EXHIBIT 10.38
NEITHER THIS DEBENTURE NOR THE SECURITIES FOR WHICH THIS DEBENTURE IS
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.
No. B2- U.S. $_____________
______________ __, 2004
FORM OF
SECURED SUBORDINATED SERIES B2
CONVERTIBLE DEBENTURE
DUE FEBRUARY 19, 2008
THIS SERIES B2 DEBENTURE is one of a duly authorized issue of secured
subordinated convertible debentures of NATURAL SODA HOLDINGS, INC., a Colorado
corporation, having a principal place of business at ▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇ ▇▇.,
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (Tel: (▇▇▇) ▇▇▇-▇▇▇▇; Fax: (▇▇▇) ▇▇▇-▇▇▇▇) (the "Company"),
designated as its Secured Subordinated Series B2 Convertible Debentures, due
February 19, 2008 (the "Secured Series B2 Debentures"), in an aggregate
principal amount of $9,700,000 plus accrued but unpaid interest. This Series B2
Debenture is purchased by Sentient Executive GP I, Limited, on behalf of the
General Partner of Sentient Global Resources Fund I, L.P., pursuant to the terms
of the Debenture Purchase Agreement.
Capitalized words used in this Series B2 Debenture not defined in the preceding
paragraph are defined in Section 1 below.
FOR VALUE RECEIVED, the Company promises to pay to the Holder: (i) on
or before the Maturity Date (a) the principal sum stated above; (b) interest to
the Holder on the principal sum at the Rate per annum from the date hereof
payable quarterly in arrears beginning June 30, 2004 ("Interest"); and (ii)
Contingent Interest, if owed. Interest shall be calculated for the actual number
of days elapsed for any period less than a full quarter. The principal of,
Interest and Contingent Interest on, this Series B2 Debenture are payable in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts, at the address of the
Holder last appearing on the Company's records on the date such amounts become
due.
This Series B2 Debenture is subject to the terms of the Debenture
Purchase Agreement and the Securityholder Agreement and the following additional
provisions.
Section 1. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Adjusted EBITDA" means the earnings of Natural Soda, Inc. (calculated
in accordance with generally accepted accounting principles,
consistently applied) (A) before any
Series B2 Debenture
1
deduction for (i) interest, taxes, depreciation, write downs,
revaluations and amortization and (ii) payments to the Company for
payment by the Company of the Management Cost and Reimbursement
Agreement dated as of the date hereof, and (B) but including
amortization of well-field capital expense.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the
State of Colorado are authorized or required by law or other government
action to close.
"Collateral" is as defined in Section 2(d).
"Collateral Agent" means Sentient Resources USA, Inc., a Colorado
corporation.
"Company" means Natural Soda Holdings, Inc., a Colorado corporation.
"Contingent Interest" means a payment of additional interest, which
when added to the other payments of principal and interest on the
Debentures, shall provide an internal rate of return of thirty percent
per annum compounded annually. In computing such Contingent Interest,
February 20, 2003 shall be used as the issue date for the Debentures.
"Debenture Purchase Agreement" means that certain Debenture Purchase
Agreement dated as of the date hereof between the Company, AmerAlia,
the Subsidiary, Sentient Executive GP I, Limited, acting on behalf of
the General Partner of Sentient Global Resources Fund I, L.P., and
Sentient (Aust) Pty. Limited, acting on behalf of Sentient Global
Resources Trust No. 1.
Debentures" means the Series A Debentures, the Series B Debentures, the
Series C Debentures, or any of them, as the context may require.
"Holder" means any person who is a registered holder of these B2
Debentures as listed in the books of the Company and any person who is
a permitted transferee of a Holder.
"Interest" is as defined in the paragraph entitled "FOR VALUE
RECEIVED," above.
"Majority of the Holders" is as defined in Section 6(b).
"Material Adverse Effect" means a material adverse effect upon the
business, operations, properties, assets or condition (financial or
otherwise) of AmerAlia, the Company or, as the case may be, of the
Company and the Subsidiary taken as a whole.
