EXHIBIT 10.20
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE 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, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.
Date of Issuance: June 21, 2007
$10,000,000.00
6.0% CONVERTIBLE DEBENTURE
THIS DEBENTURE (this "Debenture") is a duly authorized and validly issued
6.0% Convertible Debenture of NanoDynamics, Inc., a Delaware corporation, having
a principal place of business at 000 Xxxxxxxx Xxxxxxxxx, Xxxxxxx, Xxx Xxxx 00000
(the "Company"), designated as its 6.0% Convertible Debenture. This Debenture
shall become due on the Maturity Date (as defined herein). This Debenture may
not be prepaid, in whole or in part, without the prior written consent of the
Holder.
FOR VALUE RECEIVED, the Company promises to pay to Nano-applications
Holdings B.V., a company with limited liability incorporated under the laws of
The Netherlands, or its registered assigns (the "Holder"), in cash the principal
sum of Ten Million Dollars and Zero Cents ($10,000,000.00), together with
interest on the unpaid principal balance of this Debenture from time to time
outstanding at the rate of 6.0% per annum, compounded annually, until paid in
full. Subject to the conversion provisions set forth herein, all principal and
accrued interest shall be due and payable on the Maturity Date or as otherwise
provided herein.
Interest shall be calculated on the basis of a 360-day year, consisting of
twelve 30 calendar day periods, and shall accrue daily commencing on the
Original Issue Date (as defined herein) until payment in full has been made of
the principal amount of this Debenture, together with all accrued and unpaid
interest. Interest shall cease to accrue with respect to any principal amount
that has been converted.
The Company has issued this Debenture pursuant to a Debenture Purchase
Agreement, dated as of June 15, 2007 (the "Purchase Agreement").
This Debenture is subject to the following additional provisions:
SECTION 1. DEFINITIONS. For the purposes hereof, capitalized terms not
defined herein shall have the meanings assigned to them in the Purchase
Agreement and the following terms shall have the following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. The term
"Affiliate," when used herein without reference to any Person, shall mean an
Affiliate of the Company.
"Business Day" means any day except Saturday, Sunday, any day which
shall be a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by law
or other governmental action to close.
"Change of Control Transaction" means the occurrence after the date
hereof 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 beneficial ownership of in excess of 51% of the voting
securities of the Company, or (ii) the Company merges into or consolidates with
any other Person, or any Person merges into or consolidates with the Company
and, after giving effect to such transaction, the stockholders of the Company
immediately prior to such transaction own less than 33% of the aggregate voting
power of the Company or the successor entity of such transaction, or (iii) the
Company sells or transfers its assets, as an entirety or substantially as an
entirety, to another Person and the stockholders of the Company immediately
prior to such transaction own less than 33% of the aggregate voting power of the
acquiring entity immediately after the transaction, or (iv) a replacement at one
time or within a three year period of more than one-half of the members of the
Company's board of managers which is not approved by a majority of those
individuals who are members of the board of managers on the date hereof (or by
those individuals who are serving as members of the board of managers on any
date whose nomination to the board of managers was approved by a majority of the
members of the board of managers who are members on the date hereof).
"closing of the IPO" means the first closing of the IPO, whether or
not such closing includes the exercise of the underwriters' over-allotment
option; and "closing date of the IPO" means the date on which the first closing
of the IPO occurs, whether or not such closing includes the exercise of the
underwriters' over-allotment option.
"Commission" means the Securities and Exchange Commission.
"Common Stock Equivalents" means any securities of the Company or
the Company's Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including, without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time convertible
into or exercisable or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
"Common Stock" means the common stock, $0.00l par value per share,
of the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
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"Company" shall have the meaning set forth in the first paragraph of
the preamble hereto.
"Consolidated Net Asset Value" means, as of any date of
determination, the consolidated assets of the Company and its subsidiaries minus
the liabilities of the Company and its subsidiaries, determined in accordance
with GAAP; provided, that, Epic Energy Solutions, LLC and its subsidiaries shall
be excluded from any calculation of Consolidated Net Asset Value.
"Conversion Date" shall have the meaning set forth in Section 5(a)
hereof.
"Conversion Price" shall have the meaning set forth in Section 5(c).
"Debenture" shall have the meaning set forth in the first paragraph
of the preamble hereto.
