Exhibit 4.14
NEITHER THIS DEBENTURE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
DEBENTURE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES. THIS DEBENTURE AND THE
SECURITIES ISSUABLE UPON CONVERSION OF THIS DEBENTURE MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
Original Issue Date:
January 30, 2003
$5,500,000
No. SD- 2
MILLENNIUM CELL INC.
SECURED CONVERTIBLE DEBENTURE
DUE ON THE THIRD YEAR ANNIVERSARY OF THE ORIGINAL ISSUE DATE
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of Millennium Cell Inc., a corporation organized under the laws of
the state of Delaware (the "Company"), designated as its Secured Convertible
Debentures, due on the third year anniversary of the Original Issue Date (as
defined herein) in the aggregate principal amount of Five Million Five Hundred
Thousand Dollars ($5,500,000) (collectively, the "Secured Debentures").
FOR VALUE RECEIVED, the Company promises to pay to the order of Pine
Ridge Financial, Inc. or its registered assigns (the "Holder") the principal sum
of Five Million Five Hundred Thousand Dollars ($5,500,000) and any additional
sums due pursuant to the terms hereof on the third year anniversary of the
Original Issue Date, or such earlier date as the Secured Debentures are required
or permitted to be repaid hereunder ("Maturity Date"), and to pay interest to
the Holder on the principal amount of this Secured Debenture in accordance with
the provisions hereof. This Secured Debenture is subject to the following
additional provisions.
1. Definitions. As used in this Secured Debenture, the following terms shall
have the meanings set forth in this Section 1:
"Adjustment Date" means the tenth Trading Day following the
Delivery Date.
"Adjustment Notice" means a written notice delivered by the
Company to a Holder pursuant to Section 6(c), indicating the Company's
intent to adjust the Conversion Price pursuant to Section 6(c).
"Adjustment Percentage" means, as of any Adjustment Date, if
the Holder shall have converted prior thereto (pursuant to Section 6(c)
of the Secured Debentures or the Exchange Debentures or Section 5(c) of
the Unsecured Debenture (as applicable)), an aggregate principal amount
of Debentures between: (i) $0 and $2,500,000, 88%; (ii) $2,500,001 and
$5,000,000, 90%; (iii) $5,000,001 and $7,500,000, 92%; (iv) $7,500,001
to $10,000,000, 94%; and (v) $10,000,001 to $12,000,000, 96%.
"Bankruptcy Event" means any of the following events: (a) the
Company or any subsidiary thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or Liquidation or similar
law of any jurisdiction relating to the Company or any subsidiary
thereof; (b) there is commenced against the Company or any subsidiary
thereof any such case or proceeding that is not dismissed within 60
days after commencement; (c) the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Company or
any subsidiary thereof suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not
discharged or stayed within 60 days; (e) the Company or any subsidiary
thereof makes a general assignment for the benefit of creditors; (f)
the Company or any subsidiary thereof fails to pay, or states that it
is unable to pay or is unable to pay, its debts generally as they
become due; (g) the Company or any subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (h) the Company or any subsidiary
thereof, by any act or failure to act, expressly indicates its consent
to, approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the
foregoing.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday or a day on which banking
institutions in the State of New York or the State of New Jersey are
authorized or required by law or other governmental action to close.
"Change of Control" means the occurrence of any of: (i) an
acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of
in excess of 33% of the voting securities of the Company, (ii) a
replacement at one time or over time of more than one-half of the
members of the Company's board of directors which is not approved by a
majority of those individuals who are members of the board of directors
on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of
directors was approved by a majority of the members of the board of
directors who are members on the date hereof), (iii) the merger of the
Company with or into another entity that is not wholly-owned by the
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Company, consolidation or sale of 50% or more of the assets of the
Company in one or a series of related transactions, or (iv) the
execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"Closing Price" means, for any date, the price determined by
the first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on an Eligible Market, the closing sales
price per share of the Common Stock for such date (or the nearest
preceding date) on the primary Eligible Market on which the Common
Stock is then listed or quoted; (b) if the Common Stock is not then
listed or quoted on an Eligible Market and if prices for the Common
Stock are then quoted on the OTC Bulletin Board (or any successor
thereto), the closing sales price per share of the Common Stock for
such date (or the nearest preceding date) on the OTC Bulletin Board (or
any successor thereto); (c) if the Common Stock is not then listed or
quoted on an Eligible Market or the OTC Bulletin Board (or any
successor thereto) and if prices for the Common Stock are then reported
in the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent sales price per share
of the Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holder.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.001 par
value, and stock of any other class into which such shares may be
reclassified or changed.
"Common Stock Equivalents" means any securities of the Company
or a subsidiary thereof which entitle the holder thereof to acquire
Common Stock at any time, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock or other securities that
entitle the holder to receive, directly or indirectly, Common Stock.
"Company Conversion Date" means the tenth (10th) day
immediately following the date a Company Conversion Notice together
with the Conversion Schedule is delivered to the Holder pursuant to
Section 6(b).
"Company Conversion Notice" means a written notice in the form
attached hereto as Exhibit B.
"Company Prepayment Price" for any Secured Debentures which
shall be subject to prepayment pursuant to Section 8(a), shall equal
the sum of: (i) 105% of the principal amount of Secured Debentures to
be prepaid, plus all accrued and unpaid interest thereon, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of
such Secured Debentures.
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"Conversion Date" means either a Holder Conversion Date, a
Company Conversion Date or an Adjustment Date.
"Conversion Notice" means either a Holder Conversion Notice or
a Company Conversion Notice.
"Conversion Price" means the Initial Conversion Price, subject
to adjustment from time to time pursuant to Sections 6(c) (solely with
respect to conversions pursuant to Section 6(c)) and 6(j).
"Debentures" shall have the meaning set forth in the Purchase
Agreement.
"Delivery Date" means the date an Adjustment Notice is
delivered to the Holder pursuant to Section 6(c).
"Eligible Market" means any of the New York Stock Exchange,
the American Stock Exchange, the Nasdaq or the Nasdaq Small Cap Market.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Debentures" means unsecured convertible debentures
in the form attached hereto as Exhibit C, issuable from time to time
upon exchange of Secured Debentures pursuant to Section 7 hereof.
