No.--------- $---------
METALCLAD CORPORATION
10% Convertible Subordinated Debenture Due 2002
Metalclad Corporation, a corporation duly organized and existing
under the laws of the State of Delaware (the "Company"), for value
received, hereby promises to pay to______________________________________,
________________________________________________or registered assigns, the
principal sum of ___________________________________ ($________) at the
executive office of the Company in the City of Newport Beach, California
on ______________, 2002, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest, semi-annually on June 30
and December 31 of each year, beginning on December 31, 1999, until this
debenture (the "Debenture" or "Debentures") is paid in full, on said
principal sum at said office in like coin or currency, at the rate of 10%
per annum, all as more specifically provided in this Debenture. This
Debenture is one of a duly authorized issue of Debentures of the Company
designated as its 10% Convertible Subordinated Debentures Due 2002 and
limited in aggregate principal amount to $5,000,000. The Debentures are
convertible into shares of common stock of the Company (the "Conversion
Shares") at the option of the holder at any time 15 days prior to
maturity, unless previously redeemed, at the rate of $2.50 per share. Six
months after issuance, the Debentures are convertible at 75% of the
current market price, or $2.50, whichever is lower.
ARTICLE ONE.
Definitions.
Section 1.01. Definitions. The terms defined in this Section 1.01
(except as herein otherwise expressly provided or unless the context
otherwise requires) for all purposes of this Debenture shall have the
respective meanings specified in this Section 1.01.
Board of Directors: The term "Board of Directors" shall mean the
Board of Directors of the Company or the Executive Committee of such
Board.
Business Day: The term "business day" shall mean a day which in the
City of Newport Beach, California is neither a legal holiday nor a day on
which banking institutions are authorized by law to close.
Common Stock: The term "Common Stock" shall mean all shares now or
hereafter authorized of the class of Common Stock, par value $.10 per
share, of the Company presently authorized and stock of any other class
into which such shares may hereafter have been changed.
Company: The term "Company" shall mean Metalclad Corporation, a
Delaware corporation, and, unless the context otherwise requires, shall be
deemed to mean and include Metalclad Insulation Corporation, a California
corporation, ("MIC"), Metalclad Environmental Contractors, a California
corporation, ("MEC"), and ECO-Metalclad, Inc., a Utah corporation ("EMI"),
all of which are wholly owned by Metalclad Corporation. Unless
specifically stated to the contrary herein, all references to the Company
and all representations, warranties and covenants of the Company shall be
deemed to include and apply with equal force and effect to MIC, MEC, and
EMI and, subject to the provisions of Article Eleven, shall include any
successors and assigns of either the Company, MIC, MEC, and EMI.
Debenture or Debentures; Outstanding: The terms "Debenture" or
"Debentures" shall mean any Debenture or Debentures, as the case may be,
limited in aggregate principal amount to a maximum of $5,000,000. The term
"Outstanding", when used with reference to Debentures, shall mean, as of
any particular time, all Debentures except:
(a) Debentures theretofore canceled or delivered to the Company
for cancellation;
(b) Debentures, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall have been set
aside and segregated in trust by the Company, provided that if such
Debentures are to be redeemed prior to the maturity thereof, notice of
such redemption shall have been given as in Article Three provided;
(c) Debentures in lieu of or in substitution for which other
Debentures shall have been authenticated and delivered or which shall have
been paid pursuant to the terms of Section 2.04, unless proof satisfactory
to the Company is presented that any of such Debentures are held by
persons in whose hands any of such Debentures are valid, binding, and
legal obligations of the Company; and
(d) Debentures converted into Common Stock pursuant to
Article Eleven.
Debentureholder: The terms "Debentureholder", "holder of
Debentures", or other similar terms, shall mean any person in whose name
at the time a particular Debenture is registered on the Debenture register
kept for that purpose in accordance with the terms hereof.
Event of Default: The term "Event of Default" shall mean any event
specified in Section 6.01, continued for the period of time, if any, and
after the giving of the notice, if any, therein designated.
Officers' Certificate: The term "Officers' Certificate" shall mean
a certificate signed by the Chairman of the Board, the President, or any
Vice President and by the Treasurer, any Assistant Treasurer, the
Controller, any Assistant Controller, the Secretary, or any Assistant
Secretary of the Company. Each such certificate shall include the
statements provided for in Section 6.05 if and to the extent required by
the provisions of such Section.
Record Date: The term "Record Date" as used in Section 2.02 with
respect to any regular interest payment date shall mean the last day of
the calendar month preceding such interest payment date.
Redemption Date: The term "Redemption Date", when used with respect
to any Debenture to be redeemed, shall mean the date fixed for such
redemption by or pursuant to this Debenture.
Redemption Price: The term "Redemption Price", when used with
respect to any Debenture to be redeemed, shall mean the price at which it
is to be redeemed pursuant to this Debenture.
Senior Indebtedness: The term "Senior Indebtedness" of the Company
and its Subsidiaries shall mean (i) the principal of and accrued and
unpaid interest (whether or not accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company) on
all indebtedness of the Company and its Subsidiaries, whether outstanding
on the date of issuance of this Debenture or thereafter created, incurred,
or assumed, for money borrowed from one or more banks, insurance
companies, financial institutions, or other persons which regularly engage
in lending money, unless such indebtedness shall, in the instrument
creating the same, be specifically designated as not being senior in right
of payment to the Debentures; and (ii) any modifications, renewals,
extensions, deferrals, and refundings of any such indebtedness,
liabilities, or obligations; provided, however, that Senior Indebtedness
shall not be deemed to include any obligation of the Company or any
Subsidiary in connection with extensions of credit by trade creditors and
suppliers.
Subsidiary: The term "Subsidiary" shall mean MIC, MEC, EMI, and any
corporation of which the Company, or the Company and one or more
Subsidiaries, or any one or more Subsidiaries, directly or indirectly own
voting securities sufficient to entitle the holders thereof to elect a
majority of the directors, either at all times or so long as there is no
default or contingency which permits the holders of any other class or
classes of securities to vote for the election of one or more directors.
ARTICLE TWO.
Issue, Description, Execution, Registration
and Exchange of Debentures.
Section 2.01. Designation, Amount, and Issue of Debentures. The
Debentures shall be designated as hereinabove set forth. Debentures
offered in the maximum aggregate principal amount of $5,000,000, may from
time to time be executed and delivered by the Company in exchange for the
payment to the Company of the aggregate principal amount thereof. Nothing
herein shall limit the amount of other debentures the Company may issue or
debt the Company may incur.
Section 2.02. Date and Denomination of Debentures; Payment of
Interest. The Debentures shall be issuable Debentures registered with the
Company without coupons in the minimum denomination of $25,000 and any
integral multiple of $1,000 in excess of the minimum investment of
$25,000, and shall be numbered, lettered, or otherwise distinguished in
such manner or in accordance with such plan as the officers of the Company
executing the same may determine. The Company may, in its sole
discretion, elect to accept less than $25,000 as the minimum denomination
of Debentures issuable.
Each Debenture shall be dated the date of its issuance and, except as
otherwise provided in this Section 2.02, shall bear interest, payable
semi-annually on June 30 and December 31 of each year, from the date of
such Debenture until payment of the principal sum of such Debenture has
been made or duly provided for. Interest shall be computed on the basis of
a 360-day year of twelve 30-day months. The first interest payment date
shall be December 31, 1999.
The person in whose name a Debenture (or any Debenture evidencing the
same debt) was registered at the close of business on any Record Date with
respect to any interest payment date shall be entitled to receive the
interest payable, accrued through the Record Date, on such interest
payment date notwithstanding the cancellation of such Debenture upon any
registration of transfer or exchange subsequent to the Record Date and
prior to such interest payment date; provided, however, that if and to the
extent the Company shall default in the payment of the interest due on
such interest payment date, such defaulted interest shall be paid to the
persons in whose names outstanding Debentures are registered at the close
of business on a subsequent Record Date established by notice given by
mail by or on behalf of the Company to the holders of Debentures not less
than 15 days preceding such subsequent Record Date, such Record Date to be
not less than ten days preceding the date of payment of such defaulted
interest.
