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EXHIBIT 4.5
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO 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.
NEW YORK, NEW YORK
OCTOBER 6, 2000
(REISSUED JANUARY 30, 2001)
NO. 5
$500,000
VERSO TECHNOLOGIES, INC.
[FORMERLY, ELTRAX SYSTEMS, INC.]
5.00% CONVERTIBLE DEBENTURE
DUE OCTOBER 5, 2001
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of VERSO TECHNOLOGIES, INC. (FORMERLY, ELTRAX SYSTEMS, INC.), a
Minnesota corporation, having a principal place of business at ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Company"), designated as its
5.00% Convertible Debentures, in the aggregate principal amount of Seven Million
Dollars ($7,000,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to the order of Bay
Harbor Investments, Inc., or its registered assigns (the "Holder"), the
principal sum of Five Hundred Thousand Dollars ($500,000), on October 5, 2001 or
such earlier date as the Debentures are required or permitted to be repaid as
provided hereunder (the "Maturity Date") and to pay interest thereon at the rate
of 5.00% per annum, payable in arrears on each Conversion Date (as defined
herein) and on each March 31, June 30, September 30 and December 31 of each year
during which this Debenture remains outstanding (for purposes of payment of
interest, each Conversion Date and each quarterly date being an "Interest
Payment Date"), in cash. Interest shall be calculated on the basis of a 360-day
year of twelve thirty-day months and shall accrue daily (but compound annually)
commencing on the Original Issue Date (as defined in Section 7) until payment
(whether through conversion of all outstanding principal amount hereunder or
otherwise) in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest hereunder will be paid to the Person (as defined in Section 7) in whose
name this Debenture is
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registered on the records of the Company regarding registration and transfers of
Debentures (the "Debenture Register"). All overdue accrued and unpaid interest
to be paid in cash hereunder shall entail a late fee at the rate of 18% per
annum (or such lower maximum amount of interest permitted to be charged under
applicable law) (to accrue daily, from the date such interest is due hereunder
through and including the date of payment), payable in cash.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 7) and may be transferred or exchanged to
another Person only in compliance with the Purchase Agreement. 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 Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. Events of Default.
(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) any default in the payment of the principal
of, interest on or any other amount due in respect of, any Debentures, free of
any claim of subordination, by the fifth Business Day (as defined in Section 6)
following the date the same shall become due and payable (whether on an Interest
Payment Date or the Maturity Date, by acceleration or otherwise);
(ii) the Company shall fail to observe or perform
any other covenant, agreement or warranty contained in, or otherwise commit any
breach of, any Transaction Document (as defined in Section 7) or any other
Debenture (other than those matters that are the specific subject of another
Event of Default under this Section), and such failure or breach shall not have
been remedied within twenty Business Days after the date on which notice of such
failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall
commence, or there shall be commenced against the Company or any such
subsidiary, a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the
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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 any subsidiary thereof or there is commenced against the Company
or any subsidiary thereof any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of sixty days; or 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; or the Company
or any subsidiary thereof 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 sixty days; or the Company or any subsidiary thereof
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, or shall be unable to pay,
its debts generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or the Company or any subsidiary
thereof 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 or any subsidiary thereof for the purpose of
effecting any of the foregoing;
(iv) the Company shall default in any of its
payment obligations under any other Debenture of any mortgage, credit agreement
or other 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 five hundred
thousand dollars ($500,000), whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable without such indebtedness having been discharged in full
or any acceleration of such indebtedness having been rescinded or annulled in
full within the applicable grace period;
(v) the Common Stock shall not be quoted for
trading on The Nasdaq National Market ("NASDAQ") or, if the Common Stock shall
hereafter become listed or quoted for trading on the Nasdaq SmallCap Market, The
New York Stock Exchange, or American Stock Exchange (each, a "Subsequent
Market"), it shall fail to be quoted or listed for trading on such Subsequent
Market, for an aggregate of five Trading Days;
(vi) the Company shall be a party to any Change
of Control Transaction (as defined in Section 7), shall agree to sell or dispose
of all or substantially all of its assets in one or more transactions (whether
or not such sale would constitute a Change of Control Transaction), or shall
redeem or repurchase shares of Common Stock or other equity securities of the
Company (other than redemptions of Underlying Shares (as defined in Section 6));
(vii) an Underlying Shares Registration Statement
shall not have been declared effective by the Commission (as defined in Section
6) on or prior to the 175th day after the Original Issue Date;
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(viii) if, during the Effectiveness Period (as
defined in the Registration Rights Agreement (as defined in Section 8)), the
effectiveness of the Underlying Shares Registration Statement lapses for any
reason or the Holder shall not be permitted to resell Registrable Securities (as
defined in the Registration Rights Agreement) under an Underlying Shares
Registration Statement, in either case, for an aggregate of more of than sixty
Trading Days (which need not be consecutive Trading Days) in any twelve month
period;
(ix) an Event (as defined in the Registration
Rights Agreement) shall not have been cured to the reasonable satisfaction of
the Holder prior to the expiration of thirty days from the Event Date (as
defined in the Registration Rights Agreement) relating thereto (other than an
Event resulting from a failure of an Underlying Shares Registration Statement to
be declared effective by the Commission on or prior to the 175th day after the
Original Issue Date, which shall be covered by Section 3(a)(vii));
(x) the Company shall fail for any reason to
deliver certificates to a Holder prior to the seventh (7th) Trading Day after a
Delivery Date (as defined in Section 4(e)) pursuant to and in accordance with
Section 4(b) or the Company shall provide notice to the Holder, including by way
of public announcement, at any time, of its intention not to comply with
requests for conversions of any Debentures in accordance with the terms hereof;
or
(xi) the Company shall fail for any reason to
deliver the payment in cash pursuant to a Buy-In (as defined herein) within five
Business Days after written notice for such Buy-In is provided.