"Equity Conditions" means, with respect to a specified
issuance of Common Stock, that each of the following conditions is
satisfied: (i) the number of authorized but unissued and otherwise
unreserved shares of Common Stock is sufficient for such issuance; (ii)
such shares of Common Stock are registered for resale by the Holder
pursuant to an effective registration statement, and the prospectus
thereunder is available for use by the Holder to sell such shares or
all such shares may be sold without volume restrictions pursuant to
Rule 144(k) under the Securities Act; (iii) the Common Stock is listed
or quoted (and is not suspended from trading) on an Eligible Market and
such shares of Common Stock are approved for listing on such Eligible
Market upon issuance; (iv) such issuance would be permitted in full
without violating Section 6(d)(i) or the rules or regulations of the
Eligible Market on which such shares are listed or quoted; (v) no Event
of Default nor any event that with the passage of time and without
being cured would constitute a Event of Default has occurred and not
been cured, and (vii) no public announcement of a pending or proposed
Change of Control transaction has occurred that has not been
consummated.
"Event of Default" means the occurrence of any one of the
following events (whatever the reason and whether it shall be voluntary
or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
(i) the occurrence of an Event of Default (as defined in either the
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Unsecured Debentures or the Exchange Debentures) pursuant to the
Unsecured Debentures or the Exchange Debentures (whether or not
declared by an applicable holder of such debenture and regardless
whether or not any such debenture is outstanding); or
(ii) either: (A) the Letter of Credit (as defined in Section 2(a)) shall be
revoked, withdrawn, terminated or disaffirmed by the Bank (as defined
in Section 2(a)) or (B) the Holder shall have received notification
from the Bank pursuant to the Letter of Credit that the Letter of
Credit shall not be renewed and: (x) 45 days shall have elapsed since
the delivery of such notification, (y) such non-renewal shall not have
been withdrawn by the Bank prior to such 45th day and (z) the Company
shall not have delivered a substitute letter of credit in form and
substance satisfactory to the Holder in its sole and absolute
discretion.
"Final Release Date" means, subsequent to the date the
Registration Statements covering the resale of the shares of Common
Stock issuable upon conversion of all then outstanding Debentures has
been declared effective by the Commission, the tenth (10th) Trading Day
immediately following a period of twenty consecutive Trading Days
during which the VWAP on each of such twenty consecutive Trading Days
is greater than $5.10 (subject to equitable adjustment for stock
splits, recombinations and similar events).
"Holder Conversion Date" means the date a Holder Conversion
Notice together with the Conversion Schedule is delivered to the
Company pursuant to Section 6(a).
"Holder Conversion Notice" means a written notice in the form
attached hereto as Exhibit A.
"Holder Prepayment Price" for any Secured Debentures required
to be prepaid pursuant to: (x) Section 9(b)(i), shall equal the sum of:
(i) the principal amount of Secured Debentures to be prepaid, plus all
accrued and unpaid interest thereon and (ii) all other amounts, costs,
expenses and liquidated damages due in respect of such Secured
Debentures and (y) Section 9(b)(ii), shall equal the sum of: (i) 110%
of the principal amount of Secured Debentures to be prepaid, plus all
accrued and unpaid interest thereon and (ii) all other amounts, costs,
expenses and liquidated damages due in respect of such Secured
Debentures.
"Initial Conversion Price" shall equal $4.25 (subject to
equitable adjustment for stock splits, recombinations and similar
events).
"Interest Payment Date" means each March 31, June 30,
September 30 and December 31, beginning on the first such date
following the Original Issue Date, except if such date is not a Trading
Day, in which case such Interest Payment Date shall be the next
succeeding Trading Day.
"Index Price" means the average of the VWAP's for the 10
consecutive Trading Days immediately following the Delivery Date.
"Interest Rate" means a rate of interest paid from time to
time on money market accounts held at the Bank.
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"Liquidation" means for any Person, any liquidation,
dissolution or winding-up of such Person, whether voluntary or
involuntary, by operation or law or otherwise.
"Mandatory Convertible Amount" means $300,000, that any
respect to each Adjustment Date, such amount may be increased up to
$2,500,000 by mutual consent of the Holder and the Company reached
prior to the applicable Adjustment Date.
"Mandatory Prepayment Amount" means for any Secured
Debentures: (I) with respect to an Event of Default hereunder pursuant
to under clauses (i)-(xii) contained in the definition of Event of
Default of an Unsecured Debenture, shall equal the sum of: (i) the
greater of (A) 130% of the principal amount of Secured Debentures to be
prepaid and, if applicable, the Reinstated Principal, plus all accrued
and unpaid interest thereon, and (B) the principal amount of Secured
Debentures to be prepaid and, if applicable, the Reinstated Principal,
plus all accrued and unpaid interest thereon, divided by the Conversion
Price on the Trading Day immediately preceding (x) the date of the
Event of Default or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is less, multiplied by the Closing Price on (x)
the date of the Event of Default or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of
such Secured Debentures; (II) with respect to an Event of Default
hereunder pursuant to clause (xiii) contained in the definition of
Event of Default of an Unsecured Debenture, shall equal the sum of: (i)
100% of the principal amount of Secured Debentures to be prepaid, plus
100% of all accrued and unpaid interest thereon and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such
Secured Debentures; and (III) with respect to an Event of Default
hereunder pursuant to clause (xiv) contained in the definition of Event
of Default of an Unsecured Debenture, shall equal the sum of: (i) the
principal amount of Secured Debentures to be prepaid, plus of all
accrued and unpaid interest thereon and (ii) all other amounts, costs,
expenses and liquidated damages due in respect of such Secured
Debentures.
"Nasdaq" means the Nasdaq National Market.
"Original Issue Date" means the date of the first issuance of
any Secured Debentures, regardless of the number of transfers of any
particular Secured Debenture and regardless of the number of
certificates which may be issued to evidence such Secured Debentures.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened in
writing concerning the interpretation, enforcement or defense of any
transaction contemplated by any Transaction Document (whether brought
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against a party hereto or such parties affiliates, directors, officers,
employees or agents).
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of October 31, 2002, to which the Company and the original
Holders are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 31, 2002, to which the Company and the
original Holders are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
"Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Reinstated Principal" means the principal amount of Secured
Debentures converted during the ten Trading Days preceding the delivery
of an Event of Default Notice, for which the Company issued or was
obligated to issue Underlying Shares to the Holder.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" shall have the meaning set forth in the Purchase
Agreement.
