Exhibit 4.2
THIS PROMISSORY NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS (COLLECTIVELY, THE ACTS), AND THIS NOTE MAY NOT BE OFFERED,
SOLD, PLEDGED, OR TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO A REGISTRATION
STATEMENT UNDER THE ACTS OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
RENTECH, INC.
Convertible Promissory Note
$_________ Denver, Colorado
February 25, 2002
RENTECH, INC., a Colorado corporation (the "Company"), for value
received, hereby promises to pay to ____________________________________
______________________________________, organized under the laws of the state
of _______________ (the "Holder"), the principal sum of
______________________________ Dollars and no/100 ($____________), together
with interest on the unpaid principal balance at the rate of eight and one-
half percent (8.5%) per annum from the date of this Note until paid. This
Note shall be payable in equal monthly installments of
___________________________________________ ($_______________) consisting of
principal and interest. Payments shall be made to Holder at _______________
______________________________ in monthly installments commencing on April 1,
2002, and continuing monthly thereafter on the first day of each succeeding
month until this Note is paid in full through these monthly payments of money
or through a combination of such payments and the conversion of principal
amounts of this Note into shares of the Company's common stock, as
subsequently provided in this Note. If not sooner paid, the entire unpaid
balance of principal and interest shall be paid in full on February 25, 2006.
1. Conversion into Common Stock. In addition to the monthly
installments of payments in money, as previously described, principal amounts
of this Note shall be converted into duly authorized, validly issued, fully
paid and non-assessable shares of the Company's common stock as subsequently
provided in this Agreement ("Conversion Shares"). Notwithstanding any
provisions of this Note to the contrary, the total number of shares issued by
the Company for the conversions subsequently described shall not exceed
_____________________________________ (_____________) shares less two shares
for every dollar of principal reduction of the Note paid in the form of money.
1.1 Definition of Market Price and Conversion Price.
(a) For purposes of this Note, the "Market Price" means the
closing price of the common stock on the American Stock Exchange for the day
on which the Company receives Holder's written notice of conversion. If the
common stock is not listed on that market, the Market
PAGE 2
Price shall be the closing or the average of the last reported bid and asked
price reported by the National Association of Securities Dealers Quotation
System (or, if the price is not quoted on NASDAQ, by the National Quotation
Bureau, Inc.) or any other national securities exchange with unlisted trading
privileges. If the common stock is not listed or admitted to unlisted trading
privileges on a national securities exchange, the Market Price shall be
determined by a nationally recognized investment banking or appraisal firm
(the "Appraiser") mutually acceptable to the Company and the Holder. If
Company and Holder do not agree on the Appraiser, the Appraiser shall be
selected by the Presiding Judge of the District Court of Multnomah County,
Oregon. The price determined in this manner shall be final and binding.
(b) For purposes of this Note, the "Conversion Price" means
the price per share at which the indebtedness is converted into Conversion
Shares.
(c) For purposes of this Note, the "Conversion Date" is the
date on which the Holder sends the Conversion Notice (as defined in Section
1.5 below) to the Company.
1.2 Conversion During First Year. Until the first anniversary date
of this Note, Holder may elect to convert part or all of the principal balance
into common stock at a Conversion Price of $.50 per share if the Market Price
is $.50 per share or higher. Conversion is not permitted during the first
year if the Market Price on the Conversion Date is less than $.50 per share.
1.3 Conversion After First Year. At any time following the first
anniversary date of this Note, Holder may elect to convert part or all of the
principal balance into common stock of the Company at a Conversion Price of
$.50 per share; provided, however, no conversion shall be made if the Market
Price is less than $.50 per share on the Conversion Date.
1.4 Automatic Conversion. Starting on the first day of the
thirteenth calendar month following the date of this Note, and continuing on
the first day of each succeeding calendar month until the Note is paid in full
by a combination of the monthly payments in money and the conversion of
indebtedness into common stock, principal in the amount of one-thirty-sixth of
the declining principal balance of the Note shall automatically convert into
the Company's common stock at a Conversion Price of $.50 per share. If the
average daily Market Price for the seven trading days preceding the first day
of such calendar month is less than $.50 per share, the difference between
$.50 per share and the average daily Market Price for the seven trading days
preceding the date of conversion shall be determined and that dollar amount
shall be multiplied by the number of shares issued to the Holder as a result
of the conversion, and the resulting dollar amount shall be added to the
current principal balance of the Note.
