture, the following terms have the
meanings indicated below:
(i) "Trading Day" means the trades executed on the principal
market during the hours when the New York Stock Exchange is open for business.
(ii) "Market Price of the Common Stock" means the single
lowest intra day average trading price of the Common Stock during a consecutive
twenty (20) Trading Day period ending on the Trading Day immediately before the
relevant date indicated in the relevant provision hereof (unless a different
relevant period is specified in the relevant provision), as reported by
Bloomberg, LP.
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C. Conversion shall be effectuated by surrendering the Debentures
to be converted to the Company or to the Company's transfer agent,Computershare,
accompanied by or preceded by facsimile or other delivery to the Company of the
form of conversion notice attached hereto as Exhibit A, executed by the Holder
of the Debenture evidencing such Holder's intention to convert this Debenture or
a specified portion hereof, and accompanied, if required by the Company, by
proper assignment hereof in blank. Subject to the provisions of Section 4(D)
hereof, interest accrued or accruing from the date of issuance to the date of
conversion shall, at the option of the Company, be paid in cash or Common Stock
upon conversion at the Conversion Rate applicable to such conversion. No
fractional shares of Common Stock or scrip representing fractions of shares will
be issued on conversion, but the number of shares issuable shall be rounded to
the nearest whole share. The date on which notice of conversion is given (the
"Conversion Date") shall be deemed to be the date on which the Holder faxes or
otherwise delivers the conversion notice ("Notice of Conversion"), substantially
in the form annexed hereto as Exhibit A, duly executed, to the Company, provided
that the Holder shall deliver to the Company's transfer agent or the Company the
original Debentures being converted within five (5) business days thereafter
(and if not so delivered with such time, the Conversion Date shall be the date
on which the later of the Notice of Conversion and the original Debentures being
converted is received by the Company). Facsimile delivery of the Notice of
Conversion shall be accepted by the Company at facsimile number 000-000-0000;
ATTN: Chief Financial Officer. Certificates representing Common Stock upon
conversion will be delivered within three (3) business days if the address for
delivery is in the United States (and within eight (8) business days if the
address for delivery is outside the United States) from the date later of the
Notice of Conversion is delivered to the Company as contemplated in the first
sentence of this paragraph C or the original Debenture is delivered to the
Company's transfer agent or to the Company.
D. Notwithstanding any other provision hereof, of the Warrants or
of any of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures or a
conversion pursuant to a Redemption Notice Conversion [as defined below], (ii)
as specifically provided in this Debenture as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock) shall the Holder be entitled to convert any
Debenture, or shall the Company have the obligation to convert all or any
portion of this Debenture (and the Company shall not have the right to pay
interest on this Debenture), to the extent that, after such conversion, 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 the
Debentures or unexercised portion of the Warrants), and (2) the number of shares
of Common Stock issuable upon the conversion of the Debentures 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 9.99% of the
outstanding shares of Common Stock (after taking into account the shares to be
issued to the Holder upon such conversion). For purposes of the proviso to the
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immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such sentence.
The Holder, by its acceptance of this Debenture, further agrees that if the
Holder transfers or assigns any of the Debentures to a party who or which would
not be considered such an affiliate, such assignment shall be made subject to
the transferee's or assignee's specific agreement to be bound by the provisions
of this Section 4(D) as if such transferee or assignee were the original Holder
hereof.
5. Notwithstanding any other provision hereof to the contrary, at any
time prior to the Conversion Date, the Company shall have the right to redeem
all or any portion of the then outstanding principal amount of the Debentures
then held by the Holder in cash for an amount (the "Redemption Amount") by
giving not less than fifteen (15) and no more than twenty (20) days written
notice of such redemption to the holders of such Debenture (the "Redemption
Notice"). The Redemption Amount ("Redemption Amount") shall be equal to (a) the
aggregate amount of the Debenture outstanding plus (b) accrued interest thereon
through and including the Redemption Notice Date. The Buyer may continue to
submit Conversion Notices during the first fifteen (15) days after the
Redemption Notice. In the event that the Company does not pay to the holder the
Redemption Amount within twenty (20) Trading Days of the Redemption Notice Date,
than the Redemption Notice shall be of no further force and effect and the
Company will forfeit its right to effect any future Redemption.
6. The Holder recognizes that the Company may be limited in the number
of shares of Common Stock it may issue by (i) reason of its authorized shares,
or (ii) the applicable rules and regulations of the principal securities market
on which the Common Stock is listed or traded (collectively, the"Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
Holder of this Debenture (to the extent the same can not be converted in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall have the
option, exercisable in the Holder's sole and absolute discretion, to elect any
one of the following remedies:
(x) if permitted by the Cap Regulations, require the Company to
issue shares of Common Stock in accordance with such Holder's Notice
of Conversion relating to the Unconverted Debenture at a conversion
purchase price equal to the average of the closing price per share of
Common Stock for any five (5) consecutive Trading Days (subject to the
equitable adjustments for certain events occurring during such period
as provided in this Debenture) during the sixty (60) Trading Days
immediately preceding the date of the Notice of Conversion; or
(y) require the Company to redeem each Unconverted Debenture for
an amount (the "Cap Redemption Amount"), payable in cash, equal to:
V x M
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CP
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where:
"V" means the outstanding principal plus accrued interest through
the Cap Redemption Date (as defined below) of an Unconverted
Debenture;
"CP" means the Conversion Rate in effect on the date of
redemption (the "Cap Redemption Date") specified in the notice from
the Holder electing this remedy; and
"M" means the highest closing price during the period beginning
on the Cap Redemption Date and ending on the date of payment of the
Cap Redemption Amount. Formula:
The holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture.