"Maturity Date" means February 19, 2008 or (if earlier) the date of any
prepayment or acceleration.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Series B2 Debenture
2
"Rate" means the interest rate for the periods set forth below.
INTEREST RATE
PERIOD PER ANNUM
March 19, 2004 - June 30, 2004 1.5%
July 1, 2004 - June 30, 2005 4.5%
July 1, 2005 - June 30, 2006 7.5%
July 1, 2006 - June 30, 2007 10.5%
July 1, 2007 - February 19, 2008 13.5%
"Security Agreements" means the Security Agreement between the Company
and the Collateral Agent for the benefit of AmerAlia, the Subsidiary
and Sentient dated as of the date hereof and the Security Agreement
between the Subsidiary and the Collateral Agent for the benefit of
AmerAlia, the Subsidiary and Sentient dated as of the date hereof.
"Sentient" means any of Sentient Executive GP I, Limited, acting on
behalf of the General Partner of Sentient Global Resources Fund I,
L.P., or Sentient (Aust) Pty. Limited, acting on behalf of Sentient
Global Resources Trust No. 1.
"Series A Debentures" means the Company's secured Senior Secured Series
A 10% Debentures.
"Series B Debentures" means the Company's Secured Subordinated Series
B1 Debentures and the Secured Subordinated Series B2 Convertible
Debentures.
"Series C Debentures" means the Company's Unsecured Subordinated Series
C Debentures.
"Securityholder Agreement" means the Securityholder Agreement, dated as
of the Original Issue Date between the Company, AmerAlia, Inc., the
Subsidiary and Sentient.
"Subsidiary" means Natural Soda, Inc., a Colorado corporation and
wholly-owned subsidiary of the Company.
Section 2. Subordination, Seniority, Pari Passu, and Collateral.
(a) The Secured Series B2 Debentures are subordinated to the Series A
Debentures and the Series B1 Debentures, such subordination occurring with no
action of the Holders. The Holder understands that the Company intends to make
no payments of (i) Interest with respect to the Secured Series B2 Debentures
except to the extent the corresponding Interest has been paid on the Series A
Debentures and (ii) principal with respect to the Secured Series B2 Debentures
unless the principal on the Series A Debentures has been paid and except as set
forth herein. Nothing in this Series B2 Debenture shall be interpreted to impose
any restrictions whatsoever on the ability of any holder of a Series A
Debentures or Series B1 Debentures or any person acting on behalf of such holder
to take any action authorized by the documents defining the Series A Debentures
and the Series B1 Debentures.
(b) Except as set forth in Section 5 and Section 7 below, the Series B1
Debentures, the Secured Series B2 Debentures and the Series C Debentures shall
be treated in pari passu in all respects with respect to all payments of
principal and Interest, unless the holders of the Series B Debentures declare an
Event of Default. During the continuation of such Event of Default, the Series C
Debentures will be treated as junior to the Series B Debentures, and no payments
Series B2 Debenture
3
will be made to the holders of Series C Debentures, until the Series A
Debentures and the Series B Debentures have been paid in full, including any
Contingent Interest.
(c) This Series B2 Debenture is one of a series of debentures known as
the Secured Subordinated Series B2 Convertible Debentures in a total principal
amount of $9,700,000 plus accrued but unpaid Interest. No payments will be made
to the holder of this Series B2 Debenture unless a proportional payment (based
on outstanding principal amount) is made with respect to all other Secured
Series B2 Debentures, the Series B1 Debentures and, except as provided in
Section 2(b) above, the Series C Debentures; provided, however, that the Company
may prepay the Series B1 Debentures and the Secured Series B2 Debentures
pursuant to Section 7 hereof prior to making any prepayments on the Series C
Debentures.
(d) Pursuant to the terms of a Collateral Holding and Liquidation
Agreement, the Security Agreements and the Pledge Agreement, Collateral Agent
holds as a security interest, as collateral for repayment of all of the Series
B1 Debentures, the Series A Debentures, and the Secured Series B2 Debentures,
including all Contingent Interest, all of the outstanding shares of common stock
of the Subsidiary plus all other assets of the Company and the Subsidiary (the
"Collateral"). The Collateral Holding and Liquidation Agreement is incorporated
herein as if fully set forth, and the rights of the Holder are subject to the
terms of said agreements.