(b) If any Event of Default occurs, the full principal
amount of this Debenture (and, at the Holder's option, all other Debentures then
held by such Holder), together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become, at the Holder's election
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default shall be equal to the sum of (i) the Mandatory Prepayment Amount (as
defined in Section 7) plus (ii) the product of (A) the number of Underlying
Shares issued in respect of conversions hereunder within thirty (30) days of the
date of a declaration of an Event of Default and then held by the Holder and (B)
the closing sales price of the Common Stock as reported by Bloomberg L.P. (or
the successor to its function of reporting share prices) on the date prepayment
is due or the date the full prepayment price is paid, whichever is greater.
Interest shall accrue on the prepayment amount hereunder from the seventh
Business Day after such amount is due (being the date of an Event of Default)
through the date of prepayment in full thereof at the rate of 18% per annum (or
such lesser maximum amount that is permitted to be paid by applicable law), to
accrue daily from the date such payment is due hereunder through and including
the date of payment. All Debentures and Underlying Shares for which the full
prepayment 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 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 ▇▇▇▇▇▇ at any
time
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prior to payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 4. Conversion.
(a) Conversion at Option of Holder. The Holder shall
effect conversions hereunder by delivering to the Company by facsimile a
completed conversion notice in the form attached as Exhibit A (a "Holder
Conversion Notice") and delivery to the Company within two Trading Days
thereafter of the principal amount of Debentures to be converted. Each Holder
Conversion Notice shall specify the date on which such conversion is to be
effected, which date may not be prior to the date such Holder Conversion Notice
is deemed to have been delivered hereunder (a "Holder Conversion Date"). If no
Holder Conversion Date is specified in a Holder Conversion Notice, the Holder
Conversion Date shall be the date that such Holder Conversion Notice is deemed
delivered hereunder. Subject to Section 4(b), each Holder Conversion Notice,
once given, shall be irrevocable. If the Holder is converting less than all of
the principal amount represented by the Debenture(s) tendered by the Holder with
the Holder Conversion Notice, or if a conversion hereunder cannot be effected in
full for any reason, the Company shall honor such conversion to the extent
permissible hereunder and shall promptly deliver to such Holder (in the manner
and within the time set forth in Section 4(e)) a new Debenture for such
principal amount as has not been converted.
(b) Conversion at Option of the Company.
(i) If the conditions set forth in this
subsection are satisfied, the Company may require the conversion of all or a
portion of the principal amount of the Debentures subject to an effective
Underlying Shares Registration Statement. The Company shall only have the right
to require conversions hereunder if (i) the closing sales price of the Common
Stock as reported by Bloomberg L.P. (or any successor to its function of
reporting share prices) exceeds $6.72 (subject to equitable adjustment in the
event of stock splits and similar events) for twenty consecutive Trading Days
following the date on which an Underlying Shares Registration Statement shall
have first been declared effective by the Securities and Exchange Commission
(the "Effective Date"), (ii) the Underlying Shares Registration Statement shall
be effective and the prospectus thereunder available to the Holders for the
resale of all Underlying Shares issuable upon such conversion during the entire
twenty Trading Day period and on the Company Conversion Date (as defined below)
or Underlying Shares may be sold by the Holder subject to such conversion
without volume limitation under Rule 144(k) promulgated under the Securities Act
on the Company Conversion Date, (iii) the Company has available sufficient
unreserved and available shares of Common Stock to fulfill its share delivery
requirements upon such conversion, (iv) the Common Stock is listed or quoted for
trading on the NASDAQ or a Subsequent Market during the entire twenty Trading
Day calculation period described above in this subsection, (v) such conversion
would not result in a violation of Section 4d(i), (ii) or (iii), and (vi) the
Company shall not have been more than three Trading Days late in delivering any
conversion shares pursuant to Section 4(e).
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(ii) The Company shall exercise its right to
require conversions under Section 4(b)(i) by delivering to the Holder a
completed conversion notice in the form attached as Exhibit B (a "Company
Conversion Notice"). Each of a Company Conversion Notice and a Holder Conversion
Notice is sometimes referred to herein as a "Conversion Notice". Each Company
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Company Conversion Notice is deemed to have
been delivered hereunder (a "Company Conversion Date"). Each of a Company
Conversion Date and a Holder Conversion Date is referred to herein as a
"Conversion Date". If no Conversion Date is specified in a Company Conversion
Notice, the Conversion Date shall be the date that such Company Conversion
Notice is deemed delivered hereunder. Subject to the Holder's rights under
Section 4(b), the conversion subject to each Company Conversion Notice, once
given, shall be irrevocable. Not more than three Trading Days following receipt
of the Company Conversion Notice, the Holder shall deliver to the Company the
principal amount of Debentures subject to such Company Conversion Notice against
receipt of the Underlying Shares. If the Company is requiring conversion of less
than the full principal amount represented by the Debenture(s) tendered by the
Holder following a Company Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 4(e)) a new
Debenture for such principal amount as has not been converted.
(c) Number of Underlying Shares Issuable Upon Conversion.