1.5 Holder's Election to Convert. To carry out an election by it
to convert indebtedness into common shares of the Company, the Holder must
transmit a written request (the "Conversion Notice") to the Company requesting
conversion of that part of the indebtedness that is allowed by the previous
provisions of this Section. No Conversion Notice or other notice of
conversion shall be required of the Company with respect to the automatic
conversions described in Section 1.4.
PAGE 3
1.6 Issuance of Stock Certificates. After each conversion, whether
at the written request of the Holder or an automatic conversion as previously
described, the Company shall issue its restricted stock certificates
representing the Conversion Shares to the Holder, as promptly as practical.
The Company will issue the certificates in accordance with Rule 144
promulgated by the Securities and Exchange Commission ("SEC") under authority
of the Securities Act of 1933, as amended, and will cause the stock
certificates to be delivered to Holder in its name at its address on the
Company's records.
2. Prepayment. The Company may prepay this Note, in whole or in part,
by payments of money, from time to time, without premium or penalty of any
kind; provided, however, (i) a prepayment may be made only if the Market Price
is then $.50 or more, (ii) no prepayment may be made and no notice of
prepayment may be given by the Company until the registration, described in
Section 4.1 of this Note, of the Conversion Shares has been declared effective
by the SEC, and (iii) no more than one-half of the original principal balance
of the Note may be prepaid during the first year following the date of this
Note. Notice of prepayment shall be given by the Company in writing, mailed
not less than ten (10) days prior to the date fixed for prepayment. The
notice shall be mailed by certified mail, return receipt requested, to the
Holder at its address of record or such address as it may from time to time
furnish to the Company in writing. The notice shall specify the date fixed
for prepayment and the amount to be prepaid. The prepayment shall be applied
first to accrued and unpaid interest and the balance, if any, to principal.
If this Note is called for prepayment, the Holder shall have the right to
convert the outstanding balance of principal and interest of this Note into
common stock of the Company as if the Note had not been called for prepayment,
at any time up to and including, but not after, the date fixed for its
prepayment, or if such date be a Saturday, Sunday or legal holiday, on the
next succeeding business day, but not thereafter. If the Company defaults in
the payment of any prepayment amount as to which it has given notice, the
Holder may revoke any conversion election it made based on that notice. The
Conversion Price at which the outstanding balance of principal and interest is
converted into Conversion Shares shall be $0.50.
3. Transfers of Note to Comply with the Securities Laws. The Holder
agrees that this Note may not be sold, pledged, hypothecated, converted, or
otherwise disposed of except by succession of law, and then only in compliance
with federal and applicable state securities laws.
4 Registration Rights.
4.1 Filing Registration Statement. Within forty-five (45) days
from the date of this Note, the Company will file its registration statement
with the SEC registering for resale all Conversion Shares issued or that may
be issued to Holder in accordance with the provisions of this Note, or in
exchange or replacement for such shares (the "Required Filing Date"). The
Company shall use its best efforts to cause the registration statement to be
declared effective as soon as possible, but in no event later than the earlier
of the date which is (i) three days after the date the SEC provides notice
that it may be declared effective, or (ii) one hundred twenty (120) days from
the date of this Note (the "Effective Date"). The Company shall use its best
efforts to cause all of the Conversion Shares to be acquired upon conversion
of this
PAGE 4
Note to be registered under the Securities Act of 1933, as amended (the Act).
