EXHIBIT 10.13
THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM
REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR
SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION
D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE
EXCEPT IN COMPLIANCE WITH THE ACT.
SECURED DEBENTURE
PRODUCTIVITY TECHNOLOGIES CORPORATION
5% Secured Convertible Debenture
June ___, 2007
No. ___ US$50,000.00
This Secured Debenture (the "Debenture") is issued by Productivity
Technologies Corporation, a Delaware corporation (the "Company"), to Cornell
Capital Partners, LP (together with its permitted successors and assigns, the
"Holder") pursuant to exemptions from registration under the Securities Act of
1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, on June 30, 2004
(the "Closing Date"), the Company hereby promises to pay to the order of the
Holder in lawful money of the United States of America and in immediately
available funds the principal sum of Fifty Thousand U.S. Dollars (US$50,000),
together with interest on the unpaid principal of this Debenture at the rate of
five percent (5%) per year (computed on the basis of a 365-day year and the
actual days elapsed) from the date of this Debenture until paid. At the
Company's option, the entire principal amount and all accrued interest shall be
either (a) paid to the Holder on the third (3rd) year anniversary from the date
hereof or (b) converted in accordance with Section 1.02 herein provided,
however, that in no event shall the Holder be entitled to convert this Debenture
for a number of shares of Common Stock in excess of that number of shares of
Common Stock
which, upon giving effect to such conversion, would cause the aggregate number
of shares of Common Stock beneficially owned by the Holder and its affiliates to
exceed 4.99% of the outstanding shares of the Common Stock following such
conversion.
Section 1.02 Optional Conversion. The Holder is entitled, at its option, to
convert, and sell on the same day, at any time and from time to time, until
payment in full of this Debenture, all or any part of the principal amount of
the Debenture, plus accrued interest, into shares (the "Conversion Shares") of
the Company's common stock, par value US$0.001 per share ("Common Stock"), at
the price per share (the "Conversion Price") equal to the lesser of (a) an
amount equal to one hundred twenty percent (120%) of the closing bid price of
the Common Stock as listed on a Principal Market (as defined herein), as quoted
by Bloomberg L.P. (the "Closing Bid Price") as of the date hereof, or (b) an
amount equal to eighty percent (80%) of the lowest closing bid price of the
Company's Common Stock, as quoted by Bloomberg, LP (the "Closing Bid Price"),
for the five (5) trading days immediately preceding (x) the Conversion Date (as
defined herein) or (y) the Redemption Price (as defined herein) Subparagraphs
(a) and (b) above are individually referred to as a "Conversion Price". As used
herein, "Principal Market" shall mean The National Association of Securities
Dealers Inc.'s Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or
American Stock Exchange. If the Common Stock is not traded on a Principal
Market, the Closing Bid Price shall mean, the reported Closing Bid Price for the
Common Stock, as furnished by the National Association of Securities Dealers,
Inc., or the Pink Sheets for the applicable periods. No fraction of shares or
scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest whole share. To
convert this Debenture, the Holder hereof shall deliver written notice thereof,
substantially in the form of Exhibit "A" to this Debenture, with appropriate
insertions (the "Conversion Notice"), to the Company at its address as set forth
herein. The date upon which the conversion shall be effective (the "Conversion
Date") shall be deemed to be the date set forth in the Conversion Notice if no
Redemption Notice is received by the Holder in accordance with the second
sentence of Section 1.04 hereof or the Redemption Date if a Redemption Notice
has been received.
Section 1.03 Reservation of Common Stock. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of this Debenture, such number of
shares of Common Stock as shall from time to time be sufficient to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders within sixty
(60) days of that time for the sole purpose of increasing the number of
authorized shares of Common Stock.
Section 1.04 Right of Redemption. At any time that no Conversion Notice has
been delivered by the Holder, the Company at its option shall have the right to
redeem, with three (3) business days advance written notice (the "Redemption
Notice"), a portion or all outstanding convertible debenture. Upon delivery of a
Conversion Notice, the Company shall have the right to redeem that portion of
the Debenture that the Holder has elected to convert by providing written notice
to the Holder within two Trading Days of the date of the Conversion Notice (the
"Redemption Date"). The redemption price shall be one hundred twenty percent
(120%) of the amount redeemed plus accrued interest.