(i) The number of shares of Common Stock
issuable upon a conversion hereunder shall be determined by adding the sum of
(i) the quotient obtained by dividing (x) the principal amount of this Debenture
to be converted and (y) the Conversion Price (as defined herein), and (ii) the
amount equal to (I) the product of (x) the principal amount of this Debenture to
be converted and (y) the product of (1) .000139 and (2) the number of days for
which such principal amount was outstanding, divided by (II) the Conversion
Price on the Conversion Date, provided, that (1) if the Company shall have paid
the interest at issue in cash, subsection (ii) shall not be used in the
calculation of the number of shares of Common Stock issuable upon such
conversion, and (2) only such portion of the accrued and outstanding amount of
interest owing on the principal amount being converted shall be calculated in
subsection (ii), giving credit for previously paid interest on such principal
amount.
(ii) Notwithstanding anything to the contrary
contained herein, if on any Conversion Date: (1) the number of shares of Common
Stock at the time authorized, unissued and unreserved for all purposes, or held
as treasury stock, is insufficient to permit issuance of the shares upon
Conversion; (2) after the Effective Date (as defined in Section 7) such shares
of Common Stock (x) are not registered for resale pursuant to an effective
Underlying Shares Registration Statement and (y) may not be sold without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act (as
defined in Section 7), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the
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Company's transfer agent in the form and substance reasonably acceptable to the
applicable Holder and such transfer agent; (3) the Common Stock is not listed or
quoted for trading on the NASDAQ or on a Subsequent Market; or (4) the issuance
of such shares of Common Stock would result in a violation of Sections 4(d)(i),
(ii) or (iii), then, at the option of the Holder, the Company, in lieu of
delivering shares of Common Stock pursuant to Section 4(c), shall deliver,
within ten Trading Days of each applicable Conversion Date, an amount in cash
equal to the product of (a) the outstanding principal amount of the Debentures
to be converted on such Conversion Date and (b) the product of (x) .000139 and
(y) the number of days for which such principal amount was outstanding, less any
interest previously paid in cash.
(d) Certain Conversion Restrictions.
(i) A Holder may not convert Debentures to the
extent such conversion would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder) in excess of 4.999% of
the then issued and outstanding shares of Common Stock, including shares
issuable upon conversion of the Debentures held by such Holder after application
of this Section. Since the Holder will not be obligated to report to the Company
the number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 4.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Debentures are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for a principal amount of Debentures
that, without regard to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted to be converted on such
Conversion Date in accordance with the periods described in Section 4(b) and, at
the option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future conversions or
return such excess principal amount to the Holder. The provisions of this
Section may be waived by a Holder (but only as to itself and not to any other
Holder) upon not less than sixty-one days prior notice to the Company. Other
Holders shall be unaffected by any such waiver.
(ii) A Holder may not convert Debentures to the
extent such conversion would result in the Holder, together with any affiliate
thereof, beneficially owning (as determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of
the then issued and outstanding shares of Common Stock, including shares
issuable upon conversion of the Debentures held by such Holder after application
of this Section. Since the Holder will not be obligated to report to the Company
the number of shares of Common Stock it may hold at the time of a conversion
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hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Debentures are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for a principal amount of Debentures
that, without regard to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted to be converted on such
Conversion Date in accordance with the periods described in Section 4(b) and, at
the option of the Holder, either retain any principal amount tendered for
conversion in excess of the permitted amount hereunder for future conversions or
return such excess principal amount to the Holder. The provisions of this
Section may be waived by a Holder (but only as to itself and not to any other
Holder) upon not less than sixty-one days prior notice to the Company. Other
Holders shall be unaffected by any such waiver.
(iii) If the Common Stock is then listed for
trading on the NASDAQ National Market or the Nasdaq SmallCap Market and the
Company has not obtained the Shareholder Approval (as defined below), then the
Company is precluded from issuing at a Conversion Price or, with respect to the
Warrants described below in this sentence, an exercise price, that is less than
the closing sales price per share of the Common Stock on the Trading Day
immediately preceding the first closing of the transactions contemplated by the
Purchase Agreement, subject to equitable adjustment in the event of stock splits
and similar events (such price, the "Market Price"), in excess of 5,160,577
shares of Common Stock (the "Issuable Maximum") upon conversion of the
Debentures and exercise of the Warrants (as defined in the Purchase Agreement).