"Event of Default" shall have the meaning set forth in Section 4(a)
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"GAAP" means United States generally accepted accounting principles.
"Holder" shall have the meaning set forth in the second paragraph of
the preamble hereto.
"IPO" means the Company's first underwritten public offering of its
Common Stock under the Securities Act.
"Maturity Date" means the second anniversary of the closing of the
IPO; provided, however, that the Holder may elect to extend the Maturity Date
until the third anniversary of the closing of the IPO by delivering written
notice thereof to the Company at least four (4) months prior to the second
anniversary of the closing of the IPO (the "Maturity Date Extension").
"Maturity Date Extension" shall have the meaning set forth in the
definition of Maturity Date.
"Notice of Conversion" shall have the meaning set forth in Section
5(a) hereof.
"Original Issue Date" means the date of the first issuance of the
Debenture regardless of the number of transfers of the Debenture and regardless
of the number of instruments which may be issued to evidence the Debenture.
"Person" or "person" means any natural person, trust, estate,
unincorporated organization, firm, corporation, association, partnership, joint
venture, joint stock company, limited liability company or governmental
authority, whether acting in an individual, fiduciary or other capacity.
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"Private Equity Financing" means the sale of shares of the Company's
Common Stock (or securities convertible, exercisable or exchangeable into the
Company's Common Stock) in a bona fide financing transaction that results in net
proceeds to the Company of at least $25,000,000, other than an underwritten
public offering registered under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Subsidiary" means (a) any corporation or limited liability company
of which more than 50% of the issued and outstanding equity securities having
ordinary voting power to elect a majority of the board of directors of such
corporation or board of managers of such limited liability company is at the
time directly or indirectly owned or controlled by Company, (b) any partnership,
joint venture, or other association of which more than 50% of the equity
interest having the power to vote, direct or control the management of such
partnership, joint venture or other association is at the time directly or
indirectly owned and controlled by Company, (c) any other entity included in the
financial statements of Company on a consolidated basis.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means, as applicable, the following markets or
exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the American Stock Exchange, the New York Stock Exchange, the
Nasdaq Stock Market LLC, the Nasdaq SmallCap Market or the OTC Bulletin Board.
"Underlying Shares" means the shares of Common Stock issuable or
issued upon conversion of the Debenture or as payment of interest in accordance
with the terms hereof.
"VWAP" 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 a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg Financial L.P.
(based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
listed or quoted on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid 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 the Board of Directors of the Company in good faith.
SECTION 2. INVESTMENT REPRESENTATIONS. The Holder represents and warrants
to the Company as follows as of the date it acquires this Debenture and as of
each date it converts the Debenture, in whole or in part, into Underlying
Shares:
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(a) Investment. It is acquiring the Debenture, and (if and when it
converts this Debenture) it will acquire the Underlying Shares, for its own
account for investment and not with a view to, or for sale in connection with,
any distribution thereof, nor with any present intention of distributing or
selling the same; and the Holder has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
(b) Accredited Investor. The Holder is an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
(c) Experience. The Holder has made such inquiry concerning the Company
and its business and personnel as it has deemed appropriate; and the Holder has
sufficient knowledge and experience in finance and business that it is capable
of evaluating the risks and merits of its investment in the Company.
(d) Information. The Holder has obtained all such information and had the
opportunity to ask management of the Company all such questions as it has
requested; provided that this Section 2(d) shall not limit any of the Company's
representations and warranties hereunder or under the Purchase Agreement.
(e) Principal Place of Business. In the case of the original Holder, its
principal place of business is located outside of the United States at Xxxxx
Xxxxxxx 00X, 0000 XX Xxxxxxxx, Xxx Xxxxxxxxxxx.
SECTION 3. TRANSFERS, ETC.
(a) Neither this Debenture nor any of the Underlying Shares shall be sold
or transferred unless either (i) they first shall have been registered under the
Securities Act, or (ii) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration requirements of the
Securities Act and any applicable state securities laws. Notwithstanding the
foregoing, no registration or opinion of counsel shall be required for a
transfer made in a broker's transaction in accordance with Rule 144 under the
Securities Act.
