Exhibit 10.21
7% CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED,
RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
NO. 3 US $37,500
PEN INTERCONNECT, INC.
7% CONVERTIBLE DEBENTURE DUE AUGUST 24, 2001
THIS DEBENTURE is issued by Pen Interconnect, Inc., a corporation organized
and existing under the laws of the State of Utah (the "Company") and is
designated as its 7% Convertible Debenture Due August 24, 2001.
FOR VALUE RECEIVED, the Company promises to pay to Austost Anstalt Schaan or
permitted assigns (the "Holder"), the principal sum Thirty-Seven Thousand Five
Hundred and 00/100 (US $37,500) Dollars on August 24, 2001 (the "Maturity Date")
and to pay interest on the principal sum outstanding from time to time quarterly
in arrears at the rate of 7% per annum accruing from the date of initial
issuance. Accrual of interest shall commence on the first business day to occur
after the date of initial issuance and continue until payment in full of the
principal sum has been made or duly provided for. Quarterly interest payments
shall be due and payable on September 1, December 1, March 1 and June 1 of each
year, commencing with December 1, 2000. If any interest payment date or the
Maturity Date is not a business day in the State of New York, then such payment
shall be made on the next succeeding business day. The forwarding of such check,
shall constitute a payment of principal and interest hereunder and shall satisfy
and discharge the liability for principal and interest on this Debenture to the
extent of the sum represented by such check plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all payments of
interest on this Debenture any amounts required to be withheld under the
applicable provisions of the United States income tax laws or other applicable
laws at the time of such payments, and Holder shall execute and deliver all
required documentation in connection therewith.
2. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. The Holder shall deliver written
notice to the Company of any proposed transfer of this Debenture. In the event
of any proposed transfer of this Debenture, the Company may require, prior to
issuance of a new Debenture in the name of such other person, that it receive
reasonable transfer documentation including legal opinions that the issuance of
the Debenture in such other name does not and will not cause a violation of the
Act or any applicable state or foreign securities laws. Prior to due
presentment for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered on
the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary. This Debenture has been executed and
delivered pursuant to the Convertible Debenture and Warrants Purchase Agreement
dated as of August 24, 2000 between the Company and the original Holder (the
"Purchase Agreement"), and is subject to the terms and conditions of the
Purchase Agreement, which are, by this reference, incorporated herein and made a
part hereof. Capitalized terms used and not otherwise defined herein shall have
the meanings set forth for such terms in the Purchase Agreement.
3. The Holder of this Debenture is entitled, at its option, to convert at
any time commencing on the date hereof, the principal amount of this Debenture
or any portion thereof, plus any accrued and unpaid interest, into shares of
Common Stock of the Company ("Conversion Shares") at a conversion price for each
share of Common Stock ("Conversion Price") equal to the lesser of (i) $0.15 (the
"Set Price")(subject to adjustment for stock splits and the like) and (ii) 70%
of the Market Price on the Conversion Date.
4. The rate of interest on this Debenture shall be seven percent (7%), per
annum, on the outstanding principal until paid or converted. The Holder shall
have the right to cause the Company to issue Common Stock in exchange for
interest otherwise payable in cash pursuant to this Debenture. The exact number
of Common Stock into which such interest payment is convertible shall be
determined as set forth in Section 3.
5. At the election of the Holder, the Company shall use at least 50% of the
net proceeds of any subsequent equity financing to redeem all or any part of the
entire outstanding amount of this Debenture at a price of 130% of the
outstanding principal balance, plus all accrued but unpaid interest. The Company
shall make the redemption payment to the Holder six (6) Trading Days after the
notice of redemption is tendered and agreed to by the Holder ("Redemption
Payment Date"). The Holder shall have the right to convert this Debenture as set
forth in Section 8 until the Trading Day prior to the Redemption Payment Date.
6. Intentionally omitted.
7. On the Maturity Date, the Company will pay the principal of and any
accrued but unpaid interest due upon this Debenture, less any amounts required
by law to be deducted, to the registered holder of this Debenture and addressed
to such holder at the last address appearing on the Debenture Register
8. (a) Conversion shall be effectuated by surrendering this Debenture to
the Company (if such Conversion will convert all outstanding principal) together
with the form of conversion notice attached hereto as Exhibit A (the "Notice of
---------
Conversion"), executed by the Holder of this Debenture evidencing such Holder's
intention to convert this Debenture or a specified portion (as above provided)
hereof, and accompanied, if required by the Company, by proper assignment hereof
in blank. Interest accrued or accruing from the date of issuance to the date of
conversion shall be paid in cash as set forth above. No fraction of a share or
scrip representing a fraction of a share will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest whole share. The date
on which Notice of Conversion is given (the "Conversion Date") shall be deemed
to be the date on which the Holder faxes the Notice of Conversion duly executed
to the Company. Facsimile delivery of the Notice of Conversion shall be
accepted by the Company at facsimile number (949) 798-5800: Stephen J. Fryer.
Certificates representing Common Stock upon conversion will be delivered to the
Holder within three (3) Trading Days from the date the Notice of Conversion is
delivered to the Company. Delivery of shares upon conversion shall be made to
the address specified by the Holder in the Notice of Conversion.