The Issuable Maximum equals 19.999% of the number of shares of Common Stock
outstanding immediately prior to the first closing of transactions set forth in
the Purchase Agreement. Accordingly, if on any Conversion Date (A) the Common
Stock is listed for trading on the NASDAQ or the Nasdaq SmallCap Market and (B)
the Company shall not have previously obtained the vote of shareholders (the
"Shareholder Approval"), if any, as may be required by the applicable rules and
regulations of the Nasdaq Stock Market (or any successor entity) applicable to
approve the issuance of a number of shares of Common Stock in excess of the
Issuable Maximum at a price below the Market Price, then the Company shall issue
to the Holder requesting a conversion a number of shares of Common Stock equal
to the lesser of (x) the number of shares of Common Stock issuable upon such
conversion at the Conversion Price and (y) the Issuable Maximum less all shares
of Common Stock previously issued upon conversion of the Debentures and as
payment of interest thereon (but only those shares issued at a Conversion Price
less than the Market Price) and all shares of Common Stock previously issued
upon any exercise of Warrants (but only those shares issued at an exercise price
less than the Market Price). With respect to the principal amount of Debentures
tendered for conversion at issue for which a conversion in accordance with the
Conversion Price would, when aggregated with all shares of Common
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Stock previously issued on account of conversions of Debentures and payment of
interest thereon and upon exercise of Warrants (at the exercise and Conversion
Price described in the immediately preceding sentence) (the "Excess Principal"),
result in the issuance of a number of shares of Common Stock in excess of the
Issuable Maximum, the converting Holder shall have the option to require the
Company to either (1) use its best efforts to obtain the Shareholder Approval
applicable to such issuance as soon as is possible, but in any event not later
than the first to occur of (x) the twenty-fifth day from the date that the
Commission approves or indicates that it has no further comments to the
Company's preliminary proxy statement, if any, prepared for delivery to the
shareholders of the Company in connection with the Shareholder Approval
contemplated hereby and (y) the 90th day after such request (such date the
"Approval Date"), or (2) pay cash to the converting Holder in an amount equal to
the Mandatory Prepayment Amount for the Excess Principal. If the converting
Holder shall have elected the first option pursuant to the immediately preceding
sentence and the Company shall have failed for any reason to obtain the
Shareholder Approval on or prior to the Approval Date, then within three days of
the Holder's demand therefore, which may be given at any time following the
Approval Date, the Company shall pay cash to the converting Holder in an amount
equal to the Mandatory Prepayment Amount for the Excess Principal. If the
Company fails to pay the Mandatory Prepayment Amount in full pursuant to this
Section within seven days of the date payable, the Company will pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the converting Holder, accruing daily
from the Conversion Date until such amount, plus all such interest thereon, is
paid in full. In the event there is more than one holder of Debentures, the
Issuable Maximum applicable to each Debenture shall be determined pro rata by
reference to the percentage of the principal amount of all Debentures held by
such Holder, provided that if one or more Debentures shall have been prepaid or
converted without having been issued its pro rata allocated portion of the
Issuable Maximum such unissued shares shall be allocated pro rata to the
remaining Holders. It is understood and agreed that shares of Common Stock
delivered to and held by the Holder or one of its affiliates on account of
conversion hereunder may not cast votes on the matter of Shareholder Approval.
▇▇▇▇▇▇ delivered on account of conversion hereunder and not held by the Holder
or its affiliates may cast votes on the matter of Shareholder Approval. Any
Mandatory Prepayment Amount owing pursuant to this Section shall be due and
payable by the 20th day following the demand therefor.
(e) Delivery of Certificates.
(i) Not later than three Trading Days after
any Conversion Date (a "Delivery Date"), the Company will deliver to the Holder
(A) a certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement or in the event that the Holder does not execute and deliver
to the Company by fax the undertaking set forth in the Company Conversion Notice
within two Trading Days after a Company Conversion Date (provided that in such
event, the Company shall cause any legend to be removed immediately upon receipt
of such undertaking)) representing the number of shares of Common Stock being
acquired upon the conversion of Debentures, (B) Debentures in a principal amount
equal to the principal amount of Debentures not converted, and (C) a bank check
in the amount of accrued and unpaid
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interest, provided, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
the principal amount of Debentures until Debentures are delivered for conversion
to the Company, or the Holder notifies the Company that such Debentures have
been lost, stolen or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon request of the
Holder, if available, use its best 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
Conversion Notice such certificate or certificates are not delivered to or as
directed by the applicable Holder by the Delivery Date 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 Debentures tendered for
conversion.
(ii) If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section 4 by the
Delivery Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, $5,000 for each Trading Day after the Delivery
Date until such certificates are delivered. Nothing herein shall limit a
▇▇▇▇▇▇'s right to pursue actual damages or declare an Event of Default pursuant
to Section 3 herein for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures or as payment of
interest thereon by the Delivery Date, the Holder may, by notice to the Company,
require the Company to issue shares of Common Stock pursuant to Section 4(c),
except that for such purpose the Conversion Price applicable thereto shall be
the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provision of this Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section 4 by the Delivery Date, and if after the
Delivery Date the Holder purchases (in an open market transaction or otherwise)
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 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
Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the
aggregate number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue or (B) the number of shares of Common
Stock so purchased, multiplied by (2) the Conversion Price of the Common Stock
on
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the Conversion Date, in which event the number of shares of Common Stock that
would have been issued had the Company timely complied with its delivery
requirements under this Section 4 shall not be so issued. For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In in connection with an attempted conversion of Debentures with respect
to which the Conversion Price of the Underlying Shares on the applicable
Conversion Date multiplied by the number of Underlying Shares was equal to
$2,000 under clause (A) of the immediately preceding sentence, the Company shall
be required to pay the Holder $9,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In. Notwithstanding anything contained herein to the contrary, if a Holder
requires the Company to make payment in respect of a Buy-In for the failure to
timely deliver certificates hereunder and the Company timely pays in full such
payment, the Company shall not be required to pay such Holder liquidated damages
under Section 4(e)(ii) in respect of the certificates resulting in such Buy-In.
(f) Conversion Price; Adjustment. The Conversion Price of the
Debentures on any Conversion Date (the "Conversion Price") shall equal $1.19,
subject to adjustment as provided for in subsection (i) through (ix) below.
(i) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any
other equity or equity equivalent securities payable in shares of
Common Stock (other than PIK dividend preferred stock), (b) subdivide
outstanding shares of Common 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.
(ii) If the Company, at any time while any Debentures are
outstanding, shall issue rights, options or warrants to all holders of
Common Stock (and not to Holders) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Per
Share Market Value at the record date mentioned below, then the
Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance
of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so
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offered would purchase at such Per Share Market Value. Such adjustment
shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options
or warrants. However, upon the expiration of any such right, option or
warrant to purchase shares of the Common Stock the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this
Section, if any such right, option or warrant shall expire and shall
not have been exercised, the Conversion Price shall immediately upon
such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant
to the provisions of this Section after the issuance of such rights or
warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights, options or warrants been made on the basis of
offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights,
options or warrants actually exercised.