In the case of any Debenture which is converted after any Record Date
and on or prior to the next succeeding interest payment date, interest
whose stated maturity is on such interest payment date shall be payable on
such interest payment date notwithstanding such conversion, and such
interest (whether or not punctually paid or duly provided for) shall be
paid to the person in whose name that Debenture is registered at the close
of business on such Record Date.
The Company may, in its sole discretion, elect to add accrued
interest to the principal amount of the Debenture in lieu of payment of
accrued interest in cash for interest due on any Record Date prior to
maturity. The Company may, in its sole discretion, elect to pay interest
in shares of Common Stock of the Company at a rate equal to the 30-day
average closing price of the Company's Common Stock as quoted on the
Nasdaq Small Cap Market.
Section 2.03. Exchange and Registration of Transfer of Debentures.
Debentures may be exchanged for a like aggregate principal amount of
Debentures of other authorized denominations. Debentures to be exchanged
shall be surrendered at the executive office of the Company, and the
Company shall execute, register, and deliver in exchange therefor the
Debenture or Debentures which the Debentureholder making the exchange
shall be entitled to receive.
The Company shall keep a Debenture register in which, subject to such
reasonable regulations as it may prescribe, the Company shall register
Debentures and shall register the transfer of Debentures as in this
Article Two. Such register shall be in written form or in any other form
capable of being converted into written form within a reasonable time.
Upon due presentment for registration of transfer of any Debenture, the
Company shall execute, register, and deliver in the name of the transferee
or transferees a new Debenture or Debentures for an equal aggregate
principal amount.
All Debentures presented for registration of transfer shall be duly
endorsed by, or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company duly executed by, the holder
or his attorney duly authorized in writing.
No service charge shall be made for any exchange or registration of
transfer of Debentures, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
The Company shall not be required to exchange or register a transfer
of (a) any Debentures for a period of 15 days next preceding any selection
of Debentures to be redeemed, or (b) any Debentures selected, called or
being called for redemption except, in the case of any Debentures to be
redeemed in part, the portion thereof not so to be redeemed.
Section 2.04. Mutilated, Destroyed, Lost, or Stolen Debentures. In
case any temporary or definitive Debenture shall become mutilated or be
destroyed, lost, or stolen, the Company in its discretion may execute,
register, and deliver a new Debenture, bearing a number not
contemporaneously outstanding, in exchange and substitution for the
mutilated Debenture, or in lieu of and in substitution for the Debenture
so destroyed, lost, or stolen. In every case the applicant for a
substituted Debenture shall furnish to the Company such security or
indemnity as may be required by the Company to save the Company harmless,
and, in every case of destruction, loss, or theft, the applicant shall
also furnish to the Company evidence to its satisfaction of the
destruction, loss, or theft of such Debenture and of the ownership
thereof.
Upon the issuance of any substituted Debenture, the Company may
require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith. In case any Debenture which has matured or
is about to mature shall become mutilated or be destroyed, lost, or
stolen, the Company may, but only with the consent of the holder thereof
in the case of a Debenture as to which the right to convert provided in
Section 11.01 shall not have terminated, instead of issuing a substitute
▇▇▇▇▇▇▇▇▇, pay or authorize the payment of the same (without surrender
thereof except in the case of a mutilated Debenture) if the applicant for
such payment shall furnish to the Company such security or indemnity as
may be required by them to save the Company harmless and, in case of
destruction, loss, or theft, evidence satisfactory to the Company of the
destruction, loss, or theft of such Debenture and of the ownership
thereof.
Every substituted Debenture issued pursuant to the provisions of this
Section 2.04 by virtue of the fact that any Debenture is destroyed, lost,
or stolen shall constitute an additional contractual obligation of the
Company, whether or not the destroyed, lost, or stolen Debenture shall be
found at any time, equally and proportionately with any and all other
Debentures executed and delivered by the Company. All Debentures shall be
held and owned upon the express condition that the foregoing provisions
are exclusive with respect to the replacement or payment of mutilated,
destroyed, lost, or stolen Debentures and shall preclude any and all other
rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or
payment of negotiable instruments or other securities without their
surrender.
Section 2.05. Cancellation of Debentures. All Debentures
surrendered for the purpose of payment, redemption, exchange, registration
of transfer, or conversion, shall, if surrendered to the Company, be
promptly canceled by the Company, and no Debentures shall be issued in
lieu thereof except as expressly permitted by any of the provisions of
this Debenture.
ARTICLE THREE.
Redemption of Debentures.
Section 3.01. Right of Redemption. The Debentures may be redeemed
prior to maturity without penalty at the option of the Company at any time
after the average bid and ask price of the Company's Common Stock, as
reported in the National Association of Securities Dealers Automated
Quotations System, has exceeded $3.00 per share for 20 days within any
30-day period, subject to the right of the Debentureholder to convert the
Debenture into shares of Common Stock as provided in Article Eleven, at a
price which shall be 100% of the principal amount thereof, plus in each
case interest accrued to, and not paid on or before, the date fixed for
redemption of such Debentures:
Section 3.02. Selection by Company of Debentures to Be Redeemed. In
case of any redemption at the election of the Company of less than all of
the Debentures, the Company shall, at least 30 days prior to the
Redemption Date fixed by the Company, select the particular Debentures to
be redeemed from the Outstanding Debentures not previously called for
redemption, by such method as the Company shall deem fair and appropriate
and which may provide for the selection for redemption of portions (equal
to $1,000 or any integral multiple thereof) of the principal amount of
Debentures.
If any Debenture selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of
the Debenture so selected, the converted portion of such Debenture shall
be deemed (so far as may be) to be the portion selected for redemption.
Debentures which have been converted during a selection of Debentures to
be redeemed shall be treated as Outstanding for the purpose of such
selection.
Section 3.03. Notice of Redemption. Notice of redemption shall be
given by first-class mail, postage prepaid, mailed not less than 30 nor
more than 90 days prior to the Redemption Date, to each holder of
Debentures to be redeemed, at his address appearing in the Debenture
register. All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all the Outstanding Debentures are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amounts) of the particular Debentures to be redeemed;
(d) that on the Redemption Date the Redemption Price will
become due and payable upon each such Debenture to be redeemed and that
interest thereon will cease to accrue on and after said date;
(e) the Conversion Price, the date on which the right to
convert the principal of the Debentures to be redeemed will terminate
(which shall be on the 15th day prior to the Redemption Date) and the
place or places where such Debentures may be surrendered for conversion;
and
(f) the place or places where such Debentures are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Debentures to be redeemed at the election of
the Company shall be given by the Company at the expense of the Company.
Section 3.04. Deposit of Redemption Price. Prior to any Redemption
Date, the Company shall deposit into a segregated account an amount of
money sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an interest payment date) accrued interest on,
all the Debentures which are to be redeemed on that date other than any
Debentures called for redemption on that date which have been converted
prior to the date of such deposit.
If any Debenture called for redemption is converted, any money
deposited for the redemption of such Debenture shall (subject to any right
of the holder of such Debenture to receive interest as provided in the
last paragraph of Section 2.02) be discharged from such account.
Section 3.05. Debentures Payable on Redemption Date. Notice of
redemption having been given as aforesaid, the Debentures so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless
the Company shall default in the payment of the Redemption Price and
accrued interest) such Debentures shall cease to bear interest. Upon
surrender of any such Debenture for redemption in accordance with said
notice, such Debenture shall be paid by the Company at the Redemption
Price, together with accrued interest to the Redemption Date; provided,
however, that installments of interest whose stated maturity is on or
prior to the Redemption Date shall be payable to the holders of such
Debentures, registered as such at the close of business on the relevant
record dates according to their terms and the provisions of Section 2.02.
If any Debenture called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear
interest from the Redemption Date at the rate borne by the Debenture.
Section 3.06. Debentures Redeemed in Part. Any Debenture which is
to be redeemed only in part shall be surrendered at the executive office
of the Company (with, if the Company so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company duly
executed by, the holder thereof or his attorney duly authorized in
writing), and the Company shall execute, register, and deliver to the
holder of such Debenture without service charge, a new Debenture or
Debentures, of any authorized denomination as requested by such holder, in
aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Debenture so surrendered.
ARTICLE FOUR.
Particular Covenants of the Company.