(b) Notwithstanding the foregoing, from and after any conversion of this
Debenture and continuing until the second anniversary of the closing of the IPO,
the Holder shall not without the prior written consent of the Company sell or
otherwise transfer on any single Trading Day any Underlying Shares representing
in excess of fifty percent (50%) of the average reported daily volume in the
Company's Common Stock for the thirty (30) day period immediately preceding such
sale or transfer. The Holder shall provide the Company with three Business Days
prior written notice of any sale or other transfer of Underlying Shares for
consideration in excess of Two Million Dollars ($2,000,000).
(c) Each certificate representing Underlying Shares shall bear the legends
substantially in the following forms:
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"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
"The securities represented by this certificate are subject to
certain restrictions on transfer and notice requirements as set
forth in the issuer's 6% convertible debenture in the original
principal amount of $10,000,000 and dated June 21, 2007."
The first foregoing legend shall be removed from the certificates
representing any Underlying Shares, at the request of the holder thereof,
at such time as they become eligible for resale pursuant to Rule 144(k)
under the Act. The second foregoing legend shall be removed from the
certificates representing any underlying shares, at the request of the
holder thereof, at the second anniversary of the closing of the IPO.
(d) Prior to due presentment to the Company 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 records of the Company
regarding registration and transfers of the Debenture as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture is overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.
(e) This Debenture is exchangeable for an equal aggregate principal amount
of Debentures of different authorized denominations (of no less than
$2,000,000), as requested by the Holder surrendering the same. No service charge
will be made for such exchange.
SECTION 4. EVENTS OF DEFAULT AND DEMAND FOR PAYMENT.
(a) "Event of Default", wherever used herein, means 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 closing of the IPO does not occur on or before the first
anniversary of the Original Issue Date;
(ii) (A) the gross proceeds from the sale of shares of Common Stock
by the Company in the IPO, as of the closing of the IPO (as disclosed on
the cover page of the final prospectus relating to the IPO) are less than
$25,000,000, or (B) the product of (x) the number of shares of Common
Stock outstanding immediately following the closing of the IPO and (y) the
price per share at which
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the Common Stock was sold to the public in the IPO (as disclosed on the
cover page of the final prospectus relating to the IPO) is less than
$100,000,000;
(iii) any default in the payment of the principal of or interest on
the Debenture when the same shall become due and payable (whether on the
Maturity Date or by acceleration or otherwise);
(iv) the Company shall fail to observe or perform any other covenant
or agreement contained in this Debenture (other than a breach by the
Company of its obligations to deliver shares of Common Stock to the Holder
upon conversion, which breach is addressed in clause (xi) below) which
failure is not cured, if possible to cure, within the earlier to occur of
(A) five Trading Days after notice of such default sent by the Holder or
by any other Holder and (B) 10 Trading Days after the Company shall become
aware of such failure;
(v) a default or event of default (subject to any grace or cure
period provided for in the applicable agreement, document or instrument)
shall occur under any other material agreement to which the Company is
bound regarding indebtedness of the Company for borrowed money in a
principal amount equal to $2,000,000 or more;
(vi) any representation or warranty made herein, or in the Purchase
Agreement shall be untrue or incorrect in any material respect as of the
date made;
(vii) the Company shall commence, or there shall be commenced
against the Company other than by Holder or any Affiliate thereof, a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or there is commenced against the Company any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period of
150 days; or the Company is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is
entered; or the Company suffers any appointment of any custodian or the
like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 150 days; or the Company makes a
general assignment for the benefit of creditors; or the Company shall fail
to pay, or shall be unable to pay, its debts generally as they become due;
or the Company shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or the
Company shall by any act or failure to act expressly indicate its consent
to, approval of or acquiescence in any of the foregoing; or any corporate
or other action is taken by the Company for the purpose of effecting any
of the foregoing;
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(viii) a material adverse change (excluding any increase in the
Company's amount or rate of losses attributable to research and
development and business development expenses) in the condition (financial
or otherwise), results of operations, properties, business or prospects of
the Company and its subsidiaries, taken as a whole, has occurred and is
continuing, unless such event does not impair the Company's ability to
repay the Debenture in full when due;
(ix) the Company shall default in any of its obligations under any
mortgage, credit agreement or similar facility, indenture agreement,
factoring agreement or other instrument under which there may be issued,
or by which there may be secured or evidenced any indebtedness for
borrowed money or money due under any long term leasing or factoring