(iii) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below),
at any time on or after January 30, 2001 while any Debentures are
outstanding shall issue shares of Common Stock or rights, warrants,
options or other securities or debt that are convertible into or
exchangeable for shares of Common Stock ("Common Stock Equivalents"),
entitling any Person to acquire shares of Common Stock at a price per
share (such price per share being hereinafter called the "New PPS")
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, the Conversion Price shall be
reduced to the New PPS. Such adjustment shall be made whenever such
shares of Common Stock or Common Stock Equivalents are issued. The
foregoing shall not apply to any (i) issuances of securities as
consideration in a merger, consolidation or acquisition of assets, or
in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or as
consideration for the acquisition of a business, product or license by
the Company, (ii) the issuance of securities upon the exercise or
conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof, or (iii) the grant of
options or warrants, or the issuance of additional securities, under
any duly authorized Company stock option, restricted stock plan or
stock purchase plan for the benefit of the Company's employees.
(iv) If the Company, at any time while 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 Debentures shall thereafter be
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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 Per Share Market Value determined as
of the record date mentioned above, and of which the numerator shall be
such Per Share Market Value 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 the 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.
(v) 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, the Holders shall
have the right thereafter to, at their option, (A) convert the then
outstanding principal amount, together with all accrued but unpaid
interest and any other amounts then owing hereunder in respect of this
Debenture only, into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the
Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common
Stock of the Company into which the then outstanding principal amount,
together with all accrued but unpaid interest and any other amounts
then owing hereunder in respect of this Debenture could have been
converted immediately prior to such reclassification or share exchange
would have been entitled or (B) require the Company to prepay the
aggregate of its outstanding principal amount of Debentures, plus all
interest and other amounts due and payable thereon, at a price
determined in accordance with Section 3(b). The entire prepayment price
shall be paid in cash. This provision shall similarly apply to
successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may
be. No adjustments in the Conversion Price shall be required if such
adjustment is less than $0.01, provided, however, that any adjustments
which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(vii) Whenever the Conversion Price is adjusted pursuant
hereto, 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.
(viii) 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
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dividend on or a redemption of the Common Stock; (C) 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; (D) the approval of any stockholders of the
Company shall be required in connection with 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; (E) 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 Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall
appear upon the stock books of the Company, at least twenty 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 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 mail such
notice or any defect therein or in the mailing thereof shall not affect
the validity of the corporate action required to be specified in such
notice. Holders are entitled to convert Debentures during the
twenty-day period commencing the date of such notice to the effective
date of the event triggering such notice.
(ix) In case of any (1) merger or consolidation of the
Company with or into another Person, or (2) sale by the Company of more
than one-half of the assets of the Company (based upon then fair market
value) in one or a series of related transactions, a Holder shall have
the right to (A) if permitted under Section 3(b) hereof, exercise its
rights of prepayment under Section 3(b) with respect to such event, or
(B) convert its aggregate principal amount of Debentures then
outstanding 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 merger, consolidation or sale, and such Holder
shall be entitled upon such event or series of related events to
receive such amount of securities, cash and property as the shares of
Common Stock into which such aggregate principal amount of Debentures
could have been converted immediately prior to such merger,
consolidation or sales would have been entitled, or (C) in the event
that the Holder shall have elected under clause (A) above and the
Company shall not have failed to pay the amounts due under Section 3(b)
by the second Business Day prior to the closing of such Change of
Control Transaction, or shall have indicated its intention to do so,
then in the case of a merger or consolidation at the closing thereof,
(x) require the surviving entity to issue shares of convertible
preferred stock or convertible debentures with such
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aggregate stated value or in such face amount, as the case may be,
equal to the aggregate principal amount of Debentures then held by such
Holder, plus all accrued and unpaid interest and other amounts owing
thereon, which newly issued shares of preferred stock or debentures
shall have terms identical (including with respect to conversion) to
the terms of this Debenture (except, in the case of preferred stock, as
may be required to reflect the differences between equity and debt) and
shall be entitled to all of the rights and privileges of a Holder of
Debentures set forth herein and the agreements pursuant to which the
Debentures were issued (including, without limitation, as such rights
relate to the acquisition, transferability, registration and listing of
such shares of stock other securities issuable upon conversion
thereof), and (y) simultaneously with the issuance of such convertible
preferred stock or convertible debentures, shall have the right to
convert such instrument only into shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger or consolidation. In the case of
clause (C), the conversion price applicable for the newly issued shares
of convertible preferred stock or convertible debentures shall be based
upon the amount of securities, cash and property that each share of
Common Stock would receive in such transaction and the Conversion Price
in effect immediately prior to the effectiveness or closing date for
such transaction. The terms of any such merger, sale or consolidation
shall include such terms so as to continue to give the Holders the
right to receive the securities, cash and property set forth in this
Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(g) 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 Debentures and payment of
interest on the 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 the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(h) 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 Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
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(i) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures 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 Debentures 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.