7. Subject to the terms of the Securities Purchase Agreement, dated
August 22, 2000 (the "Securities Purchase Agreement"), between the Company and
the Holder (or the Holder's predecessor in interest), no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
8. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
9. If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
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assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert this Debenture by delivering a Notice of Conversion to the Company
within fifteen (15) days of receipt of notice of such Sale from the Company. In
the event the Holder hereof shall elect not to convert, the Company may (but
shall not be required to) prepay all outstanding principal and accrued interest
on this Debenture by paying the Redemption Amount contemplated by Section 5(A)
hereof, less all amounts required by law to be deducted, upon which tender of
payment following such notice, the right of conversion shall terminate.
10. If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the "Spin Off") in which the Company does not receive compensation
(other than nominal non-material compensation) for such business, operations or
assets, but causes securities of another entity (the "Spin Off Securities") to
be issued to security holders of the Company, then the Company shall cause (i)
to be reserved Spin Off Securities equal to the number thereof which would have
been issued to the Holder had all of the Holder's Debentures outstanding on the
record date (the "Record Date") for determining the amount and number of Spin
Off Securities to be issued to security holders of the Company (the "Outstanding
Debentures") been converted as of the close of business on the Trading Days
immediately before the Record Date (the "Reserved Spin Off Shares"), and (ii) to
be issued to the Holder on the conversion of all or any of the Outstanding
Debentures, such amount of the Reserved Spin Off Shares equal to (x) the
Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the
numerator is the principal amount of the Outstanding Debentures then being
converted, and (II) the denominator is the principal amount of the Outstanding
Debentures.
11. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of
its Common Stock or issues a dividend on its Common Stock consisting of shares
of Common Stock, the Conversion Rate shall be equitably adjusted to reflect such
action. By way of illustration, and not in limitation, of the foregoing (i) if
the Company effectuates a 2:1 split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such split, the Conversion Rate shall be deemed to be one-half of
what it had been calculated to be immediately prior to such split; (ii) if the
Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such reverse split, the Conversion Rate shall be deemed to be ten
times what it had been calculated to be immediately prior to such split; and
(iii) if the Company declares a stock dividend of one share of Common Stock for
every 10 shares outstanding, thereafter, with respect to any conversion for
which the Company issues the shares after the record date of such dividend, the
Conversion Rate shall be deemed to be the amount of such Conversion Rate
calculated immediately prior to such record date multiplied by a fraction, of
which the numerator is the number of shares (10) for which a dividend share will
be issued and the denominator is such number of shares plus the dividend
share(s) issuable or issued thereon (11).
12. All payments contemplated hereby to be made "in cash" shall be made
in immediately available good funds in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. All payments of cash and each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
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Holder at the address last appearing on the Debenture Register of the Company
as designated in writing by the Holder from time to time; except that the Holder
can designate, by notice to the Company, a different delivery address for any
one or more specific payments or deliveries.
13. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
14. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Debenture.
15. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest
on this Debenture and same shall continue for a period of five
(5) days; or
b. Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration
Rights Agreement or in any certificate or financial or other
written statements heretofore or hereafter furnished by the
Company in connection with the execution and delivery of this
Debenture or the Securities Purchase Agreement shall be false or
misleading in any material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder
or to cause its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture, fails to
transfer or to cause its Transfer Agent 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, and such transfer is
otherwise lawful, or fails to remove any restrictive legend or to
cause its Transfer Agent to transfer on any certificate or any
shares of Common Stock issued to the Holder upon conversion of
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this Debenture as and when required by this Debenture, the
Agreement or the Registration Rights Agreement and such legend
removal is otherwise lawful, and any such failure shall continue
uncured for five (5) business days.
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of any Debenture in this series and such
failure shall continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure; or
e. The Company shall fail to perform or observe, in any material
respect, any covenant, term, provision, condition, agreement or
obligation of the Company under the Securities Purchase Agreement
or the Registration Rights Agreement and such failure shall
continue uncured for a period of thirty (30) days after written
notice from the Holder of such failure (other than a failure to
cause the Registration Statement to become effective no later
than the Required Effective Date, as defined and provided in the
Registration Rights Agreement, as to which no such cure period
shall apply); or
f. 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 its or for a substantial part of its
property or business; or
g. 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 sixty (60)
days after such appointment; or
h. 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 sixty
(60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or similar
process in excess of Two Hundred Thousand ($200,000) Dollars 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 or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency 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
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the Company and, if instituted against the Company, shall not be
dismissed within sixty (60) 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 the material
allegations of, or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or delisted
from an exchange or over-the-counter market from trading for in
excess of twenty (20) Trading Days.
Then, or at any time thereafter, and in each and every such case, 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 consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
16. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
17. In the event for any reason, any payment by or act of the Company or
the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, the ipso facto the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section 17
or otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section 17 shall control every other
provision of this Debenture.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: August 28, 2000
HOT PRODUCTS, XXX.XXX
By:/s/ Xxxxx Xxxxxxx
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XXXXX XXXXXXX
(Print Name)
PRESIDENT
(Title)
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