"Trading Day" means: (a) a day on which the shares of Common
Stock are traded on an Eligible Market, or (b) if the shares of Common
Stock are not listed on an Eligible Market, a day on which the shares
of Common Stock are traded in the over-the-counter market, as reported
by the OTC Bulletin Board, or (c) if the shares of Common Stock are not
quoted on the OTC Bulletin Board, a day on which the shares of Common
Stock are quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, that in
the event that the shares of Common Stock are not listed or quoted as
set forth in (a), (b) and (c) hereof, then Trading Day shall mean a
Business Day.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"Underlying Shares" means, collectively, the shares of Common
Stock issuable upon conversion of Secured Debentures in accordance with
the terms hereof.
"Unsecured Debentures" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" means on any particular Trading Day or for any
particular period, the volume weighted average trading price per share
of Common Stock on such date or for such period on an Eligible Market
as reported by Bloomberg L.P., or any successor performing similar
functions.
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"Warrants" shall have the meaning set forth in the Purchase
Agreement.
2. Letter of Credit.
(a) This Secured Debenture is the debenture referred to in an irrevocable letter
of credit issued by Wachovia Bank, National Association (the "Bank") in favor of
the Holder in an original amount of the aggregate original principal amount of
the Secured Debentures, a copy of which is annexed hereto as Annex A (the
"Letter of Credit"). The Company hereby acknowledges that the Holder and any
subsequent Holder shall be entitled to the benefits of the Letter of Credit and
covenants and agrees that it will not impair the Holder's rights under the
Letter of Credit and (except to the extent provided in Section 2(b)) shall
maintain the Letter of Credit in full force and effect.
(b) The Holder agrees that the face amount of the Letter of Credit shall be
reduced from time to time pursuant to the terms set forth below:
(i) subsequent to each Conversion Date, the face amount of the Letter of Credit
shall be reduced on the date on which the Holder receives the Underlying Shares
it is entitled to receive subsequent to such Conversion Date pursuant to Section
6(e), by an amount equal to the principal amount of Secured Debentures converted
on such Conversion Date less any interest payment accreted to principal up to
such date;
(ii) the face amount of the Letter of Credit shall be reduced by an amount equal
to the Holder Prepayment Price or the Company Prepayment Price paid by the
Company pursuant to the delivery of a Holder Prepayment Notice or Company
Prepayment Notice, as applicable, as set forth in Section 8, upon receipt by the
Holder of such payment;
(iii) the face amount of the Letter of Credit shall be reduced by an amount
equal to the principal amount of Secured Debentures being exchanged pursuant to
Section 7 into Exchange Debentures, upon receipt by the Holder of such Exchange
Debenture; and
(iv) on the Final Release Date and provided that: (A) the Equity Conditions are
satisfied on such date with respect to the Underlying Shares issuable upon
conversion in full of the then outstanding principal amount of Secured
Debentures and (B) the Underlying Shares issuable upon conversion in full of the
then outstanding principal amount of Secured Debentures would not violate
Section 6(d)(i), the Letter of Credit shall be canceled and shall cease to
secure any Secured Debentures which may be outstanding as of such Final Release
Date.
(c) The Holder shall, within five Trading Days of the occurrence of any of the
events set forth in Section 2(b), provide the Bank with Exhibit C attached to
the Letter of Credit indicating the occurrence of such event.
(d) Upon the failure of the Company to timely pay to the Holder any amount which
is then due and payable to the Holder under this Secured Debenture, whether
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pursuant to Section 8, Section 9 or any other applicable Section herein, the
Holder shall be entitled to draw on the Letter of Credit to the extent of any
such payment or payments so due to the Holder is not timely paid by the Company.
(e) Any amounts received by the Holder pursuant to a draw on the Letter of
Credit shall be applied against all unsatisfied obligations of the Company under
this Secured Debenture.
3. Interest.
(a) The Company shall pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Secured Debenture (including any
interest added to such principal in accordance with this Section 2) at an annual
rate equal to the Interest Rate, payable quarterly in arrears on each Interest
Payment Date. Interest shall be calculated on the basis of a 360-day year and
shall accrue daily commencing on the Original Issue Date. Subject to the
conditions and limitations set forth below, the Company will pay interest under
this Secured Debenture either (i) in cash, or (ii) by delivering by the third
Trading Day following the Interest Payment Date, a number of freely tradable
shares of Common Stock equal to the quotient obtained by dividing the amount of
such interest by the arithmetic average of the VWAP for the five Trading Days
immediately preceding (but not including) the Interest Payment Date. To pay the
interest payable on an Interest Payment Date in freely tradable shares of Common
Stock, the Company must deliver written notice to the Holder indicating its
election to make such stock payment at least 20 calendar days prior to such
Interest Payment Date, but the Company may indicate in any such notice that the
election contained therein shall continue for subsequent Interest Payment Dates
until revised on not less than 20 calendar days notice prior to an Interest
Payment Date. Failure to timely provide such written notice shall be deemed an
election by the Company to pay such interest in cash. All interest payable on
any Interest Payment Date must be paid in the same manner.
(b) Notwithstanding the foregoing, the Company may not pay interest in shares of
Common Stock unless, on the Interest Payment Date, the Equity Conditions are
satisfied with respect to all of the Underlying Shares then issuable upon
conversion in full of all outstanding Secured Debentures. If the Company is
required but fails to pay interest in cash on any Interest Payment Date, the
Holder may (but shall not be required to), by notice to the Company, treat such
interest as if it had been accreted to the principal amount of this Secured
Debenture as of such Interest Payment Date.
4. Registration of Secured Debentures. The Company shall register the Secured
Debentures upon records to be maintained by the Company for that purpose (the
"Secured Debenture Register") in the name of each record holder thereof from
time to time. The Company may deem and treat the registered Holder as the
absolute owner hereof for the purpose of any conversion hereof or any payment of
interest hereon, and for all other purposes, absent actual notice to the
contrary.
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5. Registration of Transfers and Exchanges. The Company shall register the
transfer of any portion of this Secured Debenture in the Secured Debenture
Register upon surrender of this Secured Debenture to the Company at its address
for notice set forth herein. Upon any such registration or transfer, a new
debenture, in substantially the form of this Secured Debenture (any such new
debenture, a "New Secured Debenture"), evidencing the portion of this Secured
Debenture so transferred shall be issued to the transferee and a New Secured
Debenture evidencing the remaining portion of this Secured Debenture not so
transferred, if any, shall be issued to the transferring Holder. The acceptance
of the New Secured Debenture by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Secured Debenture. This Secured Debenture is exchangeable for an equal
aggregate principal amount of Secured Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge or other fee will be imposed in connection with any such registration of
transfer or exchange. Transfers of this Secured Debenture and the Underlying
Shares issuable on conversion thereof hereby are governed by Section 4.1 of the
Purchase Agreement.