Section 4.01. Payment of Principal and Interest. The Company
covenants and agrees that it will duly and punctually pay or cause to be
paid the principal of and interest on each of the Debentures at the place,
at the respective times and in the manner provided in the Debentures. The
principal of and interest on the Debentures shall be payable at the
executive office of the Company; provided, however, that interest may be
payable, at the option of the Company, by check mailed to the address of
the person entitled thereto as such address shall appear on the Debenture
register.
Section 4.02. Office for Transfer, Exchange, Conversion, Notices and
Payments, Etc. Presentation and demand may be made and notice may be
served in respect of the Debentures at the principal office of the
Company.
Section 4.03. No Interest Extension. In order to prevent any
accumulation of claims for interest after maturity thereof, the Company
will not directly or indirectly extend or consent to the extension of the
time for the payment of any claim for interest on any of the Debentures
and will not directly or indirectly be a party to or approve any such
arrangement by the purchase or funding of said claims for interest or in
any other matter. No claim for interest, the time of payment of which
shall have been so extended or which shall have been so purchased or
funded, shall be entitled in case of an Event of Default to the rights and
remedies provided hereunder except after the prior payment in full of the
principal of all the Debentures and claims for interest not so extended,
purchased or funded; provided, however, that this Section 4.03 shall not
apply in any case where an extension shall be made pursuant to a plan
proposed by the Company to the holders of all the Debentures then
outstanding.
Section 4.04. Company as Paying Agent. The Company shall act as its
own paying agent, and will, on or before each due date of the principal if
any, or interest on the Debentures, set aside, segregate and hold in trust
for the benefit of the holders of the Debentures a sum sufficient to pay
such principal or interest so becoming due and will notify each holder of
any of the Debentures of any failure to take such action and of any
failure by the Company (or by any other obligor under the Debentures) to
make any payment of the principal of or interest on the Debentures when
the same shall become due and payable. Anything in this Section 4.04 to
the contrary notwithstanding, the agreement to hold sums in trust as
provided in this Section 4.04 is subject to the provisions of Article
Twelve.
Section 4.05. Corporate Existence. Subject to Article Nine, the
Company will do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence.
Section 4.06. Dividends and Repurchase of Shares. Without the prior
written consent of the holders of record of not less than 60% in principal
amount of the Debentures then outstanding, the Company will not directly
or indirectly, through any of its Subsidiaries or otherwise, pay or
declare any dividends (other than dividends payable in capital stock of
the Company) or apply any of its property or assets to the purchase,
redemption or other retirement of, or set apart any sum for the payment of
any dividends on, or for the purchase, redemption or retirement of, or
make any distribution by reduction of capital or otherwise in respect of,
or permit any Subsidiary or the Company to purchase any shares of, any
class of the capital stock of the Company. However, the Company shall not
be precluded from repurchasing any of its shares of Common Stock pursuant
to an obligation to repurchase such shares from the proceeds of any life
insurance policy on the life of an employee, officer or director of the
Company.
Section 4.07. Maintenance of Registration of the Common Stock under
Section 12(g) of the Exchange Act. The Company covenants and agrees that
it will take all necessary steps and use its best efforts to cause the
Common Stock to continue to be registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended, and to be approved for
quotation on the Nasdaq SmallCap Market ("Nasdaq") until such time as it
may be approved for listing on a national stock exchange.
ARTICLE FIVE.
Debentureholders Lists and Reports by the Company.
Section 5.01. Debentureholders Lists. The Company covenants and
agrees that it will at all times maintain, or cause its transfer agent to
maintain, a list of the names and addresses of the holders of Debentures,
in as current a form as is reasonably practicable.
Section 5.02. Reports by the Company. The Company covenants and
agrees to mail to each registered holder of a Debenture, copies of the
annual reports and other information as are furnished to shareholders of
the Company from time to time.
ARTICLE SIX.
Remedies of the Debentureholders on Event of Default.
Section 6.01. Events of Default. In case one or more of the
following Events of Default shall have occurred and be continuing:
(a) default in the payment of any installment of interest upon
any of the Debentures as and when the same shall become due and payable,
and continuance of such default for a period of 30 days; or
(b) default in the payment of the principal of any of the
Debentures as and when the same shall become due and payable either at
maturity, upon redemption, by declaration or otherwise; or
(c) failure on the part of the Company to duly observe or
perform any other of the covenants or agreements on the part of the
Company contained in this Debenture for a period of 90 days after the date
on which written notice of such failure, stating that such failure is a
"Notice of Default" hereunder and requiring the same to be remedied, shall
have been given to the Company, by registered mail, by the holders of at
least 40% in aggregate principal amount of the Debentures at the time
outstanding; or
(d) default in the payment of principal or interest on any
Senior Indebtedness, or on any other indebtedness for borrowed money in
the aggregate principal amount $500,000 or more, in either
case if such default shall continue for a period of 30 days; or
(e) the entry of a decree or order for relief by a court having
jurisdiction in the premises with respect to the Company in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect or the appointing of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of
the Company or of all or substantially all of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 120
consecutive days; or
(f) the institution by the Company of proceedings under Title
11 of the United States Code or to be adjudged insolvent, or the consent
by it to the institution of bankruptcy or insolvency or other similar
proceedings against it or the consent by it to the entry of an order for
relief in an involuntary case or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Company or of all or
substantially all of its property, or the making by it of an arrangement
for the benefit of creditors, or the admission by it in writing of the
failure generally by it to pay its debts as they become due or the taking
of corporate action by the Company in furtherance of any such action; then
and in each and every such case, unless the principal of all of the
Debentures shall have already become due and payable, the holders of not
less than 25% in aggregate principal amount of the Debentures then
outstanding hereunder, by notice in writing to the Company, may declare
the principal of this Debenture and the interest accrued thereon to be due
and payable immediately, and upon any such declaration the same shall
become and shall be immediately due and payable, anything contained in
this Debenture to the contrary notwithstanding. This provision, however,
is subject to the condition that if, at any time after the principal of
the Debentures shall have been so declared due and payable, and before any
judgment or decree for the payment of the moneys due shall have been
obtained or entered as hereinafter provided, the Company shall have paid
all matured installments of interest upon all of the Debentures and the
principal of any and all Debentures which shall have become due otherwise
than by acceleration (with interest on overdue installments of interest to
the extent that payment of such interest is enforceable under applicable
law and on such principal at the rate borne by the Debentures, to the date
of such payment or deposit), and any and all defaults under this Debenture
other than the nonpayment of principal of and accrued interest on
Debentures which shall have become due by acceleration, shall have been
cured or shall have been waived in accordance with Section 6.04; then, and
in every such case, the holders of at least 60% in aggregate principal
amount of the Debentures then outstanding, by written notice to the
Company, may rescind and annul such declaration and its consequences; but
no such rescission and annulment shall extend to or shall affect any
subsequent default, or shall impair any right consequent thereon.
Section 6.02. Proceedings by Debentureholder. In case of an Event
of Default hereunder, the holder of this Debenture shall be entitled to
institute any actions or proceedings at law or in equity for the
collection of all sums due and payable on this Debenture for principal or
interest, or both, as the case may be, with interest upon the overdue
principal, and (to the extent that payment of such interest is enforceable
under applicable law) upon the overdue installments of interest at the
rate borne by the Debentures, and such further reasonable amount as shall
be sufficient to cover the costs and expenses of collection, including
attorneys' fees, and may prosecute any such action or proceeding to
judgment or final decree, and may enforce any such judgment or final
decree against the Company and collect in the manner provided by law out
of the property of the Company wherever situated the moneys adjudged or
decreed to be payable, it being understood and intended, and being
expressly covenanted by the taker and holder of every Debenture with every
other taker and holder that no one or more holders of Debentures shall
have any right in any manner whatsoever by virtue of or by availing of any
provision of the Debentures to affect, disturb or prejudice the rights of
any other holder of such Debentures, or to obtain or seek to obtain
priority over or preference to any other such holder, or to enforce any
right under this Debenture, except in the manner herein provided and for
the equal, ratable and common benefit of all holders of Debentures.