In the event the Company exercises a redemption of either all or a portion
the Convertible Debenture, the Holder shall receive a warrant to purchase fifty
thousand (50,000) shares of the Company's Common Stock for every One Hundred
Thousand U.S. Dollars (US$100,000) redeemed, pro rata (the "Warrant"). The
Warrant shall be exercisable on a "cash basis" and have an exercise price of one
hundred percent (100%) of the Closing Bid Price of the Company's Common Stock on
the Closing Date. The Warrant shall have "piggy-back" and demand registration
rights and shall survive for two (2) years from the Closing Date.
Section 1.05 Registration Rights. The Company is obligated to register the
resale of the Conversion Shares under the Securities Act of 1933, as amended,
pursuant to the terms of a Registration Rights Agreement, between the Company
and the Holder of even date herewith (the "Investor Registration Rights
Agreement").
Section 1.06 Interest Payments. The interest so payable will be paid at the
time of maturity or conversion to the person in whose name this Debenture is
registered. At the time such interest is payable, the Company may elect to pay
the interest in cash (via wire transfer or certified funds) or in the form of
Common Stock. In the event of default as described in Article III, Section 3.01
hereunder, the interest shall be paid in the form of Common Stock. If paid in
the form of Common Stock, the amount of stock to be issued will be calculated as
follows: the value of the stock shall be the Closing Bid Price on: (i) the date
the interest payment is due; or (ii) if the interest payment is not made when
due, the date the interest payment is made. A number of shares of Common Stock
with a value equal to the amount of interest due shall be issued. No fractional
shares will be issued; therefore, in the event that the value of the Common
Stock per share does not equal the total interest due, the Company will pay the
balance in cash.
Section 1.07 Paying Agent and Registrar. Initially, the Company will act as
paying agent and registrar. The Company may change any paying agent, registrar,
or Company-registrar by giving the Holder not less than ten (10) business days'
written notice of its election to do so, specifying the name, address, telephone
number and facsimile number of the paying agent or registrar. The Company may
act in any such capacity.
Section 1.08 Secured Nature of Debenture. This Debenture is secured by a
second position security interest on all of the assets and property of the
Company as set forth on Exhibit A to the Security Agreement dated the date
hereof between the Company and the Holder (the "Security Agreement"). As set
forth in the Security Agreement, Holder's security interest shall terminate upon
the occurrence of an Expiration Event as defined in the Security Agreement.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture may not be
amended. Notwithstanding the above, without the consent of the Holder, the
Debenture may be amended to cure any ambiguity, defect or inconsistency, or to
provide for assumption of the Company obligations to the Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default shall mean any of the
following: (a) failure by the Company to pay amounts due hereunder within
fifteen (15) days of the date of
maturity of this Debenture; (b) failure by the Company to strictly comply with
the terms of the Irrevocable Transfer Agent Instructions as defined in the
Securities Purchase Agreement; (c) failure by the Company's transfer agent to
issue freely tradeable Common Stock to the Holder within five (5) days of the
Company's receipt of the attached Notice of Conversion from Holder; (d) failure
by the Company for ten (10) days after notice to it to comply with any of its
other agreements in the Debenture; (e) events of bankruptcy or insolvency; (f)
an Event of Default as defined under the Securities Purchase Agreement, the
Investor Registration Rights Agreement or the Security Agreement of even date
herewith or breach by the Company of its representations, warranties, covenants,
obligations or agreements under the Securities Purchase Agreement, the Investor
Registration Rights Agreement, the Security Agreement or any other agreement
entered into in connection therewith or delivered by the Company to the Holder
in connection therewith; or (g) if the Company's Common Stock is not approved
for listing by the National Association of Securities Dealers, Inc. on the
Over-the-Counter Bulletin Board within ninety (90) days of the date hereof,
which is not cured by the Company within ten (10) days after receipt of written
notice thereof. Upon the occurrence of an Event of Default, the Holder may, in
its sole discretion, accelerate full repayment of all debentures outstanding and
accrued interest thereon and/or may, notwithstanding any limitations contained
in this Debenture and/or the Securities Purchase Agreement dated the date hereof
between the Company and Cornell Capital Partners, L.P. (the "Securities Purchase
Agreement"), convert all debentures outstanding and accrued interest thereon
into shares of Common Stock pursuant to Section 1.02 herein.
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated in
Article III Section 3.01, a breach by the Company of its obligations under the
Investor Registration Rights Agreement shall be deemed an Event of Default,
which if not cured within ten (10) days, shall entitle the Holder to accelerate
full repayment of all debentures outstanding and accrued interest thereon or,
notwithstanding any limitations contained in this Debenture and/or the
Securities Purchase Agreement, to convert all debentures outstanding and accrued
interest thereon into shares of Common Stock pursuant to Section 1.02 herein.