6. Conversion
(a) At the option of the Holder. The principal amount of this Secured Debenture
then outstanding is convertible into shares of Common Stock at the Conversion
Price (subject to limitations set forth in Section 6(d)), at the option of the
Holder, at any time and from time to time from and after the Original Issue
Date. Holders shall effect conversions under this Section 6(a), by delivering to
the Company a Holder Conversion Notice together with a schedule in the form of
Schedule 1 attached hereto (the "Conversion Schedule"). The number of Underlying
Shares issuable upon any conversion hereunder shall (subject to limitations set
forth in Section 6(d)) equal the outstanding principal amount of this Secured
Debenture to be converted divided by the Initial Conversion Price. If the Holder
is converting less than all of the principal amount represented by this Secured
Debenture, or if a conversion hereunder may not be effected in full due to the
application of Section 6(d)(i), the Company shall honor such conversion to the
extent permissible hereunder and shall promptly deliver to the Holder a
Conversion Schedule indicating the principal amount which has not been
converted.
(b) At the option of the Company. Subject to the conditions set forth in this
Section 6(b) and Section 6(d), at any time after the first year anniversary of
the Original Issue Date, the Company may require a conversion, at the Conversion
Price and on the Company Conversion Date, of all or a portion of the outstanding
principal amount of this Secured Debenture if: (i) both: (A) the average of the
Closing Prices during any 30 consecutive Trading Days is equal to or greater
than $5.10 (subject to equitable adjustments for stock splits, recapitalizations
and similar events) and (B) the Closing Price for each of 15 Trading Days (which
need not be consecutive) during such 30 consecutive Trading Day period is equal
to or greater than $5.10 (subject to equitable adjustments for stock splits,
recapitalizations and similar events) and (ii) all of the Equity Conditions are
satisfied as of the Company Conversion Date with respect to all of the
Underlying Shares potentially issuable in connection with such proposed
conversion. The Company shall exercise its right to require conversions
hereunder by delivering to the Holder a Company Conversion Notice together with
a Conversion Schedule within 10 Business Days of the satisfaction of the
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condition set forth in clause (i) of the immediately preceding sentence.
Notwithstanding anything herein to the contrary, if any of the conditions set
forth in clauses (i) and (ii) herein shall cease to be in effect during the
period between the date of the delivery of the Company Conversion Notice and the
Company Conversion Date, then the Holder subject to such conversion may elect,
by written notice to the Company given at any time after any such conditions
shall cease to be in effect, to invalidate ab initio such conversion. The number
of Underlying Shares issuable upon any conversion hereunder shall (subject to
limitations set forth in Section 6(d)) equal the outstanding principal amount of
this Secured Debenture to be converted (including any interest payments accreted
to principal pursuant to the terms hereof) divided by the Initial Conversion
Price. The conversion subject to each Company Conversion Notice, once given,
shall be irrevocable as to the Company. If the conversion of a principal amount
of Secured Debentures indicated in a Company Conversion Notice would result in
the issuance to the Holder of Underlying Shares in excess of the amount
permitted pursuant to Section 6(d)(i), the Holder shall notify the Company of
this fact and the Company shall: (x) honor the conversion for the maximum
principal amount of Secured Debentures permitted, pursuant to Section 6(d)(i),
to be converted on such Company Conversion Date and (y) cancel the Company
Conversion Notice with respect to the portion of the principal amount of Secured
Debentures the conversion of which would violate Section 6(d)(i).
Notwithstanding anything herein to the contrary, the Company shall not be
entitled to deliver a Company Conversion Notice prior to the 10th Business Day
following the delivery of a Company Conversion Notice pursuant to any Debenture.
(c) Company's option to adjust Conversion Price and force conversion. At any
time and from time to time after the date the Registration Statement covering
the resale of the Underlying Shares issuable upon conversion of the Secured
Debentures has been declared effective by the Commission, the Company shall have
the option, upon the delivery of an Adjustment Notice to the Holder, to adjust
the Conversion Price then in effect with respect to the Mandatory Convertible
Amount applicable to such Adjustment Notice to equal the lesser of: (A) the
Initial Conversion Price and (B) the product of (x) the applicable Adjustment
Percentage and (y) the Index Price. Subject to the terms hereof (including,
without limitation, Section 6(d)(i)), on each Adjustment Date immediately
following the delivery of an Adjustment Notice, the applicable Mandatory
Convertible Amount shall be converted into Underlying Shares at the Conversion
Price as adjusted on such Adjustment Date pursuant to the terms of the
immediately preceding sentence, provided, that such conversion shall only occur
if all of the Equity Conditions are satisfied as of the Adjustment Date with
respect to all of the Underlying Shares potentially issuable in connection with
such proposed conversion. Notwithstanding anything herein to the contrary, the
Company shall not be entitled to deliver an Adjustment Notice prior to the tenth
(10th) Trading Day immediately following the immediately preceding Delivery Date
hereunder or a delivery date under any Debenture. If a conversion of the
Mandatory Convertible Amount would result in the issuance to the Holder of
Underlying Shares in excess of the amount permitted pursuant to Section 6(d)(i),
the Holder shall notify the Company of this fact and the Company shall: (x)
honor the conversion for the maximum principal amount of Secured Debentures
permitted, pursuant to Section 6(d)(i), to be converted on the applicable
Adjustment Date and (y) cancel the portion of the Mandatory Convertible Amount
the conversion of which would violate Section 6(d)(i).
11
(d) Certain Conversion Restrictions.