arrangement of the Company in an amount exceeding $2,000,000, whether such
indebtedness now exists or shall hereafter be created and such default
results in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable;
(x) the Company shall be a party to any Change of Control
Transaction;
(xi) the Company shall fail for any reason to deliver to its
transfer agent all instructions and other documents required by the
transfer agent (collectively, the "Transfer Documents") to issue to the
Holder certificates representing Underlying Shares prior to the tenth
Trading Day after the Conversion Date relating to such Underlying Shares
pursuant to Section 5(b); provided, the Holder has delivered to the
Company all documents, correct in form and substance, necessary in order
for the Company to properly deliver the Transfer Documents;
(xii) any monetary judgment, writ or similar final process shall be
entered or filed against the Company or any of its property or other
assets for more than $2,000,000, and such judgment, writ or similar final
process shall not be paid or shall remain unpaid, unvacated, unbonded or
unstayed; or
(xiii) provided, that, if and only if the IPO has occurred, at any
time after the first to occur of: (1) the first anniversary of the IPO or
(2) September 30, 2008, as of the end of any fiscal quarter or fiscal year
of the Company, the Consolidated Net Asset Value of the Company, in the
Company's Form 10-Q or Form 10-K filed with the Securities and Exchange
Commission for such fiscal quarter or fiscal year, respectively, is less
than $25,000,000.
(b) Promptly after the occurrence of an Event of Default, the Company
shall deliver written notice thereof to the Holder. If an Event of Default with
respect to the Company described in Sections 4(a)(iii) or (vii) has occurred and
is then continuing, the full principal amount of this Debenture, together with
accrued but unpaid interest shall become immediately due and payable in cash
after such Event of Default. If an Event of Default with respect to the Company
described in any clause of Section 4(a) other than
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clauses (i), (iii), (vii) and (xiii) has occurred and is then continuing, the
Holder(s) of 75% of the then outstanding principal amount of the Debenture (and
any Debentures issued in exchange or transfer thereof) may declare that the full
principal amount of this Debenture (together with all Debentures issued in
exchange or transfer therefore), together with interest shall become immediately
due and payable in cash on the 60th day after one of such Holders delivers to
the Company notice of such Event of Default. If an Event of Default with respect
to the Company described in Sections 4(a)(i) or (xiii) has occurred and is then
continuing, the Holder(s) of 75% of the then outstanding principal amount of the
Debenture (and any Debentures issued in exchange or transfer thereof) may
declare that the full principal amount of this Debenture (together with all
Debentures issued in exchange or transfer therefore), together with interest
shall become immediately due and payable in cash after one of such Holders
delivers to the Company notice of such Event of Default. Interest shall accrue
on the amounts due from the day of the Event of Default through the date of
repayment in full thereof in an amount equal to eight percent (8%) (or such
lower maximum amount of interest permitted to be charged under applicable law)
compounded annually, to accrue daily from the date of the Event of Default
through and including the date of payment. This Debenture, if the full repayment
price hereunder shall have been paid in accordance herewith, shall promptly be
surrendered to or as directed by the Company. 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 (except as expressly provided in this Debenture) 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 and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under this Section
4(b) shall have been received by it. No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent thereon.
Notwithstanding anything to the contrary herein, the occurrence or cure of any
Event of Default shall not impair the Holder's conversion rights under Section
5.
SECTION 5. CONVERSION.
(a) Voluntary Conversion. At any time after the Conversion Price is
established pursuant to Section 5(c), this Debenture shall be convertible, in
whole or in part (in minimum increments of at least $2,000,000 principal amount
or the remaining principal amount outstanding), into shares of Common Stock at
the option of the Holder at any time and from time to time. The Holder shall
effect conversions by delivering to the Company a Notice of Conversion, the form
of which is attached hereto as Annex A (a "Notice of Conversion"), specifying
therein the principal amount of the Debenture to be converted and the date on
which such conversion is to be effected (a "Conversion Date"). If no Conversion
Date is specified in a Notice of Conversion, the Conversion Date shall be the
date that such Notice of Conversion is deemed delivered hereunder. To effect
conversions hereunder, the Holder shall not be required to physically surrender
the Debenture to the Company unless the entire principal amount of this
Debenture plus all accrued and unpaid interest thereon has been or is being so
converted. Conversions hereunder shall have the effect of first reducing the
outstanding principal of this Debenture and second the accrued interest in an
amount equal to the applicable
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conversion. The Holder and the Company shall maintain records showing the
principal and interest amounts converted and the date of such conversions. The
Company shall deliver any objection to any Notice of Conversion within three
Business Days of receipt of such notice. The Holder and any assignee, by
acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
(b) Mechanics of Conversion.