(j) Any provision herein to be contrary notwithstanding, no
adjustment in the Conversion Price of the Debentures shall be made in respect of
the issuance by the Company of additional shares of Common Stock or additional
Common Stock Equivalents (i) unless the consideration per share for an
additional share of Common Stock Equivalents is less than the Conversion Price
in effect on the date of, and immediately prior to, such issue; or (ii) in any
case where the shares of Common Stock or the Common Stock Equivalents are issued
or issuable (A) upon conversions of the Debentures, (B) upon exercise of
outstanding options or warrants, (C) to any bank lender, or (D) to employees,
officers or directors of, or consultants to, the Company pursuant to stock
option or stock purchase plans or agreements or terms approved by the Company's
Board of Directors.
(k) Any and all notices or other communications or deliveries to
be provided by the Holders hereunder, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed to
the Company, at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇, attention Chief Financial Officer, or such other address or
facsimile number as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section, with a copy to (other than
for Conversion Notices) to Jaffe, Raitt, Heuer & ▇▇▇▇▇ P.C., ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. 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 or sent by certified or registered mail, postage
prepaid, 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 prior to 6:30 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 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, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.
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Section 5. [Intentionally omitted].
Section 6. Unconditional Obligation. Except as expressly
provided herein, no provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, interest and liquidated damages (if any) on, this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture is a direct obligation of the Company. This Debenture ranks pari passu
with all other Debentures now or hereafter issued under the terms set forth
herein. As long as there are Debentures outstanding, the Company shall not and
shall cause it subsidiaries not to, without the consent of the Holders, (i)
amend its certificate of incorporation, bylaws or other charter documents so as
to adversely affect any rights of the Holders (creation of a class of preferred
stock that does not otherwise alter the relative rights, preferences or terms of
this Debenture or otherwise breach other provisions of the Transaction Documents
will not violate this clause); or (ii) enter into any agreement with respect to
the foregoing. The Company may not prepay principal amount under the Debentures
without the consent of the Holders.
Section 7. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of New York are authorized or required
by law or other government action to close.
"Cereus Merger" means the consummation of the transactions
contemplated by the Merger Agreement.
"Change of Control Transaction" 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 50% 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 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).
"Commission" means the Securities and Exchange Commission.
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"Common Stock" means the common stock, par value $.01 per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Effective Date" means the date that an Underlying Shares
Registration Statement is declared effective by the Commission.
"Mandatory Prepayment Amount" shall equal the sum of (i) the
greater of (A) 120% of the principal amount of Debentures to be prepaid, plus
all accrued and unpaid interest thereon, and (B) the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon, divided
by the Conversion Price on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is less, multiplied by the closing sales price of the
Common Stock as reported by Bloomberg L.P. (or the successor to its function of
reporting share prices) on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise becomes due 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 principal amount.
Notwithstanding the foregoing, if the event giving rise to the obligation to pay
any Mandatory Prepayment Amount shall be a merger or business combination or
sale that would constitute a Change of Control Transaction, then (x) if the
consideration to be received by the Holder were it to participate in such
transaction would result in a premium of 20% or more above the outstanding
Debenture principal amount and interest hereunder, clause (A) in this definition
shall be deleted for such purposes and (y) if the consideration to be received
by the Holder were it to participate in such transaction would result in a
premium of 10% to 19.99% above the outstanding Debenture principal amount and
interest hereunder, clause (A) in this definition shall equal 110%.
"Merger Agreement" means the Agreement and Plan of Merger
dated as of June 12, 2000 by and among the Company and Cereus Technology
Partners, Inc.
"Original Issue Date" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the NASDAQ, or if
there is no such price on such date, then the closing bid price on the NASDAQ on
the date nearest preceding such date, or (b) if the shares of Common Stock are
not then listed or quoted on a NASDAQ, the closing sale or bid price, as
applicable, for a share of Common Stock on a Subsequent Market, at the close of
business on such date, or (c) if the shares of Common Stock are not then listed
or quoted on a Subsequent Market, then the average of the "bulletin board"
quotes on such date, as determined in good faith by the Holder, or (d) if the
shares of Common Stock are not then publicly traded the fair market value of a
share of Common Stock as determined by an
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Appraiser selected in good faith by the Holders of a majority in interest of the
principal amount of Debentures then outstanding.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated July 27, 2000, to which the Company and the original Holder 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 July 27, 2000, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in accordance
with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means (a) a day on which the shares of Common
Stock are traded on a The Nasdaq NMS, or (b) if the shares of Common Stock are
not listed on The Nasdaq NMS, a day on which the shares of Common Stock are
traded on a subsequent Market, or (c) if the shares of Common Stock are not
quoted on the NASDAQ or any Subsequent Market, 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 any Business Day.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"Underlying Shares Registration Statement" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering, among other things, the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
Section 8. This 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
of the Company, unless and to the extent converted into shares of Common Stock
in accordance with the terms hereof.
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Section 9. If this 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 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 10. No current indebtedness of the Company is, and no
future indebtedness of the Company will be, senior to this Debenture in right of
payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise other than Senior Indebtedness (as defined below),
indebtedness secured by purchase money security interests (which will be senior
as to the underlying asset covered thereby) and capital lease obligations (which
will be senior as to the property covered thereby).
Section 11. (a) Subject to the provisions of this Section 11
relating to payments on the Subordinated Indebtedness that are permitted to be
made to the extent and under the circumstances set forth herein, Holder hereby
postpones and subordinates all of the Subordinated Indebtedness to the full and
final payment and discharge of all of the Senior Indebtedness.
(b) Except as otherwise provided in Section 11(c) hereof,
(i) Company may pay to Holder, and Holder may accept and retain, any regularly
scheduled installments of principal and interest due and owing to Holder from
Company under this Debenture in accordance with its tenor, but without
prepayment (whether mandatory or optional) or payment upon acceleration,
including, without limitation, any Put Prepayment Amount, and (ii) Holder and
Company may exercise their rights under this Debenture to convert all or a
portion of the Subordinated Indebtedness to Common Stock.