(i) Notwithstanding anything to the contrary contained herein, the number of
shares of Common Stock that may be acquired by a Holder upon any conversion of
Secured Debentures (or otherwise in respect hereof) shall be limited to the
extent necessary to insure that, following such conversion (or other issuance),
the total number of shares of Common Stock then beneficially owned by such
Holder and its affiliates and any other Persons whose beneficial ownership of
Common Stock would be aggregated with such Holder's for purposes of Section
13(d) of the Exchange Act, does not exceed 9.999% of the total number of issued
and outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such conversion). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. Each delivery of a
Holder Conversion Notice hereunder will constitute a representation by the
applicable Holder that it has evaluated the limitation set forth in this
paragraph and determined that issuance of the full number of Underlying Shares
issuable in respect of such Conversion Notice does not violate the restriction
contained in this paragraph. This provision shall not restrict the number of
shares of Common Stock which a Holder may receive or beneficially own in order
to determine the amount of securities or other consideration that such Holder
may receive in the event of a merger, sale or other business combination or
reclassification involving the Company as contemplated herein.
(ii) [intentionally left blank].
(e) Mechanics of Conversion. By the third Trading Day after each Conversion
Date, the Company shall issue or cause to be issued and cause to be delivered to
or upon the written order of the Holder and in such name or names as the Holder
may designate a certificate for the Underlying Shares issuable upon such
conversion which, unless required by the Purchase Agreement, shall be free of
all restrictive legends. The Holder, or any Person so designated by the Holder
to receive Underlying Shares, shall be deemed to have become the holder of
record of such Underlying Shares as of the Conversion Date. If the Company's
transfer agent is eligible to participate in the Depositary Trust Corporation
DWAC system and no legends are required to be included on the certificates
representing Underlying Shares pursuant to the Purchase Agreement, the Company
shall, upon request of the Holder, use its best efforts to deliver Underlying
Shares hereunder electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions.
(f) To effect conversions hereunder, the Holder shall not be required to
physically surrender this Secured Debenture unless the aggregate principal
amount represented by such Secured Debenture is being converted, in which event,
the Holder shall deliver such Secured Debenture promptly to the Company (it
being understood that such delivery is not a condition precedent to the
Company's obligations to deliver Underlying Shares upon such conversion).
Conversions hereunder shall have the effect of lowering the outstanding
principal amount represented by such Secured Debenture in an amount equal to the
applicable conversion, which shall be evidenced by entries set forth in the
Conversion Schedule which will be maintained by the Company and the Holder and
be binding on both parties absent manifest error.
12
(g) The Company's obligations to issue and deliver Underlying Shares upon
conversion of this Secured Debenture in accordance with the terms hereof
(including, without limitations, Section 6(d)) are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such
Underlying Shares.
(h) If by the third Trading Day after a Conversion Date the Company fails to
deliver to the Holder such Underlying Shares in such amounts and in the manner
required pursuant to Section 6(e), then the Holder will have the right to
rescind such conversion.
(i) If by the third Trading Day after a Conversion Date the Company fails to
deliver to the Holder such Underlying Shares in such amounts and in the manner
required pursuant to Section 6(e), and if after such third Trading Day the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Holder of the Underlying
Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"),
then the Company shall (A) pay in cash to the Holder (in addition to any
remedies available to or elected by the Holder) the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the aggregate number of Underlying Shares that the Company was
required to deliver to the Holder in connection with the conversion at issue by
(2) the Closing Price at the time of the obligation giving rise to such purchase
obligation and (B) at the option of the Holder, either reinstate the principal
amount of Secured Debentures and equivalent number of Underlying Shares for
which such conversion was not timely honored or deliver to the Holder the number
of shares of Common Stock that would have been issued had the Company timely
complied with its conversion and delivery obligations hereunder. For example, if
the Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of Secured Debentures
with a market price on the date of conversion totaling $10,000, under clause (A)
of the immediately preceding sentence, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In.
(j) Adjustments to Conversion Price. The Conversion Price in effect on any
Conversion Date shall be subject to adjustments in accordance with this Section
6(j):
(i) Stock Dividends and Splits. If the Company, at any time while any Secured
Debentures are outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Conversion Price
13
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.
(ii) Additional Distributions. If the Company, at any time while any Secured
Debentures are outstanding, shall distribute to all holders of Common Stock (and
not to Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion
Price at which the principal amount of Secured Debentures shall thereafter be
convertible shall be determined by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Closing Price determined as of the record date mentioned above, and
of which the numerator shall be such Closing Price on such record date less the
then fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of
Common Stock as determined by the Board of Directors in good faith. In either
case the adjustments shall be described in a statement provided to the Holders
of the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(iii) Subsequent Equity Sales. If the Company or any subsidiary thereof, as
applicable, at any time while this Secured Debenture is outstanding, shall issue
shares of Common Stock or Common Stock Equivalents entitling any Person to
acquire shares of Common Stock, at a price per share less than the Conversion
Price (if the holder of the Common Stock or Common Stock Equivalent so issued
shall at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights issued in connection with such issuance, be
entitled to receive shares of Common Stock at a price less than the Conversion
Price, such issuance shall be deemed to have occurred for less than the
Conversion Price), then, at the option of the Holder for such conversions as it
shall indicate, the Conversion Price shall be adjusted to mirror the conversion,
exchange or purchase price for such Common Stock or Common Stock Equivalents
(including any reset provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. The Company
shall notify the Holder in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section,
indicating therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms. No further adjustments
shall be made to the Conversion Price upon the actual issuance of Common Stock
upon conversion or exercise of the applicable Common Stock Equivalent.
Notwithstanding the foregoing, no adjustment will be made under this Section
6(j)(iii) in respect of:
14
(A) Any grant of an option or warrant for Common Stock or issuance of any shares
of Common Stock upon the exercise of any options or warrants to employees,
officers and directors of or consultants to the Company pursuant to any stock
option plan, employee stock purchase plan or similar plan or incentive or
consulting arrangement approved by the Company's board of directors;
(B) Any rights or agreements to purchase Common Stock Equivalents outstanding on
the date hereof and as specified in Schedule 3.1(g) to the Purchase Agreement
(but not as to any amendments or other modifications to the number of Common
Stock issuable thereunder, the terms set forth therein, or the exercise price
set forth therein);
(C) Any Common Stock or Common Stock Equivalents issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or other similar
business combination;
(D) Any issuances of Common Stock or Common Stock Equivalents to a Person which
is or will be, itself or through its subsidiaries, an operating company in a
business related to or complementary with the business of the Company and in
which the Company receives reasonably material benefits in addition to the
investment of funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities;
(E) Any Common Stock Equivalents that entitle the holders thereof to acquire up
to 500,000 shares of Common Stock issued pursuant to any equipment leasing
arrangement;
(F) Any Common Stock or Common Stock Equivalents issued to pay all or a portion
of any investment banking, finders or similar fee or commission, which entitles
the holders thereof to acquire shares of Common Stock at a price not less than
the market price of the Common Stock on the date of such issuance and which is
not subject to any adjustments other than on account of stock splits and reverse
stock splits;
(G) A bona fide underwritten public offering of the Common Stock resulting in
gross proceeds in excess of $15 million to the Company (it being understood that
equity line transactions, including any on going warrant financing, or any
similar arrangements shall not constitute a bona fide underwritten public
offering of the Common Stock for the purposes hereof);
(H) Any adjustment to the Conversion Price pursuant to Section 6(c); or
(I) The issuance of any Debentures or Warrants pursuant to the Purchase
Agreement or the issuance of any shares of Common Stock upon conversion and
exercise, respectively, of Debentures and Warrants or upon exercise of warrants
issued by the Company on June 19, 2002 to Pine Ridge Financial, Inc. and ZLP
Master Technology Fund, Ltd.