(i) Underlying Shares Issuable Upon Conversion. The number of shares
of Common Stock issuable upon a conversion shall be determined by the
quotient obtained by dividing (x) the outstanding principal amount of this
Debenture to be converted plus the aggregate amount of interest then
accrued thereon by (y) the Conversion Price then in effect.
(ii) Delivery of Certificate Upon Conversion. Not later than five
(5) Trading Days after any Conversion Date, the Company will deliver to
the Holder a certificate or certificates representing the Underlying
Shares which shall be free of restrictive legends and trading restrictions
(other than those required hereby) representing the number of shares of
Common Stock being acquired upon the conversion of the Debenture,
including the shares of Common Stock representing the payment of accrued
interest. The Company shall, if requested by the Holder, and if available
and allowed under applicable securities laws, use its reasonable efforts
to deliver any certificate or certificates required to be delivered by the
Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. If in the case of any Notice of Conversion such certificate or
certificates are not delivered to or as directed by the applicable Holder
by the fifth Trading Day after a Conversion Date, the Holder shall be
entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the principal amount of the Debenture tendered
for conversion.
(iii) Obligation Absolute. The Company's obligations to issue and
deliver the Underlying Shares upon conversion of this Debenture in
accordance with the terms hereof 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; provided,
however, such delivery
shall not operate as a waiver by the Company of any such action the
Company may have against the Holder.
(iv) Reservation of Shares Issuable. 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 of issuance upon conversion of the Debenture and payment of
interest on the Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holder, not less than such number of shares
of the Common Stock as shall be issuable (taking into account the
adjustments and restrictions of this Section 5) upon the conversion
of the outstanding principal amount of the Debenture and interest
hereunder. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly authorized,
validly issued, fully paid and nonassessable.
(v) Fractional Shares. Upon a conversion hereunder the
Company shall not be required to issue stock certificates
representing fractions of shares of the Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the VWAP. If the Company elects not, or
is unable, to make such cash payment, the Holder shall be entitled
to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(vi) Transfer Taxes. The issuance of certificates for shares
of the Common Stock on conversion of this Debenture shall be made
without charge to the Holder hereof 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 this Debenture so converted and the Company shall not be required
to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
(vii) "Market Stand-off" Agreement. The Holder hereby agrees
that it will not, without the prior written consent of the managing
underwriter for the IPO, during the period commencing on the date of
the final prospectus relating to the IPO, and ending on the date
specified by the Company and the managing underwriter (such period
not to exceed one hundred eighty (180) days, which period may be
extended upon the request of the managing underwriter for an
additional period of up to thirty (30) days if the Company issues or
proposes to issue an earnings or other public release within thirty
(30) days of the expiration of the 180-day lockup period), (A) lend;
offer; pledge; sell; contract to sell; sell any option or contract
to purchase; purchase any option or contract to sell; grant any
option, right, or warrant to purchase; or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable
(directly or indirectly) for Common Stock
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(whether such shares or any such securities are then owned by the
Holder or are thereafter acquired) or (B) enter into any swap or
other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of such securities,
whether any such transaction described in clause (A) or (B) above is
to be settled by delivery of Common Stock or other securities, in
cash, or otherwise. The foregoing provisions of this Section
5(b)(vii) shall not apply to the sale of any shares to an
underwriter pursuant to an underwriting agreement, and shall be
applicable to the Holder only if all officers, directors, and
stockholders individually owning more than five percent (5%) of the
Company's outstanding Common Stock are subject to the same
restrictions. The underwriters in connection with such registration
are intended third party beneficiaries of this Section 5(b)(vii) and
shall have the right, power, and authority to enforce the provisions
hereof as though they were a party hereto. The Holder further agrees
to execute such agreements as may be reasonably requested by the
underwriters in connection with such registration that are
consistent with this Section 5(b)(vii) or that are necessary to give
further effect thereto. Any discretionary waiver or termination of
the restrictions of any such agreements by the Company or the
underwriters shall apply to all Holders subject to such agreements,
pro rata based on the number of such shares subject to such
agreements.