Section 3. No Sale or Transfer. This Series B2 Debenture may not be
sold, transferred, assigned, hypothecated or divided into two or more Debentures
of smaller denominations, except in accordance with the Securityholder
Agreement. Subject to the foregoing, transfers of this Debenture shall be
registered upon registration books maintained for such purpose by or on behalf
of Company. Prior to presentation of this Series B2 Debenture for registration
of transfer, Company shall treat the registered holder hereof as the owner and
holder of this Series B2 Debenture for the purpose of receiving all payments of
principal and Interest hereon and for all other purposes whatsoever, whether or
not this Series B2 Debenture shall be overdue and Company shall not be affected
by notice to the contrary.
Section 4. Provisions Regarding Payment of Interest. Subject to the
subordination provisions in paragraph 2(a) hereof and to the in pari passu
provisions of paragraphs 2(b) and 2(c), Interest hereunder will be paid to the
Holder on each Interest payment date; provided, however, that the Interest
payable including any Contingent Interest, if owed, shall not be higher than the
maximum interest allowable under applicable law. If the Interest payable is
higher than the maximum interest payable under applicable law, the Company shall
only pay the amount allowable under applicable law.
Section 5. Trade Sale. Except as provided in the Securityholder
Agreement, if the Company (i) should (a) assign, transfer or sell its interest
in the Subsidiary to a Person unaffiliated with the Company, or (b) assign,
transfer or sell substantially of its Assets, or (ii) should the Subsidiary
sell, assign or transfer, all or substantially all of its Assets, the Company
shall be obligated to prepay this Series B2 Debenture pari passu with the other
Secured Series B2 Debentures including accrued and unpaid Interest and
Contingent Interest, but after the Series A Debentures and the Series B1
Debentures have been fully repaid, including any Contingent Interest pursuant to
the Series B1 Debenture, and prior to any payment to the Series C Debentures, to
the extent of the consideration received by the Company or the Subsidiary in
such a transaction.
Section 6.
(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
Series B2 Debenture
4
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) any default in the payment of the principal or interest or
Contingent Interest on this Series B2 Debenture as and when the same
shall become due and payable, (whether on the Maturity Date or by
acceleration or otherwise);
(ii) the Company or AmerAlia, Inc., shall fail to observe or
perform any other covenant, agreement or warranty contained in, or
otherwise commit any breach of, this Series B2 Debenture or the
Securityholder Agreement, and such failure or breach shall not have
been remedied within 15 days after the date on which notice of such
failure or breach shall have been given;
(iii) The occurrence or existence of any condition that constitutes
an event of default or that would constitute an event of default with
the giving of notice, the passage of time, or both, under the terms of
any of the Debentures, or any other material indebtedness of the
Company or the Subsidiary;
(iv) The occurrence of any event that would, upon passage of time
or otherwise, have a Material Adverse Effect on AmerAlia, the Company,
or the Subsidiary;
(v) the Company shall commence a voluntary case under the United
States Bankruptcy Code or insolvency laws h as now or hereafter in
effect or any successor thereto (the "Bankruptcy Code"); or an
involuntary case is commenced against the Company under the Bankruptcy
Code and the petition is not controverted within 30 days, or is not
dismissed within 60 days, after commencement of such involuntary case;
or a "custodian" (as defined in the Bankruptcy Code) is appointed for,
or takes charge of, all or any substantial part of the property of the
Company 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 proceeding which
remains undismissed for a period of 60 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 60 days; or the Company makes a general
assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay its debts generally as
they become due; or the Company shall call a meeting of all of its
creditors with a view to arranging a composition or adjustment of its
debts; or the Company shall by any act or failure to act 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; or
(vi) AmerAlia shall have failed to: (i) file a proxy statement with
the Securities and Exchange Commission for shareholder approval of the
transactions contemplated by the Debenture Purchase Agreement by not
later than April 15, 2004; (ii) diligently pursue the finalization of
the proxy statement in accordance with the rules of the Securities and
Exchange Commission; and (iii) obtain the approval of its shareholders
of the transactions contemplated by the Debenture Purchase Agreement as
soon after finalization of the proxy statement as possible, but no
later than June 30, 2004.