15
(iv) Calculations. All calculations under this Section 6(j) shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. The number
of shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(v) Notice of Adjustments. Whenever the Conversion Price is adjusted pursuant to
the terms hereof the Company shall promptly mail to each Holder, a notice
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(k) Fundamental Transactions. If, at any time while this Secured Debenture is
outstanding: (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then the Holder shall have the right thereafter to
receive, upon conversion of the outstanding principal amount of this Secured
Debenture, the same amount and kind of securities, cash or property as it would
have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of the number of Underlying Shares then issuable upon conversion in
full of the outstanding principal amount of this Secured Debenture (the
"Alternate Consideration"). For purposes of any such exercise, the determination
of the Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Conversion Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of the outstanding principal
amount of this Secured Debenture following such Fundamental Transaction. At the
Holder's option and request, any successor to the Company or surviving entity in
such Fundamental Transaction shall, either (i) issue to the Holder a new
debenture substantially in the form of this Secured Debenture and consistent
with the foregoing provisions (omitting Section 6(j)(iii) hereof) and evidencing
the Holder's right to purchase the Alternate Consideration at the Conversion
Price upon conversion thereof, or (ii) purchase the Secured Debenture from the
Holder for a purchase price, payable in cash within five Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
equal to the Black Scholes value of the remaining unconverted portion of the
outstanding principal amount of this Secured Debenture (together with any
accrued but unpaid interest thereon) on the date of the Fundamental Transaction
as well as assumptions reasonably mutually acceptable to the Company and the
Holder, provided that for purposes of such calculation, the market price of the
Common Stock shall be the closing bid price of the Common Stock on the Trading
16
Day immediately preceding the public announcement of the Fundamental Transaction
and the volatility factor shall be determined by reference to the 12 month
average industry volatility measures. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this
paragraph (k) and insuring that the Secured Debenture (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.
(l) Reclassifications; Share Exchanges. In case of any reclassification of the
Common Stock, or any compulsory share exchange pursuant to which the Common
Stock is converted into other securities, cash or property (other than
compulsory share exchanges which constitute Change of Control Transactions), the
Holders of the Secured Debentures then outstanding shall have the right
thereafter to convert such shares only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or share exchange, and the Holders
shall be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of Common Stock of the Company into
which such shares of Secured Debentures could have been converted immediately
prior to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(m) Notice of Corporate Events. If (a) the Company shall declare a dividend (or
any other distribution) on the Common Stock, (b) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common Stock, (c)
the Company shall authorize the granting to all holders of Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any Change of Control transaction or
Fundamental Transaction, (e) the entering into an agreement to effectuate a
Change of Control transaction or Fundamental Transaction, or (f) the Company
shall authorize the Liquidation of the Company; then the Company shall file a
press release or Current Report on Form 8-K to disclose such occurrence and
notify the Holders at their last addresses as they shall appear upon the stock
books of the Company, at least 20 calendar days prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which any such Change of Control transaction or Fundamental Transaction
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for securities, cash or other property deliverable upon any
such Change of Control Transaction or Fundamental Transaction. Holders are
entitled to convert principal amount of this Secured Debenture during the 20-day
period commencing the date of such notice to the effective date of the event
triggering such notice.
(n) The Company covenants that it will at all times reserve and keep available
out of its authorized and unissued shares of Common Stock solely for the purpose
17
of issuance upon conversion of Secured Debentures, each as herein provided, free
from preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of Common Stock as
shall be issuable upon the conversion of all outstanding principal amount of
Secured Debentures. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized and
issued and fully paid and nonassessable.
(o) Upon a conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Closing Price on the applicable Conversion Date. If any
fraction of an Underlying Share would, except for the provisions of this Section
6(o), be issuable upon a conversion hereunder, the Company shall pay an amount
in cash equal to the Conversion Price multiplied by such fraction.
(p) The issuance of certificates for Common Stock on conversion of principal
amount of this Secured Debenture shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Secured Debentures so
converted.
(q) Any and all notices or other communications or deliveries to be provided by
the Holders, including, without limitation, any Conversion Notice, shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to the attention of the Chief
Financial Officer of the Company addressed to 0 Xxxxxxxxxx Xxx Xxxx, Xxxxxxxxx,
Xxx Xxxxxx, Facsimile No.: (000) 000-0000, or to such other address or facsimile
number as shall be specified in writing by the Company for such purpose. Any and
all notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder at
the facsimile telephone number or address of such Holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears, at
the principal place of business of the Holder. Any notice or other communication
or deliveries hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section 6(q) prior
to 6:30 p.m. (New York City time)(with confirmation of transmission), (ii) the
date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section 6(q) later than 6:30 p.m. (New York City time) on any date and earlier
than 11:59 p.m. (New York City time) on such date (with confirmation of
transmission), (iii) upon receipt, if sent by a nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
18
7. Automatic Exchange of Principal Amount of Secured Debentures.
(a) If, at any time and from time to time, subsequent to a conversion of the
outstanding principal amount of either Unsecured Debentures or Exchange
Debentures (collectively, the "Target Debentures") both: (x) the outstanding
principal amount of the last-issued Target Debentures then held by the Holder is
less than $1,000,000 and (y) the Additional Registration Statement (as defined
in the Registration Rights Agreement) filed pursuant to the Registration Rights
Agreement in connection with the occurrence of the event described in clause (x)
has been declared effective by the Commission and is not subject to any actual
or threatened stop order or suspension, then the lesser of: (i) $3,000,000
principal amount of Secured Debentures plus accrued and unpaid interest thereon
and (ii) the outstanding principal amount of Secured Debentures and all accrued
and unpaid interest thereon, will be automatically exchanged for an Exchange
Debenture in an equal aggregate principal amount.