(viii) Rights as Stockholder. Until the conversion of this
Debenture, the Holder shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
(c) Conversion Price. The conversion price of the Debenture shall
be established upon the first to occur of the closing of the IPO or a
Private Equity Financing (as so established, the "Conversion Price") and
unless and until either of such events occurs, this Debenture shall not be
convertible. If the Conversion Price is established as a result of the
IPO, the Conversion Price shall be equal to 110% of the per share price at
which the Company's Common Stock was sold to the public in the IPO (as
disclosed on the cover page of the final prospectus relating to the IPO).
If the Conversion Price is established as a result of a Private Equity
Financing, the Conversion Price shall be equal to 100% of the per share
price at which the Company's Common Stock was sold (or the per share price
at which the security sold is convertible, exercisable or exchangeable
into Common Stock) in the Private Equity Financing (as disclosed in the
applicable agreement relating to such transaction). Notwithstanding the
foregoing, in the event that the Maturity Date Extension occurs, the
Conversion Price shall be equal to 120% of the per share price at which
the Company's Common Stock was sold to the public in the IPO or 110% of
the per share price at which the Company's Common Stock was sold in the
Private Equity Financing, as applicable.
(d) Certain Adjustments. If the Company, at any time while the
Debenture is outstanding but after the IPO: (A) shall pay a stock dividend
or otherwise make a distribution or distributions payable in shares of
Common Stock on shares of its Common Stock or any other equity or equity
equivalent securities (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Company pursuant to this
Debenture, including as interest thereon), (B) subdivide outstanding
shares of Common
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Stock into a larger number of shares, (C) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller
number of shares, or (D) issue by reclassification of shares of the Common
Stock any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(e) Calculations. All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case
may be. For purposes of this Section 5, the number of shares of Common
Stock outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) outstanding.
(f) Notice to the Holder.
(i) Adjustment to Conversion Price. Whenever the Conversion
Price is adjusted pursuant to Section 5(d), the Company shall
promptly deliver to the Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(ii) Notice to Allow Conversion by Xxxxxx. If (A) the Company
shall declare a stock dividend (or any other distribution) on, or
subdivide or combine, the Common Stock; (B) the Company shall
declare a special nonrecurring dividend of cash, indebtedness or
assets on, or a redemption, repurchase or reclassification of, the
Common Stock; (C) a tender offer or exchange offer for the Common
Stock shall be announced; (D) the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class
or of any rights; (E) the Company effects any reclassification of
the Common Stock, any consolidation or merger to which the Company
is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property;
or (F) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at
each office or agency maintained for the purpose of conversion of
the Debenture, and shall cause to be delivered to the Holder at its
last address as it shall appear upon the stock books of the Company,
at least ten (10) 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 the Common Stock of
record to be entitled to such dividend, distributions, redemption,
rights or warrants
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are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected
to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided, that the failure to deliver such notice or any
defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such
notice. The Holder is entitled to convert this Debenture during the
10-day period commencing the date of such notice through the
effective date of the event triggering such notice.
SECTION 6. NEGATIVE COVENANTS. As long as any portion of this Debenture
remains outstanding, the Company shall not, directly or indirectly:
(a) prior to the IPO, amend its charter documents, except for any
amendment that is executed in connection with the IPO and described in the
Registration Statement or in connection with any Private Financing, in any
manner that materially and adversely affects any rights of the Holder;
neither the authorization, establishment of terms of, nor issuance of any
preferred stock or any class or series thereof, nor any agreement to do
the same, be prohibited pursuant to this Section 6;
(b) enter into any agreement with respect to any of the foregoing.