If at any time the number of shares of common stock issuable upon conversion
of this Note exceeds the aggregate number of shares of common stock then
registered, the Company shall promptly either file with the SEC an amendment
to or an additional registration statement to cover such shares. If the
registration statement covering the shares issuable upon conversion of this
Note is not filed by the Required Filing Date, Holder may deem the Company to
be in default under this Note and the Holder may charge the Company the amount
of $200,000 as liquidated damages, which election will not limit any other
rights or remedies that Holder may have at law or under this Agreement. The
parties estimate that the amount of the liquidated damages for failure to
timely file the registration statement with the SEC on or before the Required
Filing Date to be a reasonable estimate of the damages incurred by Holder for
such failure.
4.2 Company's Undertakings. In furtherance of its undertaking to
register the Conversion Shares to be issued in accordance with the terms of
this Note, the Company will:
(a) Prepare and file with the SEC a registration statement
with respect to such common stock and cause the registration statement to
become and remain effective until the date that the Holder no longer owns any
of the shares acquired under this Note or any right to acquire shares of
common stock upon conversion of this Note; provided, however, the registration
statement will not be kept effective, in any event, after all rights to
acquire shares have terminated and the last of the shares that have been
acquired are eligible for resale without restriction under the provisions of
Rule 144(k).
(b) Prepare and file with the SEC such amendments and
supplements to the registration statement and the prospectus used in
connection with the registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as Holder may reasonably
request in order to facilitate the disposition of the Conversion Shares owned
by it.
(d) Register or qualify the securities covered by the
registration statement under such other securities or blue-sky laws of the
jurisdictions that are reasonably appropriate for the distribution of the
securities covered by the registration statement, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in
any state or jurisdiction, and further provided, that (anything in this
Section 4.2(d) to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities are qualified requires
that expenses incurred in connection with the qualification of the securities
in that jurisdiction be borne by selling shareholders pro rata, to the extent
required by such jurisdiction.
(e) Maintain listing of shares subject to registration
hereunder on the American Stock Exchange or, in the event such listing is
cancelled, to secure authorization and quotation of the shares for trading on
the Nasdaq OTC Bulletin Board and to arrange for at least three market makers
in the stock.
PAGE 5
(f) With a view to making available to Holder the benefits of
Rule 144 (or its successor), the Company will make and keep available at all
times public information as those terms are defined under Rule 144, file in a
timely manner all reports and other documents required by the Company under
the Securities Act of 1933 and the Securities Exchange Act of 1934, and
furnish to the Holder upon request a written statement by the Company that it
has complied with the reporting requirements of Rule 144 and such further
information as may be reasonably requested by Holder.
4.3 Holder's Information. It shall be a condition precedent to the
obligations to the Company to take any action that the Holder shall furnish to
the Company such information regarding it, the Conversion Shares held by it,
and the intended method of disposition of those securities as the Company
reasonably requests and as is required in connection with the action to be
taken by the Company.
4.4 Expenses of Registration. The Company shall bear all
registration and qualification fees and expenses (excluding underwriter's
discounts, commissions and expenses), and any additional costs and
disbursements of counsel for the Company in connection with the registration.
4.5 No Action to Delay Registration. No Holder shall have any
right to take any action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 4.
4.6 Indemnification.
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Holder, any underwriter (as defined in the Act) for it,
and each such person, if any, who controls the Holder or underwriter within
the meaning of the Act, against any losses, claims, damages, or liabilities,
joint or several, to which they may become subject under the Act or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based on any untrue or alleged untrue statement
of any material fact contained in the registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission or
alleged omission to state in it a material fact required to be stated in it,
or necessary to make the statements in it not misleading. The Company will
also, to the extent permitted by law, reimburse the Holder, the underwriter,
or controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any loss, claim, damage,
liability, or action indemnified against; provided, however, that the
indemnity agreement contained in this Section 4.6 shall not apply to amounts
paid in settlement of any loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any case for
any loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in connection with the registration
statement, preliminary prospectus, final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with the registration by
the Holder, underwriter, or controlling person, or any of them.
PAGE 6
(b) To the extent permitted by law, any Holder requesting or
joining in a registration will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Act, and each agent and any underwriter for the Company (within the
meaning of the Act) against any losses, claims, damages, or liabilities to
which the Company or any such director, officer, controlling person, agent, or
underwriter may become subject, under the Act or otherwise, insofar as the
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission or
alleged omission to state in it a material fact required to be stated in it or
necessary to make the statements in it not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such registration; and
each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
agent, or underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action. The indemnity agreement contained
in this Section 4.6 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if the settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld).