Series B2 Debenture
5
(b) Remedies. For so long as Sentient holds any of the Secured Series
B2 Debentures, only Sentient may declare an Event of Default under the Secured
Series B2 Debentures on 15 days' written notice to the Company. If Sentient does
not hold any of the Secured Series B2 Debentures, the Holder, together with all
other holders of Secured Series B2 Debentures based on a majority vote by
principal amount of the Holders of all Secured Series B2 Debentures (a "Majority
of the Holders") may declare an Event of Default on 15 days' written notice to
the Company. Neither Sentient nor (if applicable) a Majority of the Holders may
declare an Event of Default while there are any Series A Debentures outstanding
unless an Event of Default has been declared with respect to the Series A
Debentures. If the Company fails to cure an Event of Default within such period
(or if the cure cannot be reasonably completed within such period, commence the
cure of the Event of Default and diligently pursue such cure), Sentient or (if
applicable) a Majority of the Holders may:
(i) Declare all amounts due under the Secured Series B2 Debentures
and all other Debentures owned by Sentient immediately due and owing
and exercise all rights with respect thereto permitted by law;
(ii) Subject to the rights of the Series A Debentures and to the
terms of the Collateral Holding and Liquidation Agreement, the Security
Agreements and the Pledge Agreement, cause the Company and the
Subsidiary to transfer ownership of the Collateral on its books to
Collateral Agent on behalf of the Holder and all other holders of the
Series A Debentures, the Series B1 Debentures, and the Secured Series
B2 Debentures, and exercise all rights to vote with respect to the
Pledged Shares (including the right to elect the board of directors of
the Subsidiary by shareholder consent);
(iii) Apply to a court with its seat in Colorado that has
jurisdiction over the Company or the Subsidiary for the appointment of
a receiver to manage the assets and operations of the Company or the
Subsidiary; or
(iv) Assert any other remedy available at law or in equity.
Section 7. Prepayment. Provided the Series A Debentures and the Series
B1 Debentures have been paid in full, including any Contingent Interest pursuant
to the Series B1 Debentures, and prior to the payment of the Series C
Debentures, the Company may prepay the Secured Series B2 Debentures in whole
(and not in part) at any time prior to the Maturity Date upon not less than 30
days' notice to the Holder. Any prepayment shall include payment of accrued and
unpaid Interest.
Section 8. Conversion. At any time before this Series B2 Debenture has
been paid, upon written notice to the Company, and provided that the Holders of
all of the outstanding Secured Series B2 Debentures elect to do so, the Holders
of all of the outstanding Secured Series B2 Debentures may collectively convert
the outstanding principal amounts of all of the Series B2 Debentures in their
entirety and all accrued but unpaid Interest in full into 49% of the
Subsidiary's common stock. If the Holders elect to convert all of the
outstanding Secured Series B2 Debentures, the Company shall not pay any
Contingent Interest. When issued, the shares of the Subsidiary's common stock
issuable upon conversion of this Series B2 Debenture will be legally and validly
issued, fully-paid and non-assessable. Upon conversion, this Series B2 Debenture
will be cancelled and no longer outstanding.