(b) The Company understands that a delay in the issuance of shares of
Common Stock upon a conversion beyond the three (3) Trading Day period described
in Paragraph 8(a) could result in economic loss to the Holder. As compensation
to the Holder for such loss, the Company agrees to pay late payments to the
Holder for late issuance of shares of Common Stock upon conversion in accordance
with the following schedule (where "No. Trading Days Late" is defined as the
number of Trading Days beyond three (3) Trading Days from the date the Notice of
Conversion is delivered to the Company).
Late Payment for Each
$5,000 of Principal Amount
No. Trading Days Late Being Converted
- --------------------- ---------------
1 $100
- - ----
2 $200
- - ----
3 $300
- - ----
4 $400
- - ----
5 $500
- - ----
6 $600
- - ----
7 $700
- - ----
8 $800
- - ----
9 $900
- - ----
10 $1,000
- -- ------
More than 10 $1,000 +$200 for
each Trading Day
Late beyond 10 Trading Days
- ------------ ---------------------------
The Company shall pay any payments incurred under this Paragraph 8(b) in
immediately available funds upon demand. Nothing herein shall limit Holder's
right to pursue injunctive relief and/or actual damages for the Company's
failure to issue and deliver Common Stock to the holder, including, without
limitation, the Holder's actual losses occasioned by any "buy-in" of Common
Stock necessitated by such late delivery. Furthermore, in addition to any other
remedies which may be available to the Holder, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
three (3) Trading Days from the date the Notice of Conversion is delivered to
the Company, the Holder will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company, whereupon the
Company and the Holder shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion, and in such event no
late payments shall be due in connection with such withdrawn conversion.
(c) If at any time (a) the Company challenges, disputes or denies the
right of the Holder to effect the conversion of this Debenture into Common Stock
or otherwise dishonors or rejects any Notice of Conversion properly delivered in
accordance with this Paragraph 8 or (b) any Company stockholder who is not and
has never been an Affiliate (as defined in Rule 405 under the Securities Act of
1933, as amended) of the Holder obtains a judgment or any injunctive relief from
any court or public or governmental authority which denies, enjoins, limits,
modifies, delays or disputes the right of the holder hereof to effect the
conversion of this Debenture into Common Stock, then the Holder shall have the
right, by written notice, to require the Company to promptly redeem this
Debenture for cash at a redemption price equal to one hundred fifty percent
(150%) of the outstanding principal amount hereof and all accrued and unpaid
interest hereon. Under any of the circumstances set forth above, the Corporation
shall indemnify and hold harmless the holder and be responsible for the payment
of all costs and expenses of the holder, including its reasonable legal fees and
expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the holder). In the event a
Holder of this Debenture shall elect to convert any or all of the outstanding
principal amount hereof, the Company may not refuse conversion based on any
claim that the Holder or any one associated or affiliated with the Holder of has
been engaged in any violation of law, unless, an injunction from a court, on
notice, restraining and or enjoining conversion of all or part of this Debenture
shall have been sought and obtained and the Company posts a surety bond for the
benefit of the Holder in the amount of 150% of the principal amount of this
Debenture outstanding, which is subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such holder of any shares of
Series A Convertible Preferred Stock to the extent it obtains judgment. In the
absence of an injunction precluding the same, the Company shall issue shares
upon a properly noticed conversion.
9. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time, place, and rate, and in the coin or
currency herein prescribed. This Debenture is a direct obligation of the
Company.
10. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, employee, officer or
director, as such, past, present or future, of 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, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
11. In case of any (1) merger or consolidation of the Company
with or into another Person, or (2) sale by the Company of more than one-half of
the assets of the Company (on an as valued basis) in one or a series of related
transactions, the Holder shall have the right to (A) deem such an occurrence an
Event of Default and exercise its rights of prepayment pursuant to Paragraph 14
herein, (B) convert its aggregate principal amount of this Debenture then
outstanding into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and the Holder shall be entitled upon such event
or series of related events to receive such amount of securities, cash and
property as the shares of Common Stock into which such aggregate principal
amount of this Debenture could have been converted immediately prior to such
merger, consolidation or sales would have been entitled, or (C) in the case of a
merger or consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the aggregate
principal amount of this Debenture then held by the Holder, plus all accrued and
unpaid interest and other amounts owing thereon, which newly issued shares of
preferred stock or debentures shall have terms identical (including with respect
to conversion) to the terms of this Debenture (except, in the case of preferred
stock, as may be required to reflect the differences between equity and debt)
and shall be entitled to all of the rights and privileges of the Holder of this
Debenture set forth herein and the agreements pursuant to which this Debenture
was issued (including, without limitation, as such rights relate to the
acquisition, transferability, registration and listing of such shares of stock
other securities issuable upon conversion thereof), and (y) simultaneously with
the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger or consolidation. In the case of
clause (C), the conversion price applicable for the newly issued shares of
convertible preferred stock or convertible debentures shall be based upon the
amount of securities, cash and property that each share of Common Stock would
receive in such transaction and the Conversion Price in effect immediately prior
to the effectiveness or closing date for such transaction. The terms of any
such merger, sale or consolidation shall include such terms so as to continue to
give the Holder the right to receive the securities, cash and property set forth
in this Paragraph upon any conversion or redemption following such event. This
Paragraph shall similarly apply to successive such events.