(c) Promptly after receipt by an indemnified party under this
Section 4.6 of notice of the commencement of any action, the indemnified party
will, if a claim relating to the notice is to be made against any indemnifying
party under this paragraph, notify the indemnifying party in writing of the
commencement of the action. The indemnifying party will have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve the
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission to so notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this paragraph.
4.7 No Further Obligations. The Company shall have no obligations
pursuant to this Section 4 after the due date of this Note.
5. Representations of the Company. The Company represents and warrants
to the Holder as of the date hereof that:
5.1 Corporate Existence. The Company: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the state
of Colorado; (ii) has the power and authority to carry on its business as now
conducted and to own or hold under lease the properties it purports to own or
hold under lease; and (iii) is duly qualified, licensed or registered to
transact its business in each jurisdiction in which failure to be so
qualified, licensed or registered could or would
PAGE 7
have a material adverse effect on its business, assets, operations or
financial condition.
5.2 Corporate Authority. The Company has all requisite power
and authority to execute and deliver this Note and to perform its obligations
hereunder. This Note has been specifically approved and issued pursuant to
the authorization of the Board of Directors and constitutes the valid and
binding obligation of the Company enforceable against it in accordance with
its terms.
5.3 No Obligation Contravened. The execution, delivery and
performance by the Company of this Note and the performance by the Company of
its obligations hereunder do not and will not contravene or constitute a
default under, or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Company under any provision of
applicable law or regulation or of any agreement, judgment, injunction, order,
decree or other instrument binding on the Company and, except as contemplated
in this Note, will not result in the imposition of any lien on any asset of
the Company.
5.4 Enforceability of Note. There is not pending, nor to the
knowledge of the Company is there now threatened, any judicial,
administrative, or arbitrable action, claim, suit, proceeding or investigation
or other controversy which might affect the validity or enforceability of this
Note or any action taken or to be taken in connection herewith or which, if
adversely determined, would have a material and adverse effect on the Company
or its business, assets, operations or financial condition.
6. Events of Default. This Note shall become due and payable upon
written demand made by the Holder hereof if one or more of the following
events, herein called "events of default," shall occur and is not cured within
thirty (30) days after the Company has received written notice from the Holder
asserting that an event of default has occurred and specifying in detail the
facts that are claimed to be an event of default:
6.1 Default in Payment. Default in Company's obligation to make
any payment required under this Note, when and as they become due and payable;
6.2 Other Obligations. Failure of the Company to perform any of
its obligations specified in this Note other than a payment default; provided,
however, if any failure, other than a failure to pay money, is curable, it may
be cured and no event of default will have occurred, if the Company, after
receiving written notice from Lender specifying the events alleged to
constitute a default: (a) cures the failure within thirty (30) days; or (b)
if the cure requires more than thirty (30) days, immediately initiates steps
sufficient to cure the failure and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance within ninety
(90) days after notice is received.
6.3 Late Charge. If the Company defaults in any payment obligation
under this Note for a period in excess of fifteen (15) days, it shall pay a
late payment charge equal to five percent (5%) of the amount not timely paid.
PAGE 8
In case any one or more of the events of default specified above shall
occur and are continuing after the written notice has been given to the
Company as previously required and the Company has not cured the event of
default within the time previously described, the Holder may proceed to
protect and enforce its right by suit for the specific performance of any
covenant or agreement contained in this Note or may proceed to enforce the
payment of this Note.
7. Miscellaneous.
7.1 Ownership. The Company may consider and treat the person in
whose name this Note is registered as the absolute owner thereof for all
purposes whatsoever (whether or not payment of this Note is overdue) and the
Company shall not be affected by any notice to the contrary. This Note shall
be registered on the books of the Company as to both principal and interest.