(c) Company shall not be permitted to make any payments
with respect to the Debenture (other than distributions of Common Stock upon the
conversion of all or a portion of the Subordinated Indebtedness to Common
Stock), including, without limitation, any Put Prepayment Amount, and Holder
shall not be permitted to retain any payments with respect to the Debenture
(other than distributions of Common Stock upon the conversion of all or a
portion of the Subordinated Indebtedness to Common Stock) if, at the time of
making such payment or as a result thereof, any PNC Default or PNC Event of
Default exists or would exist. In no event shall any Lender's continuing to
honor any requests of Company or any other borrower for loans or other
extensions of credit under the PNC Agreement after the occurrence or existence
of any such PNC Default or PNC Event of Default be deemed a waiver thereof,
unless such PNC Default or PNC Event of Default is expressly waived in writing
by the Lenders.
(d) If any payment, distribution or security, or the
proceeds thereof, are received by Holder on account of or with respect to any of
the Subordinated Indebtedness other than as expressly permitted in this Section
11, Holder shall forthwith deliver same to
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Agent, for application to the Senior Indebtedness outstanding under the PNC
Agreement, in the form received (except for the addition of any endorsement or
assignment necessary to effect a transfer of all rights therein) or, at Agent's
option, Holder shall pay to Agent the amount thereof on demand. Until so
delivered, any such payment, distribution or security shall be held by Holder in
trust for Agent and shall not be commingled with other funds or property of
Holder.
(e) Any amendment or modification of the terms of this
Section 11 shall not be effective against any Senior Creditor unless such Senior
Creditor so consents in writing.
(f) No present or future Senior Creditor shall be
prejudiced in its right to enforce the provisions of this Section 11 by any act
or failure to act on the part of Company.
(g) ▇▇▇▇▇▇ agrees and acknowledges that in no event shall
Holder accept, receive or otherwise obtain any Lien on any assets of Company or
any of its subsidiaries. If, notwithstanding the foregoing, Holder is granted or
otherwise acquires such a Lien, ▇▇▇▇▇▇ agrees and acknowledges such Lien shall
be subordinated to any and all Liens held by any Senior Creditor on any such
assets.
(h) If the Senior Indebtedness has been indefeasibly paid
and discharged, Holder shall be subrogated (without any representation by or
recourse to any Senior Creditor) to the rights of Senior Creditors to receive
payments or distributions of cash, property or securities payable or
distributable on account of the Senior Indebtedness, to the extent of all
payments and distributions paid over to or for the benefit of Senior Creditors
pursuant to this Section 11 on account of the Subordinated Indebtedness. In no
event, however, shall Holder have any rights or claims against any Senior
Creditor for any alleged impairment of ▇▇▇▇▇▇'s subrogation rights, ▇▇▇▇▇▇
acknowledging that any actions taken by a Senior Creditor with respect to the
Senior Indebtedness or the collateral securing all or any part of the Senior
Indebtedness are authorized and consented to by ▇▇▇▇▇▇.
(i) The provisions of this Debenture subordinating the
Subordinated Indebtedness are solely for the purpose of defining the relative
rights of Senior Creditors and Holder and shall not impair, as between Holder
and Company, the obligation of Company, which is unconditional and absolute, to
pay the Subordinated Indebtedness in accordance with its terms except as payment
thereof may be postponed in accordance with this Debenture.
(j) For purposes of this Section 11, the following terms
shall have the following meanings:
"Agent" shall mean PNC Bank, National Association, in its
capacity as administrative and collateral agent for the Lenders, and its
successors in such capacity.
"Insolvency Proceeding" means any action, suit, case or
proceeding commenced by or against Company or any of its subsidiaries for the
appointment of a receiver for Company, any of Company's subsidiaries, any of
Company's property or any property of
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any subsidiary of Company, for an order for relief under any chapter of the
United States bankruptcy code, as an assignment for the benefit of creditors or
for any relief under any other insolvency law relating to the readjustment,
reorganization, composition or extension of debts owed by Company or any
subsidiary.
"Lenders" shall mean the various lenders who are or may become
parties to the PNC Agreement from time to time.
"Lien" shall mean any security interest, statutory lien,
common law lien, equitable lien, or judicial lien or other interest in any
property.
"PNC Agreement" shall mean the Revolving Credit and Security
Agreement dated March 14, 2000, among Company, the other borrowers from time to
time party thereto, Lenders and Agent, as such agreement may be amended,
modified, restated, replaced, extended, refinanced, increased, renewed or
supplemented from time to time, any and all agreements relating thereto and any
agreement executed with or in favor of the Agent or any of the Lenders in
connection with any amendment, modification, restatement, replacement,
extension, refinancing, renewal or supplement thereof.
"PNC Default" shall have the meaning ascribed to the term
"Default" in the PNC Agreement.
"PNC Event of Default" shall have the meaning ascribed to the
term "Event of Default" in the PNC Agreement.
"Senior Creditor" shall mean any holder of any of the Senior
Indebtedness.