Notwithstanding any other provisions in this Debenture, the right of any
holder of any Debenture to receive payment of the principal of and
interest on such Debenture, on or after the respective due dates expressed
in such Debenture, and to convert such Debenture in accordance with the
provisions hereof or to institute suit for the enforcement of any such
payment on or after such respective dates or to compel conversion shall
not be impaired or affected without the consent of such holder.
Section 6.03. Remedies Cumulative and Continuing. Except as
provided in Section 6.02, all powers and remedies given by this Article
Six to the Debentureholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any thereof or of any other powers
and remedies available to the holders of the Debentures, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Debenture, and no delay or
omission of any holder of any of the Debentures to exercise any right or
power accruing upon any default occurring and continuing as aforesaid
shall impair any such right or power, or shall be construed to be a waiver
of any such default or an acquiescence therein; and, subject to the
provisions of Section 6.02, every power and remedy given by this Article
Six or by law to the Debentureholders may be exercised from time to time,
and as often as shall be deemed expedient, by any of the Debentureholders.
Section 6.04. Waiver of Defaults by Debentureholders. The holders
of 60% in aggregate principal amount of the Debentures at the time
outstanding may on behalf of the holders of all of the Debentures waive
any past default or Event of Default hereunder and its consequences except
a default in the payment of interest on, or the principal of, the
Debentures or a default in respect of a covenant or provision hereof which
cannot be modified or amended without the consent of the holder of each
Debenture affected. Upon any such waiver the Company and the holders of
the Debentures shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent
or other default or Event of Default or impair any right consequent
thereon. Whenever any default or Event of Default hereunder shall have
been waived as permitted by this Section 6.04, said Event of Default shall
for all purposes of the Debentures be deemed to have been cured and to be
not continuing.
Section 6.05. Undertaking to Pay Costs. Each holder of any Debenture
by his acceptance thereof shall be deemed to have agreed that any court
may in its discretion require, in any suit for the enforcement of any
right or remedy under the Debentures, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section 6.05 shall not apply to
any suit instituted by any Debentureholder, or group of Debentureholders,
holding in the aggregate more than 20% in principal amount of the
Debentures outstanding, or to any suit instituted by any Debentureholder
for the enforcement of the payment of the principal or interest on any
Debenture against the Company on or after the due date expressed in such
Debenture.
ARTICLE SEVEN.
Concerning the Debentureholders.
Section 7.01. Action by Debentureholders. Whenever in this
Debenture it is provided that the holders of a specified percentage in
aggregate principal amount of the Debentures may take any action
(including the making of any demand or request, the giving of any notice,
consent or waiver or the taking of any other action) the fact that at the
time of taking any such action the holders of such specified percentage
have joined therein may be evidenced (a) by any instrument or any number
of instruments of similar tenor executed by ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇ in person or
by agent or proxy appointed in writing, or (b) by the record of the
holders of Debentures voting in favor thereof at any meeting of
Debentureholders duly called and held in accordance with the provisions of
Article Eight, or (c) by a combination of such instrument or instruments
and any such record of such a meeting of Debentureholders.
Section 7.02. Proof of Execution by Debentureholders. Subject to
the provisions of Section 8.04, proof of the execution of any instrument
by a Debentureholder or his agent or proxy shall be sufficient if made in
accordance with such reasonable rules and regulations as may be prescribed
by the Company or in such manner as shall be satisfactory to the Company.
The ownership of Debentures shall be proved by the Debenture register. The
record of any Debentureholders' meeting shall be proved in the manner
provided in Section 8.05.
Section 7.03. Who Are Deemed Absolute Owners. The Company deems the
person in whose name such Debenture shall be registered upon the Debenture
register to be, and may treat him as, the absolute owner of such Debenture
(whether or not such Debenture shall be overdue and notwithstanding any
notation of ownership or other writing thereon made by anyone other than
the Company) for the purpose of receiving payment of or on account of the
principal and (subject to Section 2.02) interest on such Debenture and for
all other purposes; and the Company shall not be affected by any notice to
the contrary. All such payments so made to any holder for the time being
or upon his order shall be valid and to the extent of the sum or sums so
paid, effectual to satisfy and discharge the liability for moneys payable
upon any such Debenture.
Section 7.04. Company-Owned Debentures Disregarded. In determining
whether the holders of the requisite aggregate principal amount of
Debentures have concurred in any direction or consent under the
Debentures, Debentures which are owned by the Company or any other obligor
on the Debentures or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company
or any other obligor on the Debentures shall be disregarded and deemed not
to be outstanding for the purpose of any such determination. Debentures
so owned which have been pledged in good faith may be regarded as
outstanding for the purposes of this Section 7.04 if the pledgee shall
establish to the satisfaction of the Company the pledgee's right to vote
such Debentures and that the pledgee is not a person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor. In the case of a
dispute as to such right, any decision by the Company based upon the
advice of counsel shall be full protection to the Company.
Section 7.05. Revocation of Consents; Future Holders Bound. At any
time prior to (but not after) the taking of any action by the holders of
the percentage in aggregate principal amount of the Debentures specified
herein in connection with such action, any holder of a Debenture which is
shown by the evidence to be included in the Debentures the holders of
which have consented to or are bound by consents to such action may, by
filing written notice with the Company at its principal office and upon
proof of holding as provided in Section 7.02, revoke such action so far as
concerns such Debenture. Except as aforesaid, any such action taken by
the holder of any Debenture shall be conclusive and binding upon such
holder and upon all future holders and owners of such Debenture and of any
Debenture issued in exchange or substitution therefor, irrespective of
whether or not any notation in regard thereto is made upon any such
Debenture.
Section 7.06. Waiver of Provisions of Debentures. Any and all
provisions, covenants, conditions, or restrictions relating to the
Debentures may be waived by the affirmative vote, at a meeting duly held
in accordance with Article Eight hereof, or by written consent obtained by
the Company, of the holders of 60% of the aggregate principal amount of
the Debentures registered and outstanding as of the date of such meeting
or the date on which such consent is requested in writing.
ARTICLE EIGHT.
Debentureholders' Meetings.
Section 8.01. Purposes of Meetings. A meeting of Debentureholders
may be called at any time and from time to time pursuant to the provisions
of this Article Eight to give any notice to the Company, or to give any
directions to the Company, or to consent to the waiving of any default
hereunder and its consequences, or to take any other action authorized to
be taken by Debentureholders pursuant to any of the provisions of Article
Six, and to take any other action authorized to be taken by or on behalf
of the holders of any specified aggregate principal amount of the
Debentures under any other provision of this Debenture or under applicable
law.
Section 8.02. Call of Meetings by the Company or Debentureholders.
The Company, pursuant to a resolution of its Board of Directors, or the
holders of at least 10% in aggregate principal amount of the Debentures
then outstanding, shall be entitled to call a meeting of Debentureholders,
by the giving of notice thereof in writing, setting forth the time and the
place of such meeting and in general terms the action proposed to be taken
at such meeting, which shall be mailed to holders of Debentures at their
addresses as they shall appear on the Debenture register. Such notice
shall be mailed not less than 20 nor more than 90 days prior to the date
fixed for the meeting.
Section 8.03. Qualifications for Voting. To be entitled to vote at
any meeting of Debentureholders a person shall (i) be a holder of one or
more Debentures, or (ii) be a person appointed by an instrument in writing
as proxy by a holder of one or more Debentures. The only persons who
shall be entitled to be present or to speak at any meeting of
Debentureholders shall be the persons entitled to vote at such meeting and
their counsel and any representatives of the Company and its counsel.
Section 8.04. Regulations. Notwithstanding any other provisions of
this Debenture, the Company may make such reasonable regulations as it may
deem advisable for any meeting of Debentureholders, in regard to proof of
the holding of Debentures and of the appointment of proxies, and in regard
to the appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to
vote, and such other matters concerning the conduct of the meeting as it
shall think fit.
The Company or the Debentureholders calling the meeting, as the case
may be, shall appoint a temporary chairman for the meeting. A permanent
chairman and a secretary of the meeting shall be elected by majority vote
of the meeting.
At any meeting each Debentureholder or proxy shall be entitled to one
vote for each $1,000 principal amount of Debentures held or represented by
him; provided, however, that no vote shall be cast or counted at any
meeting in respect of any ▇▇▇▇▇▇▇▇▇ challenged as not outstanding and
ruled by the chairman of the meeting to be not outstanding. The chairman
of the meeting shall have no right to vote other than by virtue of
Debentures held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Debentureholders.