SECTION 7. NOTICES. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile
number: 000-000-0000, ATTN: Chief Executive Officer or such other address or
facsimile number as the Company may specify for such purposes by notice to the
Holder delivered in accordance with this Section 7. 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, sent by a nationally recognized
overnight courier service addressed to the Holder at the facsimile telephone
number or address of the 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 7 prior to 5:30 p.m. (New
York City time), (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 7 later than 5:30 p.m. (New York City time) on any
date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
second Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
SECTION 8. LOST OR MUTILATED DEBENTURE. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and
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substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
SECTION 9. GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this 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 except to
the extent that the General Corporation Law of the State of Delaware is
mandatorily applicable thereto. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts sitting
in the County of Manhattan in the State of New York (the "NY Courts"). Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the NY
Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of the Purchase Agreement), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or 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
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
arising out of or relating to this Debenture or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
SECTION 10. WITHHOLDING TAXES. Any and all payments by the Company
hereunder to or for the account of the Holder shall be made free and clear of
and without deduction for any taxes; provided that the Holder shall deliver to
the Company on or prior to the date on which any such payment is made either:
(i) if the Holder is claiming an exemption under an income tax treaty to which
the United States is a party, Internal Revenue Service Form W-8BEN or any
successor form prescribed by the Internal Revenue Service, certifying that such
Holder is entitled to benefits under such treaty or (ii) if the Holder is
claiming the benefits of the exemption for portfolio interest under Section
881(c) of the Internal Revenue Code, (x) a certificate to the effect that the
Holder is not (A) a "bank" within the meaning of Section 881(c)(3)(A) of the
Internal Revenue Code, (B) a "10 percent shareholder" of the Company within the
meaning of Section 881(c)(3)(B) of the Internal Revenue Code, or (C) a
"controlled foreign corporation" related to the Company, as described in Section
881(c)(3)(C) of the Internal Revenue Code, (y) duly completed copies of Internal
Revenue Service Form W-8BEN, and (z)
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any other form or certificate required by any taxing authority (including any
certificate required by Section 881(c) of the Internal Revenue Code), certifying
that the Holder is entitled to an exemption from tax on payments pursuant to
this Debenture.
SECTION 11. WAIVER. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
SECTION 12. SEVERABILITY. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder
violates any applicable laws governing usury, the applicable rate of interest
due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest. The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Debenture as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
SECTION 13. NEXT BUSINESS DAY. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
SECTION 14. HEADINGS. The headings used in this Debenture are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Debenture.
SECTION 15. ASSUMPTION. Any successor to the Company shall (i) assume in
writing all of the obligations of the Company under this Debenture pursuant to
written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) to issue to the
Holder a new debenture of such successor entity evidenced by a written
instrument substantially similar in form and substance to this Debenture,
including, without limitation, having a principal amount and interest rate equal
to the principal amounts and the interest rates of this Debenture, having
similar ranking to this Debenture and insuring that this Debenture (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous, and satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 15 shall
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apply similarly and equally to successive transactions and shall be applied
without regard to any limitations of this Debenture.
SECTION 16. DISPUTE RESOLUTION. Any dispute, controversy or claim arising
from or relating to this Debenture shall be resolved as provided by Section 7.4
of the Purchase Agreement.
*********************
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
NANODYNAMICS, INC.
By: /s/ XXXXX XXXXXXX
------------------------------
Name: Xxxxx Xxxxxxx
Title: Chief Executive Officer
Signature Page to Debenture
NY663613.1
210216-10001
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 6.0%
Convertible Debenture (the "Debenture") of NanoDynamics, Inc. (the "Company"),
due on the Maturity Date, into shares of common stock, $0.00l par value per
share (the "Common Stock"), of the Company according to the conditions hereof,
as of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto 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.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Accrued Interest Amount to be Converted:
Number of shares of Common Stock to be issued:
Signature:
Name:
Delivery address for physical delivery:
DTC Account for electronic delivery:
Contact information in case of questions:
Annex A to Debenture
NY663613.1
210216-10001
SCHEDULE 1
CONVERSION SCHEDULE
6.0% Convertible Debenture due on the Maturity Date, in the aggregate
principal amount of Ten Million Dollars ($10,000,000.00) issued by NanoDynamics,
Inc. This Conversion Schedule reflects conversions made under Section 5 of the
above referenced Debenture.
Dated:
Amount Remaining
Date of Conversion (or for Amount of Conversion Subsequent to Conversion
first entry, Original Issue (Principal Amount Plus (Principal Amount Plus
Date Accrued Interest) Accrued Interest) Company Attest
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Schedule 1 to Debenture
NY663613.1
210216-10001