(b) In order to effectuate such automatic exchanges, upon the occurrence of the
conditions set forth in Section 7(a), the Holder shall promptly tender to the
Company this Secured Debenture and the Company shall promptly tender to the
Holder an Exchange Debenture in the aggregate principal amount of the principal
amount (plus accrued and unpaid interest) of Secured Debenture being exchanged
and (if applicable) a new Secured Debenture reflecting the principal amount not
being exchanged. The date a Holder receives such Exchange Debentures shall be
referred to as an "Exchange Date." Each Exchange Debenture issued pursuant to
this Section 7 will mature on the ninth (9th) month anniversary of the
applicable Exchange Date, provided, that such maturity date may be extended by
mutual consent of the Holder and the Company on six occasions by 30 days.
8. Prepayments Upon Events of Default. Upon the occurrence of an Event of
Default, each Holder shall (in addition to all other rights it may have
hereunder or under applicable law), have the right exercisable at the sole
option of such Holder, and by delivery of a written notice to the Company to
require the Company (an "Event of Default Notice"), to prepay all or a portion
of the Secured Debentures then held by such Holder and, at the option of the
Holder, all or a portion of the Reinstated Principal, for an amount, in cash,
equal to the Mandatory Prepayment Amount. The Mandatory Prepayment Amount shall
be due and payable within five Trading Days of the date of the Event of Default
Notice. For purposes of this Section 8, principal amount of Secured Debentures
shall remain outstanding until such date as the Holder shall have received
Underlying Shares upon a conversion (or attempted conversion) thereof that meets
the requirements hereof. Notwithstanding anything herein to the contrary, upon
the occurrence of a Bankruptcy Event, all outstanding principal and accrued but
unpaid interest on this Secured Debenture shall immediately become due and
payable in full in cash, without any further action by the Holder, and the
Company shall immediately be obligated to pay the Mandatory Prepayment Amount
pursuant to this paragraph as if the Holder had delivered a Event of Default
Notice immediately prior to the occurrence of any such Event of Default. The
Holder need not provide and the Company hereby waives any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Xxxxxx at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.
19
9. Other Prepayments
(a) Prepayment at the Option of the Company.
(i) At any time following the Original Issue Date and prior to the Maturity
Date, upon delivery of a written notice to the Holder (a "Company Prepayment
Notice" and the date such notice is delivered by the Company, the "Company
Notice Date"), the Company shall be entitled to prepay a principal amount of
Secured Debentures equal to the lesser of (x) the aggregate outstanding
principal amount of Secured Debentures then held by the Holder and (y) the
principal amount of Secured Debentures which may be converted without violation
of Section 6(d)(i), in either case, for an amount in cash equal to the Company
Prepayment Price. The Holder may convert any portion of the outstanding
principal amount of the Secured Debentures subject to a Company Prepayment
Notice prior to the date that the Company Prepayment Price is due and paid in
full. Once delivered, the Company shall not be entitled to rescind a Company
Prepayment Notice.
(ii) The Company Prepayment Price shall be due on the 30th Trading Day
immediately following the Company Notice Date. Any such prepayment shall be free
of any claim of subordination. If any portion of the Company Prepayment Price
shall not be timely paid by the Company, interest shall accrue thereon at the
rate of 12% per annum (or the maximum rate permitted by applicable law,
whichever is less) until the Company Prepayment Price plus all such interest is
paid in full, which payment shall constitute liquidated damages and not a
penalty. In addition, if any portion of the Company Prepayment Price remains
unpaid after such date, the Holder subject to such prepayment may elect by
written notice to the Company to invalidate ab initio such Company Prepayment
Notice with respect to the unpaid amount, notwithstanding anything herein
contained to the contrary. If the Holder makes such an election, this Secured
Debenture shall be reinstated with respect to such unpaid amount and the Company
shall no longer have any prepayment rights under this Section 9.
(b) Prepayment at the Option of the Holder.
(i) At any time following September 30, 2003 and prior to the Maturity Date, the
Holder shall have the right, exercisable at the sole option of the Holder, and
by delivery of a written notice (a "Holder Prepayment Notice" and the date such
notice is delivered by the Holder, the "Holder Notice Date") to the Company, to
require the Company to prepay all or a portion of the Secured Debentures then
held by the Holder for an amount in cash, equal to the Holder Prepayment Price
which shall be due and payable on the 20th Trading Day following the Holder
Notice Date. Notwithstanding anything herein to the contrary, the Holder shall
only be entitled to deliver a Holder Prepayment Notice pursuant to the terms
hereof if: (x) on or prior to September 30, 2003, there has not occurred an
automatic exchange pursuant to Section 7 hereof for a minimum of $3,000,000 of
aggregate principal amount of Secured Debentures, provided, that such date shall
be extended to December 31, 2003 if the Company shall have filed the first
Additional Registration Statement with the Commission, (y) on or prior to March
31, 2004, there have not occurred automatic exchanges pursuant to Section 7
hereof for a minimum of $6,000,000 of aggregate principal amount of Secured
20
Debentures or (z) on or prior to September 30, 2004, there have not occurred
automatic exchanges pursuant to Section 7 hereof for all of the original
principal amount of Secured Debentures.
(ii) In addition to prepayment rights under Section 9(b)(i), if an Additional
Registration Statement filed pursuant to the Registration Rights Agreement in
connection with the occurrence of the event described in Section 7(a)(x) has
been not been declared effective by the Commission by its applicable
Effectiveness Date (as defined in the Registration Rights Agreement), the Holder
shall have the right, exercisable at the sole option of the Holder, and by
delivery of Holder Prepayment Notice to the Company, to require the Company to
prepay all or a portion of the Secured Debentures then held by the Holder for an
amount in cash, equal to the Holder Prepayment Price which shall be due and
payable on the 20th Trading Day following the Holder Notice Date.