Any meeting of Debentureholders duly called pursuant to the provisions of
Section 8.02 may be adjourned from time to time by a majority vote of the
meeting, whether or not constituting a quorum, and the meeting may be held
as so adjourned without further notice.
Section 8.05. Voting. The vote upon any resolution submitted to any
meeting of Debentureholders shall be by written ballots on which shall be
subscribed the signatures of the holders of Debentures or of their
representatives by proxy and the principal amount of the Debentures voted.
The permanent chairman of the meeting shall appoint two inspectors of
votes who shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of
Debentureholders shall be prepared by the secretary of the meeting and
there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of
the notice of the meeting and showing that said notice was mailed as
provided in Section 8.02.
The record shall be signed and verified by the affidavits of the
permanent chairman and secretary of the meeting and one of the duplicates
shall be delivered to the Company to be preserved by the Company. Any
record so signed and verified shall be conclusive evidence of the matters
therein stated.
Section 8.06. No Delay of Rights by Meeting. Nothing in this
Article Eight contained shall be deemed or construed to authorize or
permit, by reason of any call of a meeting of Debentureholders or any
rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon
or reserved to the Debentureholders under any of the provisions of the
Debentures.
ARTICLE NINE.
Consolidation, Merger, Sale, Conveyance and Lease.
Section 9.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in any of the Debentures shall prevent (i) any
consolidation or merger of the Company with or into any other corporation
or corporations (whether or not affiliated with the Company), or
successive consolidations or mergers in which the Company or its successor
or successors shall be a party or parties, provided that the corporation
or successive acquiring corporations shall have a class of equity
securities registered under Section 12(g) of the Securities Exchange Act
of 1934, as amended, and that the Debentures shall thereafter be
convertible into such class of equity securities, or (ii) any sale, or
conveyance of assets not exceeding 10% of the consolidated net tangible
assets of the Company, the assumption of otherwise prohibited liens or
sale and leaseback of assets owned by the Company as of the date of this
Debenture, or, provided that the aggregate amount of the otherwise
prohibited liens and the present value of the sale and leaseback
transactions does not exceed 25% of the consolidated net tangible assets
of the Company, to any other corporation (whether or not affiliated with
the Company) authorized to acquire and operate the same; provided,
however, that in the event of a sale or conveyance of assets the Company
hereby covenants and agrees that upon any such sale or conveyance, and
upon any such merger or consolidation in which the Company is not the
surviving corporation, the due and punctual payment of the principal and
interest on all of the Debentures, according to their tenor, and the due
and punctual performance and observance of all of the covenants and
conditions of the Debentures to be performed by the Company, shall be
expressly assumed by the corporation (if other than the Company) formed by
such consolidation, or into which the Company shall have been merged, or
by the corporation which shall have acquired such property, and
immediately after such consolidation, merger, or acquisition, the Company,
its Subsidiaries, or such successor corporation, as the case may be, shall
not be or become in violation of any of the terms, covenants or conditions
of the Debentures. In case of any such consolidation, merger, sale, or
conveyance, changes in phraseology and form (but not in substance) may be
made in the Debentures thereafter to be issued as may be appropriate.
ARTICLE TEN.
Immunity of Incorporators, Shareholders, Officers and Directors.
Section 10.01. Debentures Solely Corporate Obligations. No recourse
for the payment of the principal of or interest on any Debenture, or for
any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company in any
Debenture, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or of any
successor corporation, either directly or through the Company or any
successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration
for, the issue of the Debentures.
ARTICLE ELEVEN.
Conversion of Debentures.
Section 11.01. Conversion Privilege. Subject to and upon compliance
with the provisions of this Article Eleven, at the option of the holder
thereof, any Debenture or any portion of the principal amount thereof
which is $1,000 or an integral multiple of $1,000 may, at any time on or
prior to the close of business on the 15th day preceding the maturity
date, or in case such Debenture or portion thereof shall have been called
for redemption prior to such date, then in respect of such Debenture or
portion thereof until and including, but (unless the Company shall default
in payment due upon the redemption thereof) not after, the close of
business on the 15th day prior to such Redemption Date, be converted into
duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock of the Company. The number of shares of Common Stock issuable
upon conversion shall be equal to the principal amount of such Debenture,
or such portion thereof, divided by the Conversion Price (determined as
hereinafter provided) in effect at the time of conversion and rounded to
the nearest one-hundredth of a share. The price at which shares of Common
Stock shall be delivered upon conversion (herein called the "Conversion
Price") shall be $2.50 per share of Common Stock. After March 1, 2000,
the Debentures are convertible at 75% of the current market or $2.50,
whichever is lower. The Company may at any time reduce the Conversion
Price by any amount.
Section 11.02. Manner of Exercise of Conversion Privilege. In order
to exercise the conversion privilege, the holder of any Debenture to be
converted shall surrender such Debenture during regular business hours to
the executive office of the Company in accordance with Section 4.02,
accompanied by written notice to the Company at said office that the
holder elects to convert such Debenture or, if less than the entire
principal amount of the Debenture is to be converted, the portion thereof
to be converted. Such notice shall also state the name or names (with
address and tax identification number) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion
shall be issued. Debentures surrendered for conversion shall be
accompanied by proper assignments thereof to the Company or in blank for
transfer. As promptly as practicable after the receipt of such notice and
the surrender of such Debenture as aforesaid, but subject to Section
11.03, the Company shall deliver or cause to be delivered at said office
or agency to such holder, or on his written order, a certificate or
certificates for the number of full shares of Common Stock issuable upon
the conversion of such Debenture (or specified portion thereof) and
provision shall be made in respect of any fractional interest as provided
in Section 11.03. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which such
notice shall have been received by the Company and such Debenture shall
have been surrendered as aforesaid, and at such time the rights of the
holder of such Debenture as such holder shall cease and the person or
persons in whose name or names any certificate or certificates for shares
of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby.
Subject to the requirement for a payment provided in Section 2.02 in
the event of conversion after the close of business on the record date
preceding an interest payment date, no payment or adjustment shall be made
upon any conversion on account of any interest accrued on the Debentures
delivered for conversion or on account of any dividends on the shares of
Common Stock issued upon such conversion.
In case any Debenture is converted in part only, upon such conversion
the Company shall execute, register and deliver to the holder thereof, at
the expense of the Company, a new Debenture or Debentures of authorized
denominations in principal amount equal to the unconverted portion of such
Debenture.
Section 11.03. Cash Adjustment Upon Conversion. No fractional
shares of Common Stock shall be issued upon conversions of Debentures. If
more than one Debenture shall be surrendered for conversion at one time by
the same holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate
principal amount of the Debentures (or specified portions thereof to the
extent permitted hereby) so surrendered. Instead of any fractional share
of Common Stock which would otherwise be issuable upon conversion of any
Debenture or Debentures or specified portions thereof, the Company shall
pay a cash adjustment in respect of such fraction in an amount equal to
the same fraction of the closing bid price of the Common Stock as reported
by Nasdaq, or the last sale price if the Common Stock is then traded on a
national securities exchange, at the close of business on the business day
which next precedes the day of conversion.
Section 11.04. Adjustment of Conversion Price. The Conversion Price
in effect at any time shall be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend on its
Common Stock in shares of its capital stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares
of Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing corporation) any shares of its capital stock, the Conversion
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification shall
be proportionately adjusted so that the holder of any Debenture
surrendered for conversion after such time shall be entitled to receive
the kind and number of shares which he would have owned or have been
entitled to receive had such Debenture been converted immediately prior to
such time. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall distribute to all holders of its
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing
corporation) evidences of its indebtedness or assets (excluding dividends
or other distributions paid out of earned surplus) or subscription rights
or warrants, the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the current Conversion Price on
the date fixed for such determination less the then fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive) of the portion of the assets or evidences of indebtedness so
distributed applicable to one share of Common Stock and the denominator
shall be such current Conversion Price, such adjustment to become
effective immediately prior to the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such distribution.