The transfer of the Note may be effected only by the Holder, or by transfer by
operation of law, if accompanied by evidence satisfactory to the Company
substantiating the transfer. Communications sent to the registered Holder
shall be effective as against all Holders or transferees of the Note who are
not registered on the Company's books at the time of sending the
communications regarding transfer.
7.2 No Shareholder Rights. The Holder shall not, by virtue of this
Note, be entitled to any rights of a shareholder in the Company, either at law
or in equity, and the rights of the Holder are limited to those expressed in
this Note.
7.3 No Individual Recourse. No recourse shall be had for the
payment of the principal or interest of this Note against any incorporator or
any past, present, or future stockholder, officer, director, employee, or
agent of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, all such liability of the
incorporators, stockholders, officers, directors, employees, and agents being
hereby waived, released, and surrendered by the Holder hereof by the
acceptance of this Note.
7.4 Effect. This Note shall be binding upon, and enforceable by
and against the Company, and its permitted successors and assigns.
7.5 Collection; Attorneys Fees. In the event this Note is placed
in the hands of an attorney for collection following the occurrence of an
event of default, the Company agrees to pay all costs of collection incurred
by the Holder including reasonable attorneys' fees and costs even if a lawsuit
is not filed. In the event the maturity of the Notes is accelerated as
provided in this Note as a result of the occurrence of an event of default,
then after written notice by Holder to the Company demanding payment, this
Note shall thereafter bear interest at the rate of 14% per annum until the
event of default is waived or cured. In any litigation arising out of the
terms of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys fees at trial and on any appeal.
8. Choice of Law; Jurisdiction. THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON,
WITHOUT REFERENCE TO ITS RULES RELATING TO CONFLICTS OF LAW. THE HOLDER HEREBY
IRREVOCABLY SUBMITS ITSELF TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN THE CITY OF PORTLAND, COUNTY OF MULTNOMAH,
PAGE 9
OREGON, AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN
ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER RELATIONSHIP
BETWEEN HOLDER AND THE COMPANY BY ANY MEANS ALLOWED UNDER STATE OR FEDERAL
LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR
ANY OTHER RELATIONSHIP BETWEEN HOLDER AND THE COMPANY SHALL BE BROUGHT AND
LITIGATED EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN THE
CITY AND COUNTY OF DENVER, COLORADO HAVING JURISDICTION UNLESS THE COMPANY
SHALL ELECT OTHERWISE. THE HOLDER AND THE COMPANY HEREBY WAIVE ANY CLAIM, AND
AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY
SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT SUCH VENUE IS
IMPROPER.
9. Notices. All notices, requests, and other communications hereunder
shall be in writing and shall be delivered by courier or other means of
personal service (including by means of a nationally recognized courier
service or professional messenger service); or sent by facsimile or mailed
first class, postage prepaid, by certified mail, return receipt requested; in
all cases, addressed to each party at the following address. All notices,
requests, and other communications shall be deemed given on the date of actual
receipt or delivery as evidenced by written receipt, acknowledgment, or other
evidence of actual receipt or delivery to the address specified above. Notice
sent by facsimile shall be deemed given on the date printed by the sender's
facsimile machine confirming receipt of the facsimile by the other party's
facsimile machine. Any party hereto may from time to time, by notice in
writing served as set forth previously, designate a different address or a
different or additional person to which all such notices or communications
thereafter are to be given.
Company: Holder:
Rentech, Inc.
1331 17th Street, Suite 720
Denver, Colorado 80202
10. No Third-Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.
11. Entire Agreement. This Agreement (including any exhibits hereto)
and the agreements, documents, and instruments to be signed and delivered
pursuant hereto or thereto, embodies the final, complete and exclusive
agreement among the parties with respect to the subject matter of this
Agreement and related transactions; supersedes all prior agreements,
understandings, and representations, written or oral, with respect thereto;
and may not be contradicted by evidence of any such prior or contemporaneous
agreement, understanding, or representation, whether written or oral. No
change or modification to this Agreement shall be valid unless in writing and
signed by the parties hereto.
RENTECH, INC.
ATTEST:
By:
- ------------------------------- ------------------------------