Section 9. Contingent Interest. Except as provided in Section 8 above,
the Company shall pay Contingent Interest on the amounts represented by the
Secured Series B2 Debentures to the holders of the Debentures (a) on the
Maturity Date of the Secured Series B2 Debentures, if owed, subject to the
achievement of the contingencies described herein, (b) if the Company
Series B2 Debenture
6
prepays any of the Secured Series B2 Debentures, without regard to the
contingencies described herein, as to the amount prepaid, (c) without regard to
the contingencies if there is a trade sale, and (d) without regard to the
contingences described herein, upon the declaration of a default pursuant to the
Secured Series B2 Debentures. Subject to the preceding sentence, Contingent
Interest shall not be payable if: the Adjusted EBITDA is less than $ 500,000 for
the 12-month period prior to the Maturity Date; provided, however, that if the
Adjusted EBITDA is less than $ 500,000, then if the Adjusted EBITDA is in excess
of $ 1,000,000 in the aggregate for the 36-month period immediately prior to the
Maturity Date, the Contingent Interest shall be due and payable on the Maturity
Date. Notwithstanding the foregoing, if an Event of Default occurs, the
Contingent Interest shall be immediately due and payable.
Section 10. No Impairment. Except as expressly provided herein, no
provision of this Series B2 Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
Interest and Contingent Interest on, this Series B2 Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed. This Series B2
Debenture is a direct obligation of the Company subject, however, to the
subordination provisions set forth in Section 2, above.
Section 11. No Rights as a Shareholder. This Series B2 Debenture shall
not entitle the Holder to any of the rights of a stockholder of the Company,
including without limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings.
Section 12. Mutilated, Lost or Stolen Debentures. If this Series B2
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and 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 Series B2
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 adequate indemnity, if requested, all reasonably
satisfactory to the Company.
Section 13. Governing Law. This Series B2 Debenture shall be governed
by and construed in accordance with the laws of the State of Colorado. Each of
the parties consents to the exclusive jurisdiction of the federal courts whose
districts encompass any part of Denver, Colorado, or the state courts of the
State of Colorado sitting in Arapahoe County, Colorado in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
coveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Holder for any
reasonable legal fees and disbursements incurred by the Holder in enforcement of
or protection of any of its rights under any of this Series B2 Debenture.
Section 14. Waiver of Jury Trial; No Other Waivers. The Company and the
Holder hereby waive the right to a trial by jury in any action, proceeding or
counterclaim in respect of any matter arising out or in connection with this
Debenture. Any waiver by the Company or the Holder of a breach of any provision
of this Series B2 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 Series B2 Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Series B2 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 Series B2 Debenture. Any waiver must be in writing.
Series B2 Debenture
7
Section 15. Severability. If any provision of this Series B2 Debenture
is invalid, illegal or unenforceable, the balance of this Series B2 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.
Section 16. Obligations Due on a 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 (or, if such next
succeeding Business Day falls in the next calendar month, the preceding Business
Day in the appropriate calendar month).
Section 17. Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or mailed by registered or certified
mail, postage prepaid, or by recognized overnight courier or personal delivery
at the respective addresses of the parties as set forth in the Debenture
Purchase Agreement or on the register maintained by Company. Notice shall
conclusively be deemed to have been given when received.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
Series B2 Debenture
8
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer duly authorized for such purpose, as of the date first
above indicated.
NATURAL SODA HOLDINGS, INC.
By: ________________________________
▇▇▇▇ ▇. ▇▇▇▇, Chairman
Attest:
By: _________________________________
▇▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇▇▇, Secretary
Accepted this _____ day of _________, 2004 by the undersigned, thereunto duly
authorized, in accordance with the terms of the Debenture Purchase Agreement.
SENTIENT EXECUTIVE GP I, LIMITED,
ON BEHALF OF THE GENERAL PARTNER OF
SENTIENT GLOBAL RESOURCES FUND I, L.P.
By: _________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Director
Series B2 Debenture
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debenture) CHECK ONE OF THE FOLLOWING BOXES, AND COMPLETE THE DATE AND OTHER
APPLICABLE BLANKS:
___________, 200_ (Date of Notice)
The undersigned hereby elects to convert Debenture No. [ ] and all accrued but
unpaid interest into shares of common stock of Natural Soda, Inc., calculated as
set forth in Section 8, above.
Number of shares of Natural Soda's, Inc. Common Stock to be issued: __________
Signature _____________________________
Name ________________________________
Address ______________________________
Tax ID Number: _______________________