(c) For the purpose of any computation under subsection (b)
immediately, the current Conversion Price on any date shall be deemed to
be the Conversion Price as in effect immediately prior to the transaction
giving rise to such computation, after taking into account all previous
adjustments of the Conversion Price in accordance with the provisions of
this Article Eleven.
(d) All calculations under this Article Eleven shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case
may be.
(e) In case of any consolidation or merger of the Company with
or into any other corporation (other than a consolidation or merger in
which the Company is the continuing corporation), or in case of any sale
or transfer of all or substantially all the assets of the Company, the
holder of each Debenture shall after such consolidation, merger, sale or
transfer have the right to convert such Debenture into the kind and number
of shares of stock and other securities and property which such holder
would have been entitled to receive upon such consolidation, merger, sale
or transfer if he had held the Common Stock issuable upon the conversion
of such Debenture immediately prior to such consolidation, merger, sale or
transfer.
(f) In the event that at any time, as a result of an adjustment
made pursuant to subsection (a) above, the holder of any Debenture
thereafter surrendered for conversion shall become entitled to receive any
securities other than shares of Common Stock, thereafter the amount of
such other securities so receivable upon conversion of any Debenture shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subsection (a) through (e), inclusive, above,
and the provisions of this Article Eleven with respect to the Common Stock
shall apply on like terms to any such other securities.
(g) No adjustment in the Conversion Price shall be required
unless such adjustment would require a change of at least 1% in such
price; provided, however, that any adjustments which by reason of this
subsection (g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
Section 11.05. Company to Give Notice of Adjustment. Whenever the
Conversion Price is adjusted as herein provided:
(a) the Company shall obtain a certificate of a firm of
independent public accountants selected by the Board of Directors (who may
be the regular accountants employed by the Company) setting forth the
adjusted Conversion Price and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall forthwith be
filed at the office or agency maintained for the purpose of conversion of
Debentures pursuant to Section 4.02, and
(b) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall forthwith
be required, and as soon as practicable after it is required, such notice
shall be mailed by the Company to the holders of the Debentures at their
last address as they shall appear upon the Debenture register provided for
in Section 5.01, provided, however, that if within ten days after the
mailing of such a notice, an additional notice is required, such
additional notice shall be deemed to be required pursuant to this clause
(b) as of the opening of business on the tenth day after such mailing and
shall set forth the Conversion Price as adjusted at such opening of
business, and upon the mailing of such additional notice no other notice
need be given of any adjustment in the Conversion Price occurring at or
prior to such opening of business and after the time that the next
preceding notice given by mailing became required.
Section 11.06. Company to Give Notice of Certain Events. In case:
(a) the Company shall authorize the distribution to all holders
of its Common Stock of evidence of its indebtedness or assets (other than
dividends or other distributions paid out of earned surplus); or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights; or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of
Common Stock), or of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all the
assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; then the Company shall cause to be filed at
the office or agency maintained for the purpose of conversion of
Debentures pursuant to Section 4.02, and shall cause to be mailed, first
class postage prepaid, to the holders of Debentures at their last
addresses as they shall appear upon the Debenture register provided for in
Section 5.01, at least 20 days (or 10 days in any case specified in clause
(a) or (b) above) prior to the applicable record date hereinafter
specified, a notice stating (i) the date on which a record is to be taken
for the purpose of such distribution or rights, or, if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such distribution or rights are to be determined, or (ii) the
date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding
up.
Section 11.07. Reservation of Common Stock. The Company shall at
all times reserve and keep available, free from preemptive rights, out of
its authorized but unissued Common Stock, for the purpose of effecting the
conversion of Debentures, the full number of shares of Common Stock then
issuable upon the conversion of all Outstanding Debentures. For the
purpose of this Section 11.07, the full number of shares of Common Stock
issuable upon the conversion of all Outstanding Debentures shall be
computed as if at the time of computation of such number of shares of
Common Stock all Outstanding Debentures were held by a single holder. The
Company covenants and agrees that, if any shares of Common Stock required
to be reserved for issuance upon conversion of Debentures hereunder
require registration with or approval of any governmental authority under
any Federal or State law, before such shares may be issued upon such
conversions, the Company will in good faith and as expeditiously as
possible endeavor to cause such shares to be so registered or approved.
Section 11.08. Taxes on Conversions. The Company will pay any and
all documentary or transfer taxes that may be payable in respect of the
issue or delivery of shares of Common Stock on conversion of Debentures
pursuant hereto. The Company shall not, however, be required to pay any
such tax which may be payable in respect of any transfer involved in the
issue or transfer and delivery of shares of Common Stock in a name other
than that of the holder of the Debenture or Debentures to be converted,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Company the amount of any such tax
or has established to the satisfaction of the Company that such tax has
been paid.
Section 11.09. Absence of Preemptive Rights. The Company covenants
that all authorized but unissued shares of Common Stock which may at any
time be reserved pursuant to Section 11.07 for issuance upon conversions
of Debentures will be free from preemptive rights and duly and validly
authorized for issuance upon such conversions; and that all shares of
Common Stock which may at any time be issued upon conversions of
Debentures in accordance with the terms of this Debenture will upon such
issuance be free from preemptive rights, duly and validly authorized and
issued, fully paid and non-assessable.
Section 11.10. Debentures Converted. All Debentures delivered for
conversion shall be delivered to the Company to be canceled by or at the
direction of the Company, who shall dispose of the same as provided in
Section 2.05.
Section 11.11. Effect of Consolidation, Merger or Sale. In case of
any consolidation or merger of the Company with or into any other
corporation (other than a consolidation or merger in which the Company is
the continuing corporation), or in case of any sale or transfer of all or
substantially all the assets of the Company, the corporation formed by
such consolidation or the corporation into which the Company shall have
been merged or the corporation which shall have acquired such assets, as
the case may be, shall execute and deliver to each Debentureholder a
written undertaking providing that the holder of each Debenture then
outstanding shall have the right thereafter to convert such Debenture as
provided in Paragraph (f) of Section 11.04, and that such corporation
shall assume all of the other rights and obligations of the Debenture.
The provisions of this Section 11.11 shall similarly apply to successive
consolidations, mergers, sales or transfers.
ARTICLE TWELVE.
Subordination of Debentures.
Section 12.01. Agreement to Subordinate. The Company covenants and
agrees, and each holder of Debentures, by his acceptance thereof, likewise
covenants and agrees, that the indebtedness evidenced by the Debentures
and the payment of the principal thereof and interest thereon shall be
subordinate and subject in right of payment, to the extent and in the
manner hereinafter set forth, to the prior payment in full of all Senior
Indebtedness.
Section 12.02. No Payment on Debentures in Event of Default on
Senior Indebtedness. The Company shall not make any payment on account of
the principal of or interest on the Debentures if, at the time thereof or
immediately after giving effect thereto, there exists (and has not been
waived) any default in the payment of principal of or interest on any
Senior Indebtedness or any event of default with respect to any Senior
Indebtedness as defined therein (after giving effect to any grace period
provided for therein) or in any agreement pursuant to which any Senior
Indebtedness is issued and the default is the subject of a judicial
proceeding or the Company receives notice of the default as provided in
this Debenture or from any holder of Senior Indebtedness or any trustee
therefor; provided, however, that, in the event the Debentures have been
declared due and payable pursuant to Section 6.01, the provisions of the
next succeeding paragraph of this Section 12.02 shall be applicable.
In the event that any Event of Default as defined in Section 6.01
shall occur (under such circumstances that the provisions of Section 12.03
are not applicable) and as a result the Debentures then Outstanding are
declared due and payable pursuant to Section 6.01, and such declaration
shall not have been rescinded or annulled, the Company shall not make any
payment on account of the principal of or interest on any Debentures,
unless at least 90 days shall have elapsed after said declaration and
unless all principal of and interest on Senior Indebtedness due at the
time of such payment (whether by acceleration of the maturity thereof or
otherwise) shall first be paid in full.