12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
13. This Debenture shall be governed by and construed in accordance with the
laws of the State of New York. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
14. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest on this
Debenture and same shall continue for a period of three (3) days; or
b. Any of the material representations or warranties made by the Company
herein, in the Purchase Agreement, the Registration Rights Agreement, or in any
agreement, certificate or financial statements heretofore or hereafter furnished
by the Company in connection with the execution and delivery of this Debenture
or the Purchase Agreement shall be false or misleading in any material respect
at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder or to
cause its Transfer Agent to issue shares of Common Stock upon proper exercise by
the Holder of the conversion rights of the Holder in accordance with the terms
of this Debenture, fails to transfer or to cause its Transfer Agent to transfer
any certificate for shares of Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this Debenture or the Registration
Rights Agreement, and such transfer is otherwise lawful, or fails to remove any
restrictive legend or to cause its Transfer Agent to transfer any certificate or
any shares of Common Stock issued to the Holder upon conversion of this
Debenture as and when required by this Debenture, the Purchase Agreement or the
Registration Rights Agreement and such legend removal is otherwise lawful, and
any such failure shall continue uncured for five (5) business days; or
d. The Company shall fail to perform or observe, in any material respect,
any other covenant, term, provision, condition, agreement or obligation of the
Company under the Purchase Agreement, the Registration Rights Agreement or this
Debenture and such failure shall continue uncured for a period of thirty (30)
days after written notice from the Holder of such failure; or
e. The Company shall (1) admit in writing its inability to pay its debts
generally as they mature; (2) make an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3) apply for or consent to the
appointment of a trustee, liquidator or receiver for its or for a substantial
part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed for the Company or
for a substantial part of its property or business without its consent and shall
not be discharged within sixty (60) days after such appointment; or
g. Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within sixty (60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or similar process in
excess of One Hundred Thousand ($100,000) Dollars in the aggregate shall be
entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty
(60) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty (60) days after such
institution or the Company shall by any action or answer approve of, consent to,
or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding; or
j. The Company shall have its Common Stock suspended or delisted from
trading on a Principal Market for in excess of five (5) Trading Days;
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
15. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
16. In no event shall the Holder be permitted to convert this Debenture for
shares of Common Stock upon which, (x) the number of shares of Common Stock
owned by such Holder (other than shares of Common Stock issuable upon conversion
of this Debenture) plus (y) the number of shares of Common Stock issuable upon
conversion of this Debenture, would be equal to or exceed 9.9% of the number of
shares of Common Stock then issued and outstanding, including shares issuable
upon conversion of this Debenture held by such Holder after application of this
Paragraph 16. As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Paragraph 16 applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is convertible shall be in the
sole discretion of such Holder, and the submission of a Notice of Conversion
shall be deemed to be such Holder's determination of whether this Debenture is
convertible (in relation to other securities owned by such holder) and of which
portion of this Debenture is convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of a holder to convert this Debenture into shares
of Common Stock at such time as such conversion will not violate the provisions
of this Paragraph 16. The provisions of this Paragraph 16 may be waived by the
Holder of this Debenture upon not less than 75 days' prior notice to the
Company, and the provisions of this Paragraph 16 shall continue to apply until
such 75th day (or such later date as may be specified in such notice of waiver).
No conversion of this Debenture in violation of this Paragraph 16 but otherwise
in accordance with this Debenture shall affect the status of the Common Stock
issued upon such conversion as validly issued, fully-paid and nonassessable. If
instead of receiving cash on the Maturity Date the Holder instead exercises its
right to convert this Debenture into Common Stock pursuant to Paragraph 3 by
delivery of a Notice of Conversion prior to receipt of payment, and such
conversion would cause the limit contained in the first sentence of this
Paragraph 16 to be exceeded, such conversion of this Debenture shall occur up to
such limit and the remaining unconverted portion of this Debenture shall be
converted into Common Stock (1) in accordance with one or more Notices of
Conversion delivered by the Holder or (2) 65 days after the Maturity Date,
whichever is earlier. Notwithstanding anything contained herein to the
contrary, no interest shall accrue after the Maturity Date on any such
unconverted portion of this Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: August 24, 2000
PEN INTERCONNECT, INC.
By: /s/ Stephen J. Fryer_
----------------------
Stephen J. Fryer, Chairman & CEO
Attest:
_______________________
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount of the above Debenture No. ___ into Shares of Common Stock
of Pen Interconnect, Inc. (the "Company") according to the conditions hereof, as
of the date written below.
Date of Conversion* ____________________________________________________________
Conversion Price * ____________________________________________________
Accrued Interest________________________________________________________________
Signature_____________________________________________________________________
[Name]
Address:______________________________________________________________________
_______________________________________________________________________
*If such conversion represents the remaining principal balance of the Debenture,
the original Debenture must accompany this notice within three Trading Days.