The Company acknowledges that failure to honor a Notice of Conversion shall
cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 Rights and Terms of Conversion. This Debenture, in whole or in
part, may be converted at any time following the Closing Date, into shares of
Common Stock at a price equal to the Conversion Price as described in Section
1.02 above.
Section 4.02 Re-issuance of Debenture. When the Holder elects to convert a
part of the Debenture, then the Company shall reissue a new Debenture in the
same form as this Debenture to reflect the new principal amount.
Section 4.03 Termination of Conversion Rights. The Holder's right to
convert the Debenture into the Common Stock in accordance with paragraph 4.01
shall terminate on the date that is the third (3rd) year anniversary from the
date hereof and this Debenture shall be automatically converted on that date in
accordance with the formula set forth in Section 4.01 hereof, and the
appropriate shares of Common Stock and amount of interest shall be issued to the
Holder.
ARTICLE V.
Section 5.01 Anti-dilution. In the event that the Company shall at any time
subdivide the outstanding shares of Common Stock, or shall issue a stock
dividend on the outstanding Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in the event that the Company shall at any time
combine the outstanding shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination as the case may be.
Section 5.02 Consent of Holder to Sell Capital Stock or Grant Security
Interests. Except for the Standby Equity Distribution Agreement dated the date
hereof between the Company and Cornell Capital Partners, LP, so long as any of
the principal of or interest on this Debenture remains unpaid and unconverted,
the Company shall not, without the prior consent of the Holder, issue or sell
(i) any Common Stock or Preferred Stock without consideration or for a
consideration per share less than its fair market value determined immediately
prior to its issuance, (ii) issue or sell any Preferred Stock, warrant, option,
right, contract, call, or other security or instrument granting the holder
thereof the right to acquire Common Stock without consideration or for a
consideration per share less than such Common Stock's fair market value
determined immediately prior to its issuance, (iii) enter into any security
instrument granting the holder a security interest in any of the assets of the
Company, or (iv) file any registration statement on Form S-8.
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be sent to the
parties at the following addresses, unless a party notifies the other parties,
in writing, of a change of address:
If to the Company, to: Productivity Technologies Corporation
3100 Copper Avenue
Fenton, Michigan 48430
Attention: Jesse A. Levine, CFO
Telephone: (248) 219-5500
Facsimile: (248)-645-9701
With a copy to: Kirkpatrick & Lockhart LLP
201 South Biscayne Boulevard - Suite 2000
Miami, FL 33131-2399
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 358-7095
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attn: Mark Angelo
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a copy to: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attn: Troy J. Rillo
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
Section 6.02 Governing Law. This Debenture shall be deemed to be made under
and shall be construed in accordance with the laws of the State of Delaware
without giving effect to the principals of conflict of laws thereof. Each of the
parties consents to the jurisdiction of the U.S. District Court sitting in the
District of the State of New Jersey or the state courts of the State of New
Jersey sitting in Hudson County, New Jersey in connection with any dispute
arising under this Debenture and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens to
the bringing of any such proceeding in such jurisdictions.
Section 6.03 Severability. The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise affect any of the other provisions
of this Debenture, which shall remain in full force and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture represents the
entire agreement between the parties hereto with respect to the subject matter
hereof and there are no representations, warranties or commitments, except as
set forth herein. This Debenture may be amended only by an instrument in writing
executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company
as executed this Debenture as of the date first written above.
PRODUCTIVITY TECHNOLOGIES CORPORATION
By: /s/Jesse A. Levine
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Name: Jesse A. Levine
Title: CFO
EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert
US$__________________________________ of the principal amount of the above
Debenture into Shares of Common Stock of Productivity Technologies Corporation,
according to the conditions stated therein, as of the Conversion Date written
below.
Conversion Date:
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Applicable Conversion Price:
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Signature:
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Name:
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Address:
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Amount to be converted: US$
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Amount of Debenture unconverted: US$
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Conversion Price per share: US$
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Number of shares of Common Stock to be
issued:
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Please issue the shares of Common Stock
in the following name and to the
following address:
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Issue to:
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Authorized Signature:
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Name:
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Title:
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Phone Number:
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Broker DTC Participant Code:
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Account Number:
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