"Senior Indebtedness" means the principal of, and premium, if
any, and interest on (i) all indebtedness of Company for monies borrowed from
banks, trust companies, insurance companies and other financial institutions
whose primary business is lending money, including, without limitation,
commercial paper and accounts receivable sold or assigned by Company to such
institutions and any indebtedness of Company incurred in any Insolvency
Proceeding, and (ii) principal of, and premium, if any, and interest on any
indebtedness or obligations of a subsidiary of Company of the kinds described in
(i) above assumed or guaranteed in any manner by Company, as any of such
indebtedness, obligations or liabilities described in (i) or (ii) may be
amended, modified, restated, replaced, extended, refinanced, increased, renewed
or supplemented from time to time, and "Senior Indebtedness" shall include, all
indebtedness, liabilities, debts and obligations of Company and the other
borrowers to Agent and Lenders under the PNC Agreement, including, without
limitation, all principal, interest, fees and other expenses due and owing
thereunder.
"Subordinated Indebtedness" means all indebtedness,
liabilities, debit balances, covenants and duties at any time or times owed by
Company or its subsidiaries to Holder, whether direct or indirect, absolute or
contingent, secured or unsecured, primary or secondary, joint or several,
liquidated or unliquidated, due or to become due, now existing or
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hereafter arising, including, without limitation, (i) all liabilities of Company
to Holder under this Debenture, the Purchase Agreement or the Registration
Rights Agreement, (ii) any debt, liability or obligation owing by Company to any
other Person which Holder may have obtained by assignment, pledge, purchase or
otherwise, (iii) all interest, fees, charges, expenses and attorneys' fees for
which Company is now or hereafter becomes liable to pay to Holder under any
agreement or by law, and (iv) any renewals, extensions or refinancings of any of
the foregoing.
Section 12. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, 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 that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument 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.
Section 13. 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 14. 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
shall violate applicable laws governing usury, the applicable rate of interest
due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest.
Section 15. 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.
VERSO TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President and
Chief Financial Officer
Attest:
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Chief Executive Officer
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EXHIBIT A
HOLDER CONVERSION NOTICE
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
the Common Stock (the "Common Stock") of Verso Technologies, Inc. (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 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 hereby covenants and agrees that the undersigned (i) will not
sell or otherwise dispose of the shares of Common Stock to be delivered pursuant
to this Conversion Notice (the "Shares") except pursuant to an effective
registration statement (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Act"), (ii) will sell the Shares only in accordance
with the Plan of Distribution set forth in the prospectus forming a part of the
Registration Statement (the ("Prospectus"), (iii) will comply with the
requirements of the Act when selling or otherwise disposing of the Shares,
including, but not limited to, the prospectus delivery requirements of the Act,
(iv) will not sell or otherwise dispose of, and will return immediately to the
Company for the purpose of placing a restrictive legend thereon, the Shares (and
any certificates representing the Shares, if applicable) upon notice from the
Company that the Prospectus may not be used for the sale of the Shares, and (v)
will indemnify and hold harmless the Company, its directors, officers, agents
and employees, each person who controls the Company (within the meaning of
Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934, as
amended), and the directors, officers, agents or employees of such controlling
persons, to the fullest extent permitted by applicable law, from and against all
Losses (as defined in the Registration Rights Agreement dated July 27, 2000 by
and between the Company and the investors signatory thereto) arising out of or
based upon any breach by the undersigned of any of the covenants contained
herein.
Conversion calculations:
-----------------------------------------------
Date to Effect Conversion
-----------------------------------------------
Principal Amount of Debentures to be Converted
-----------------------------------------------
Number of shares of Common Stock to be Issued
-----------------------------------------------
Applicable Conversion Price
-----------------------------------------------
Signature
-----------------------------------------------
Name
-----------------------------------------------
Address
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EXHIBIT B
COMPANY CONVERSION NOTICE
(To be Executed by the Company to Require
Conversion of Debentures)
The undersigned authorized officer of the Verso Technologies, Inc. (the
"Company") hereby requires the conversion of the principal amount of the
Company's Debentures held by the registered holder addressee hereof of the
Company's Common Stock (the "Common Stock") pursuant to the conditions of the
Dentures as of the date written below. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
----------------------------------------
Date to Effect Conversion
----------------------------------------
Principal Amount of Debentures to be
Converted
----------------------------------------
Number of shares of Common Stock to
be Issued
----------------------------------------
Applicable Conversion Price
----------------------------------------
Signature
----------------------------------------
Name and Office
In order to induce the Company to issue shares without restrictive
legend, the undersigned hereby covenants and agrees that the undersigned (i)
will not sell or otherwise dispose of the shares of Common Stock to be delivered
pursuant to this Conversion Notice (the "Shares") except pursuant to an
effective registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), (ii) will sell the Shares only
in accordance with the Plan of Distribution set forth in the prospectus forming
a part of the Registration Statement (the ("Prospectus"), (iii) will comply with
the requirements of the Act when selling or otherwise disposing of the Shares,
including, but not limited to, the prospectus delivery requirements of the Act,
(iv) will not sell or otherwise dispose of, and will return immediately to the
Company for the purpose of placing a restrictive legend thereon, the
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Shares (and any certificates representing the Shares, if applicable) upon notice
from the Company that the Prospectus may not be used for the sale of the Shares,
and (v) will indemnify and hold harmless the Company, its directors, officers,
agents and employees, each person who controls the Company (within the meaning
of Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934,
as amended), and the directors, officers, agents or employees of such
controlling persons, to the fullest extent permitted by applicable law, from and
against all Losses (as defined in the Registration Rights Agreement dated July
27, 2000 by and between the Company and the investors signatory thereto) arising
out of or based upon any breach by the undersigned of any of the covenants
contained herein.
------------------------------------
Signature
------------------------------------
Name
3