(iii) If any portion of the Holder Prepayment Price due pursuant to the terms
hereof remains unpaid after the 20th Trading Day following the Holder Notice
Date, the Holder may elect by written notice to the Company to invalidate ab
initio such Holder Prepayment Notice with respect to the unpaid amount,
notwithstanding anything herein contained to the contrary. If the Holder makes
such an election, this Secured Debenture shall be reinstated with respect to
such unpaid amount. For purposes of this Section 9, principal amount of Secured
Debentures shall remain outstanding until such date as the Holder shall have
received Underlying Shares upon a conversion (or attempted conversion) thereof
that meets the requirements hereof. The Holder may convert any portion of the
outstanding principal amount of the Secured Debentures subject to a prepayment
hereunder prior to the date that the Holder Prepayment Price is due and paid in
full.
10. Ranking. This Secured Debenture ranks pari passu with all other Secured
Debentures now or hereafter issued pursuant to the Transaction Documents. Except
as set forth in Schedule 3.1(x) to the Purchase Agreement, no indebtedness of
the Company is senior to this Secured Debenture in right of payment, whether
with respect of interest, damages or upon liquidation or dissolution or
otherwise. Other than in connection with the Company's reimbursement obligation
to the Bank pursuant to the Letter of Credit and except as set forth in Schedule
3.1(x) to the Purchase Agreement, the Company will not, and will not permit any
Subsidiary to, directly or indirectly, enter into, create, incur, assume or
suffer to exist indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom, that is senior in any respect to the Company's
obligations under the Secured Debentures.
11. Miscellaneous.
(a) This Secured Debenture shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. This Secured
Debenture may be amended only in writing signed by the Company and the Holder
and their successors and assigns.
(b) Subject to Section 11(a), above, nothing in this Secured Debenture shall be
construed to give to any Person other than the Company and the Holder any legal
21
or equitable right, remedy or cause under this Secured Debenture. This Secured
Debenture shall inure to the sole and exclusive benefit of the Company and the
Holder.
(c) All questions concerning the construction, validity, enforcement and
interpretation of this Secured Debenture shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflicts of law thereof. Each party agrees that all
Proceedings shall be commenced exclusively in the state and federal courts
sitting in the City of New York, Borough of Manhattan (the "New York Courts").
Each party hereto hereby irrevocably submits to the exclusive jurisdiction of
the New York Courts for any proceeding, and hereby irrevocably waives, and
agrees not to assert in any Proceeding, any claim that it is not personally
subject to the jurisdiction of any New York Court or that a New York Court is an
inconvenient forum for such Proceeding. Each party hereto hereby irrevocably
waives personal service of process and consents to process being served in any
such Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Secured Debenture and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal Proceeding. If either party shall
commence a Proceeding, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its attorney's fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
Proceeding.
(d) The headings herein are for convenience only, do not constitute a part of
this Secured Debenture and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Secured Debenture shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Secured Debenture shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Secured Debenture.
(f) No provision of this Secured Debenture may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and the
Holder or, or, in the case of a waiver, by the Holder. No waiver of any default
with respect to any provision, condition or requirement of this Secured
Debenture shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
(g) If it shall be found that any interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall be reduced to the maximum permitted rate of interest under such law.
22
(h) Except pursuant to Sections 8 and 9 hereunder, the outstanding
principal amount and interest under this Secured Debenture may not be prepaid
by the Company without the prior written consent of the Holder.
[REMAINDER OF XXXX INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
23
IN WITNESS WHEREOF, the Company has caused this Secured Debenture to be
duly executed by a duly authorized officer as of the date first above indicated.
MILLENNIUM CELL INC.
By: /s/ Xxxxxxx X. Xxxx
Name: Xxxxxxx X. Xxxx, Ph.D.
Title:Chief Executive Officer, President
and Acting Chief Financial Officer
24
EXHIBIT A
HOLDER CONVERSION NOTICE
(To be Executed by the Registered Holder
in order to convert Secured Debentures)
The undersigned hereby elects to convert the principal amount of
Secured Debenture indicated below, into shares of Common Stock of Millennium
Cell Inc., as of the date written below. If shares are to be issued in the name
of a Person other than undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith. No fee
will be charged to the Holder for any conversion, except for such transfer
taxes, if any. All terms used in this notice shall have the meanings set forth
in the Secured Debenture.
Conversion calculations:
------------------------------------------------
Date to Effect Conversion
------------------------------------------------
Principal amount of Secured Debenture owned prior to conversion
------------------------------------------------
Principal amount of Secured Debenture to be Converted
(including _______________ of interest added under Section 3(b)
of the Secured Debenture)
---------------------------------------------------
Principal amount of Secured Debenture remaining after Conversion
-------------------------------------------------
Number of shares of Common Stock to be Issued
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Name of Holder
By:_______________________________________________
Name:
Title:
[ ] By the delivery of this Conversion Notice the Holder
represents and warrants to the Company that its ownership of
the Common Stock does not exceed the restrictions set forth in
Section 6(d)(i) of the Secured Debenture.
EXHIBIT B
COMPANY CONVERSION NOTICE
(To be executed by the Company
in order to convert the Secured Debenture)
The undersigned in the name and on behalf of Millennium Cell Inc.,
hereby elects to convert the principal amount of Secured Debenture indicated
below, into shares of Common Stock of Millennium Cell Inc., as of the date
written below. If shares are to be issued in the name of a Person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any. All terms
used in this notice shall have the meanings set forth in the Secured Debenture.
Conversion calculations:
------------------------------------------------
Date to Effect Conversion
------------------------------------------------
Principal amount of Secured Debenture owned prior to conversion
------------------------------------------------
Principal amount of Secured Debenture to be Converted
(including _______________ of interest added under Section 3(b)
of the Secured Debenture)
---------------------------------------------------
Principal amount of Secured Debenture remaining after Conversion
-------------------------------------------------
Number of shares of Common Stock to be Issued
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Name of Holder By:_________________________________
Name:
Title:
MILLENNIUM CELL INC.
By:_______________________________________________
Name:
Title:
2
Schedule 1
CONVERSION SCHEDULE
Secured Debentures due on the third year anniversary of the Original Issue Date
in the aggregate principal amount of $5,500,000 issued by Millennium Cell Inc.
This Conversion Schedule reflects conversions made under the above referenced
Secured Debentures.
Dated:
------------------------------ -------------------------- --------------------- ---------------------------------
Date of Conversion Amount of Conversion Aggregate Principal Applicable Conversion Price
Amount Remaining
Subsequent to
Conversion
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
------------------------------ -------------------------- --------------------- ---------------------------------
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3