Section 12.03. Distribution on Dissolution, Liquidation and
Reorganization. In the event of any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash,
property or securities, to creditors upon any dissolution or winding up or
total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary and whether in bankruptcy, insolvency or
receivership proceedings, or upon an assignment for the benefit of
creditors or any other marshaling of the assets and liabilities of the
Company, or upon other proceedings:
(a) all principal, and interest due on all Senior Indebtedness
shall first be paid in full, or due provision made for such payment, in
accordance with the terms of such Senior Indebtedness, before any payment
is made on account of the principal of or interest on the indebtedness
evidenced by the Debentures, or before the holders of the Debentures shall
be entitled to retain any assets so paid or distributed in respect
thereof; and
(b) any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(other than securities of the Company as reorganized or readjusted or
securities of the Company or any other corporation provided for by a plan
of reorganization or readjustment, which are in any such case subordinated
to Senior Indebtedness to the same extent as the Debentures), to which the
holders of the Debentures would be entitled except for the provisions of
this Section 12.03, shall be paid or delivered by the Company or any
receiver, trustee in bankruptcy, liquidating trustee, agent or other
person making such payment or distribution directly to the holders of
Senior Indebtedness (pro rata to each such holder on the basis of the
respective amount of Senior Indebtedness held by such holder) or their
representative or representatives or the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior
Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in
full in accordance with the terms of such Senior Indebtedness, after
giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness, before any payment or distribution is made
to the holders of the Debentures.
The Company shall give prompt written notice to the Debentureholders
of any dissolution, winding up, liquidation or reorganization of the
Company within the meaning of Section 12.03.
Section 12.04. Payment to Holders of Senior Indebtedness. Subject
to the provisions of Section 12.06, in the event that, notwithstanding the
provisions of Section 12.02 or Section 12.03, any payment or distribution
of assets or securities of the Company of any kind or character, whether
in cash, property or securities shall be received by the holders of the
Debentures (i) from the Company in violation of such provisions, or (ii)
from any other person under such circumstances that such payment would, if
made directly by the Company, be in violation of such provisions, such
payment or distribution shall immediately be paid over by such holders to
the holders of Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture under
which any instrument evidencing any of such Senior Indebtedness may have
been issued, ratably according to the aggregate amounts then due on
account of the principal of and interest on such Senior Indebtedness
(after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness), to the extent necessary to pay in
full all such amounts then due.
Upon any payment or distribution of assets or securities of the
Company referred to in Sections 12.02 and 12.03, the holders of the
Debentures shall be entitled to rely upon any order or decree of a court
of competent jurisdiction, or upon any certificate of any liquidating
trustee or agent or other person making any payment or distribution to the
holders of the Debentures, for the purpose of ascertaining the persons
entitled to participate in such payment or distribution, the holders of
the Senior Indebtedness, the amount thereof or payment thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Twelve.
Section 12.05. Subrogation. Subject to the payment in full of all
amounts then due (whether by acceleration of the maturity thereof or
otherwise) on account of the principal of and interest on all Senior
Indebtedness at the time outstanding, the holders of the Debentures shall
be subrogated to the rights of each holder of Senior Indebtedness (to the
extent of the payments or distributions made to such holder pursuant to
the provisions of Sections 12.02, 12.03, and 12.04) to receive payments or
distributions of assets or securities of the Company applicable to the
Senior Indebtedness until the Debentures shall be paid in full, and each
holder of Senior Indebtedness by the act of accepting such payments or
distributions pursuant to the provisions of Sections 12.02, 12.03 and
12.04 shall be deemed to have agreed to the subrogation aforesaid. No
payments or distributions of assets or securities of the Company
applicable to Senior Indebtedness which the holders of the Debentures
receive by reason of their being subrogated to the rights of the holders
of such Senior Indebtedness pursuant to the provisions of Sections 12.02,
12.03 and 12.04 shall, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the holders of the Debentures, be
deemed to be a payment by the Company on account of the Debentures, it
being understood that the provisions of this Article Twelve are intended
solely for the purpose of defining the relative rights of the holders of
the Debentures, on the one hand, and the holders of the Senior
Indebtedness on the other hand, and nothing contained in this Article
Twelve or elsewhere in the Debentures, is intended to or shall impair, as
between the Company, its creditors other than the holders of Senior
Indebtedness, and the holders of the Debentures, the obligation of the
Company, which is absolute and unconditional, to pay to the holders of the
Debentures the principal of and interest on the Debentures, as and when
the same shall become due and payable in accordance with their terms, or
is intended to or shall affect the relative rights of the holders of the
Debentures and creditors of the Company other than the holders of Senior
Indebtedness, nor shall anything herein or therein prevent the holder of
any Debentures from exercising all remedies otherwise permitted by
applicable law upon default under this Debenture, subject to the rights,
if any, under this Article Twelve of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
Section 12.06. Payments on Debentures Permitted. Nothing contained
in this Article Twelve or elsewhere in any of the Debentures, shall
prevent the Company from making payment of the principal of or interest on
the Debentures at any time, except under the conditions described in
Section 12.02 and except during the pendency of any dissolution, winding
up, liquidation or reorganization of the Company within the meaning of
Section 12.03. Nothing contained in this Article Twelve or elsewhere in
any of the Debentures, shall prevent the application by the Company of any
moneys held hereunder for the purpose of payment of or on account of the
principal of or interest on the Debentures, unless, prior to the business
day next preceding the date upon which such principal shall have become
payable, or, in the case of any payment on account of interest unless,
prior to two business days before the date upon which such interest shall
have become payable, the Company shall have received written notice,
directed to it at its principal office, from any holder of Senior
Indebtedness or any trustee therefor of the existence of any of the
conditions described in Section 12.02 or of any dissolution, winding up,
liquidation or reorganization of the Company within the meaning of Section
12.03.
Section 12.07. Authorization of Holders to Company to Effect
Subordination. Each holder of Debentures by his acceptance thereof
authorizes and directs the Company in his behalf to take such action as
may be necessary or appropriate to effectuate, as between the holders of
the Debentures and the holders of Senior Indebtedness, the subordination
provided in this Article Twelve and appoints the Company his
attorney-in-fact for any and all such purposes.
ARTICLE THIRTEEN.
Registration Rights.
Section 13.01. Incidental Registration.
(a) If, at any time prior to the maturity of the Debentures,
the Company shall determine to register under the Securities Act any
shares of its Common Stock to be offered for cash by it or others,
pursuant to a registration statement on Form S-1 (or its equivalent if
such form is not in effect or on an alternative form if such alternative
form is then authorized for the sale to the general public of the
Company's securities), the Company will (i) promptly give written notice
of its intention to file such registration statement to the holders of the
Debentures and each holder of Common Stock, if any, which has been issued
upon conversion of any of the Debentures (collectively, the "Holders"),
and (ii) subject to the provisions of subsections (b) and (c), below,
include among the shares covered by the registration statement such
portion of the shares of Common Stock issued or issuable upon the
conversion of any of the Debentures (the "Shares") as shall be specified
in a written request given to the Company by the Holders within 30 days
after the date on which the Company gave such written notice.
(b) Upon receipt of any written request described in Section
13.01(a) above, but subject to the provisions hereof and of Section
13.01(c) below, the Company shall:
(i) use its best efforts within reason to effect the
registration, qualification or compliance under the Securities Act and
under other applicable federal law and any applicable securities or "blue
sky" laws of jurisdictions within the United States of the Shares
specified in the request (the Holders and any other holders of the
Company's Common Stock who are entitled hereunder or otherwise to request
registration of any shares of the Company's Common Stock are in this
Section 13.01 individually called a "Selling Shareholder" and
collectively, the "Selling Shareholders"); provided, however, that in no
event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not so qualified or to take any action that would
subject it to tax or the service of process (other than process in
connection with such registration) in any jurisdiction where it is not
subject thereto, nor shall the Company be required to include the Shares
among the securities covered by the registration statement if (A) less
than 50% of the Holders have joined in such request and the requests of
the Holders cover shares of the Company's Common Stock issued or issuable
upon conversion of the Debentures having an aggregate value of less than
$1,000,000, based upon the average closing bid price of the Company's
Common Stock as reported on Nasdaq, or the closing sale price of the
Common Stock on any national stock exchange on which it may then be
traded, for the ten consecutive days immediately preceding the date on
which the notice specified by Section 13(a)(i) above is given; or (B) the
Board of Directors of the Company determines in good faith that including
shares of Common Stock held by any Selling Shareholder among the
securities covered by the registration statement would have a materially
detrimental effect on the proposed offering and would therefore not be in
the best interests of the Company;
(ii) furnish each Selling Shareholder such number of
copies of the prospectus contained in the registration statement filed
under the Securities Act (including each preliminary prospectus) in
conformity with the requirements of the Securities Act, and such other
documents as the Selling Shareholders may reasonably request in order to
facilitate the disposition of the Common Stock held by them which is
covered by the registration statement; and
(iii) notify each Selling Shareholder, at any time when a
prospectus relating to such Common Stock is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus in the registration statement, as then in effect, includes an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and at the request of the Selling Shareholders prepare and
furnish to them any reasonable number of copies of any supplement to or
amendment of such prospectus as may be necessary so that, as thereafter
delivered, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(c) The Company alone shall determine and control all decisions
concerning any registration of the Company's securities which might give
rise to the registration rights granted hereunder, including any
registration in which Shares of any Selling Shareholder are to be
included. The Corporation's exclusive right to make decisions shall
include, without limitation, the decision as to whether to use
underwriters, the selection of underwriters and arrangements therewith,
the size, timing and other terms of any offering, the provisions of the
registration statements and prospectuses and all supplements and
amendments thereto, the selection of accountants and attorneys for the
Company, and the states in which the sale of shares shall occur and be
registered or qualified for sale.
If the offering registered by the Company is to be underwritten, each
Selling Shareholder shall sell all shares of Common Stock included in the
registration statement to or through the underwriter or underwriters
selected by the Company on the same terms and conditions provided in any
underwriting agreement entered into therewith by the Company, and shall
complete and execute all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of
such underwriting arrangements. Notwithstanding anything to the contrary
hereunder, if the underwriter or underwriters selected by the Company
reasonably determine that all or any portion of the shares of Common Stock
held by the Selling Shareholders should not be included in the
registration statement, the determination of the underwriter or
underwriters shall be conclusive; provided, however, that if such
underwriter or underwriters determine that some but not all of the shares
of Common Stock of the Selling Shareholders shall be included in the
registration statement, the number of shares owned by each Selling
Shareholder to be included in the registration statement will be
proportionately reduced in accordance with their respective aggregate
holdings of Common Stock. In no event shall the Company be required to
reduce or limit the number of newly to be issued shares of its Common
Stock to be covered by any registration statement for the purpose of
permitting the Shares of any Selling Shareholder to be included in the
registration.
(d) The Company shall not be obligated to give notice of or
include Shares held by any subscriber hereunder in more than two
registration statements to be filed by the Company, exclusive of (i) any
registration statement as to which a request for inclusion has been
rejected in full under subsection 13.01(b) or as to Shares requested to be
registered under subsection 13.01(c) hereof, (ii) registration statements
filed on Form S-3 if such Form is then available to the Company for the
registration of Common Stock to be offered to the public for cash, and
(iii) a registration effected as provided in Section 13.02 below.
(e) Upon conversion by a Debenture holder of the aggregate
principal amount of the Debentures, the Company will undertake to file a
registration statement on Form S-3, if such form is then available to the
Company within six (6) months of conversion of such amount of debentures,
for the registration of Common Stock to be offered to the public for cash.
Section 13.02. Indemnification.
(a) In connection with any registration in which a Selling
Shareholder is participating, each such Selling Shareholder shall furnish
to the Company such information in writing regarding the Selling
Shareholder as the Company reasonably requests for inclusion in the
registration statement, prospectus, offering circular and other documents
filed in connection therewith, and shall state that such information is
provided specifically for use in the registration statement, prospectus,
offering circular or other documents. Each such Selling Shareholder shall
also furnish to the Company an undertaking satisfactory to the Company and
each underwriter of the offering, if any, agreeing to indemnify and hold
harmless, to the extent permitted by law, the Company, and its directors
and officers, and each such underwriter, and each person who controls the
Company or each such underwriter (within the meaning of the Securities
Act), against any actions, losses, claims, damages, liabilities, and
expenses (including legal and other expenses reasonably incurred in the
investigation and defense thereof) resulting from any untrue or alleged
untrue statement of a material fact or any omission or alleged omission of
a material fact required to be stated in any such documents or any
supplement or amendment thereto, or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement
or omission is made in reliance on and in conformity with the written
information furnished to the Company by such Selling Shareholder
specifically for use in such documents.
(b) The Company shall indemnify and hold harmless, to the
extent permitted by law, each Selling Shareholder against any actions,
losses, claims, damages, liabilities and expenses (including legal fees
and other expenses reasonably incurred in the investigation and defense
thereof) resulting from any untrue or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact in
any registration statement, prospectus, offering circular or other
document filed in connection with any registration or qualification,
unless and to the extent that any such actions, claims, losses, damages,
liabilities or expenses arise out of the written information specifically
provided by the Selling Shareholder for use in such registration
statement, prospectus, offering circular or other document pursuant to
subsection (a) of this Section 13.03.
Section 13.03. Expenses of Registration. The Company shall bear all
costs and expenses relating to or incurred by it in connection with any
registration in which any Selling Shareholder participates pursuant
hereto, including without limitation all registration and filing fees,
printing expense, fees and disbursements of counsel and independent
accountants for the Company and fees and expenses incident to compliance
with state securities or "blue sky" laws, but specifically excluding any
fees and disbursements of counsel, accountants or other professionals
engaged by any Selling Shareholder. Each Selling Shareholder shall be
responsible for and bear any underwriters' discounts and commissions
properly allocable to shares of Common Stock included in a registration
statement at the request of a Selling Shareholder hereunder.
ARTICLE FOURTEEN.
Miscellaneous Provisions.
Section 14.01. Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements in this Debenture
contained by the Company shall bind its successors and assigns whether so
expressed or not.
Section 14.02. Debentures for Sole Benefit of Company and
Debentureholders. Nothing in the Debentures, expressed or implied, shall
give or be construed to give to any person, firm or corporation, other
than the parties hereto and the holders of the Debentures, any legal or
equitable right, remedy or claim under or in respect of this Debenture, or
under any covenant, condition or provision herein contained; all such
covenants, conditions and provisions being for the sole benefit of the
parties hereto and the holders of the Debentures.
Section 14.03. Addresses for Notices, Etc. Any notice or demand
which by any provision of the Debentures is required or permitted to be
given or served by the holders of Debentures on the Company may be given
or served by being deposited postage prepaid by registered or certified
mail in a post office letter box addressed (until notified of another
address by the Company) to Metalclad Corporation, ▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Secretary. Any notice,
report or other instrument required by any of the provisions of the
Debentures to be given by the Company to the Debentureholders shall be
deemed to have been sufficiently given for all purposes if mailed by first
class mail to the Debentureholder at the last address for such holder
appearing in the Debenture register.
Section 14.04. California Contract. This Debenture and each other
Debenture executed and delivered by the Company shall be deemed to be a
contract made under the laws of the State of California and for all
purposes shall be construed in accordance with the laws of said State.
Section 14.05. Legal Holidays. In any case where the date of
maturity of interest on or principal of or interest on the Debentures or
the date fixed for redemption of any Debenture will not be a business day,
then payment of such interest on or principal of the Debentures need not
be made on such date but may be made on the next succeeding business day
with the same force and effect as if made on such date of maturity or the
date fixed for redemption and no interest shall accrue for the period from
and after such prior date.
Section 14.06. No Security Interest Created. Nothing in the
Debentures, expressed or implied, shall be construed to constitute a
security interest under the Uniform Commercial Code or similar
legislation, as now or hereafter enacted and in effect, in any
jurisdiction where property of the Company or its Subsidiaries is located.
Section 14.07. Table of Contents, Headings, Etc. The table of
contents and the titles and headings of the articles and sections of the
Debentures have been inserted for convenience of reference only, are not
to be considered a part hereof, and shall in no way modify or restrict any
of the terms or provisions hereof.
IN WITNESS WHEREOF, Metalclad Corporation has caused this Debenture
to be signed and acknowledged by its President, or a Vice President, and
its corporate seal to be affixed hereunto, and the same to be attested by
its Secretary or an Assistant Secretary, as of the day and year first
written above.
METALCLAD CORPORATION
a Delaware corporation
By:
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Attest:
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Secretary