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EXHIBIT 10.24
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED
FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
NO. __ $___________
5% CONVERTIBLE DEBENTURE DUE AUGUST 6, 1999
THIS CONVERTIBLE DEBENTURE ("Debenture") is one of a duly authorized
issue of Debentures of MRV Communications, Inc., a corporation duly organized
and existing under the laws of the State of Delaware and having its principal
address at 0000 Xxxxxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxxxx 00000 (the
"Company"), designated as its 5% Convertible Debentures Due August 6, 1999 in
an aggregate principal amount not exceeding ____________________ Dollars (U.S.
$___________) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to ___________________
having an address at __________________________________, the Holder hereof, or
its order (the "Holder"), the principal sum of __________________________
Dollars (U.S.$__________) on August 6, 1999 (the "Maturity Date") and to pay
interest on the principal sum outstanding under this Debenture ("Outstanding
Principal Amount"), at the rate of 5% per annum due and payable semi-annually
in arrears on the 7th day of February and August of each year (each an
"Interest Payment Date"), with the first such payment due on February 7, 1997.
Accrual of interest shall commence on the first business day to occur after the
date hereof and shall continue until payment in full of the principal sum has
been made. The interest so payable will be paid to the person in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Convertible Securities
Subscription Agreement dated as of _______________, 1996 between the Company
and the Holder (the "Subscription Agreement"). The principal of and interest
on this Debenture are payable in such coin or currency of the United States of
America as of the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder hereof from time to time,
provided, however, that, in lieu of paying such interest in coin or currency,
the Company may, at its option, pay interest on this Debenture for any Interest
Payment Date by adding the amount of such interest to the Outstanding Principal
Amount due under this Debenture ("PIK Interest") pursuant to a statement in the
form of Exhibit 2 hereto ("PIK Statement") delivered by the Company to the
Holder on or prior to the applicable Interest Payment Date. If the cash
interest due hereunder is not paid to the Holder by the applicable Interest
Payment Date, then the Holder shall be entitled to the addition of PIK Interest
hereunder and to the delivery of a PIK Statement with respect thereto. Any PIK
Interest when so added to the Outstanding Principal Amount due under this
Debenture shall, for all purposes of this Debenture, be deemed to have
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been part of the principal indebtedness originally evidenced by this Debenture
including, without limitation, for purposes of determining interest thereafter
payable hereunder and amounts thereafter convertible into Common Stock
hereunder. Subject to the conversion hereof, in whole or in part, on or before
the Maturity Date pursuant to Paragraph 5 hereof, the Company will pay the
principal of and all accrued and unpaid interest due upon this Debenture on the
Maturity Date, to the Holder of this Debenture as of the tenth (10th) day prior
to the Maturity Date and addressed to such Holder at the last address appearing
on the Debenture Register.
The payment of the principal of, interest on or any other amounts due on this
Debenture will be subordinate in right of payment to the prior payment in full
of any existing bank or institutional debt of the Company or any of its
subsidiaries ( collectively, the "Senior Credit Facility"); provided that the
Senior Credit Facility shall at no time exceed $6,000,000 in the aggregate. No
payment on account of principal of, redemption of, interest on or any other
amounts due on the Debenture, and no redemption, purchase or other acquisition
of the Debenture may be made unless (I) full payment of amounts then due under
the Senior Credit Facility have been made or duly provided for pursuant to the
terms thereof, or (ii) at the time for, or immediately after giving effect to,
any such payment, redemption, purchase or other acquisition, there shall not
exist under the Senior Credit Facility any default by the Company in the
payment of principal and interest due to such thereunder. The obligation of
the Company to effect the conversion of this Debenture and to pay interest in
the form of PIK Interest shall not be limited by the provisions of this
paragraph.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debentures are exchangeable for an equal
aggregate principal amount of Debentures of different denominations, of not
less than $100,000 each as requested by the Holder surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. Transfers. This Debenture has been issued subject to
investment representations of the original purchaser hereof and may be
transferred or exchanged in the United States only in compliance with the
Securities Act of 1933, as amended (the "Act") and applicable state securities
laws and in accordance with other applicable provisions hereof. Prior to due
presentment for transfer of this Debenture, 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 all other purposes, whether or not this Debenture be overdue, and
the Company shall not be affected by notice to the contrary.
3. Definitions. For purposes hereof the following definitions
shall apply:
"Acquisition Period" shall mean any period beginning on the
date when there shall first be announced publicly a Paragraph 4 Transaction or
any other transaction involving an Equity Offering issued or to be issued in
consideration for the acquisition of one or more other businesses or business
entities by purchase or sale, merger, consolidation or like transaction (an
"Acquisition") and ending 30 trading days after consummation of the
Acquisition.
"Closing Date" shall mean the date of original issuance of the
Debenture.
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"Common Stock" shall mean the Common Stock, par value $0.0034
per share, of the Company.
"Conversion Date Market Price" shall mean, (as set forth in
the schedule below,) an amount that is equal to X%, as set forth in the
schedule below, (the "X Percentage") of the average of the Market Price for
Shares of Common Stock on each of the five trading days immediately preceding
the Holder Conversion Date, subject to adjustment from time to time as set
forth in Paragraph 7 hereof and in Section 6 of the Registration Rights
Agreement.
Conversion Date
(Days from Closing Date) X
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0 to 53 100%
54 to 83 88%
83 to 113 87%
114 to 143 86%
144 to 173 85%
174 to 203 84%
204 to 233 83%
234 to 263 82%
264 to 293 81%
294 to Maturity Date 80%
"Conversion Deficiency" shall have the meaning set forth in
Paragraph 9(b).
"Conversion Notice" shall have the meaning set forth in
Paragraph 5(c).
"Conversion Rate" shall have the meaning set forth in
Paragraph 5(b).
"Equity Offerings" shall mean the issuance or sale by the
Company of any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of its Common Stock or any such convertible securities (other than
shares or options issued or which may be issued pursuant to the Company's
employee or director option plans or shares issued upon exercise of options,
warrants or rights outstanding on the Closing Date and listed in the Exchange
Act Reports).
"Forced Conversion Notice" shall have the meaning set forth in
Paragraph 5(a)(iii).
"Holder Conversion Date" shall have the meaning set forth in
Paragraph 5(c).
"Market Price for Shares of Common Stock" shall mean, except
as hereinafter provided when a Forced Conversion Notice is in effect, the price
of one share of Common Stock determined as follows:
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(I) If the Common Stock is listed on the Exchange
(as defined in the Subscription Agreement), the closing bid price on the date
of valuation;
(ii) If the Common Stock is listed on a national
securities exchange, the closing sales price on the date of valuation;
(iii) If neither (I) nor (ii) apply but the Common
stock is quoted in the over-the-counter market on the pink sheets or bulletin
board, the last reported "bid" price on the date of valuation; and
(iv) If neither clause (I), (ii) or (iii) above
applies, the market value as determined by a nationally recognized investment
banking firm or other nationally recognized financial advisor retained by the
Company for such purpose, taking into consideration, among other factors, the
earnings history, book value and prospects for the Company, and the prices at
which shares of Common Stock recently have been traded. Such determination
shall be conclusive and binding on all persons.
When a Forced Conversion Notice shall be in effect, references
in clauses (I), (ii) and (iii) above to closing or last reported bid or sales
prices shall, in each case, be changed to refer to the lowest sales prices on
the respective dates of valuation.
"Paragraph 4 Transaction" shall mean a merger, consolidation,
or other transaction referred to in Paragraph 4.
"Post-Deficiency Conversion" shall have the meaning set forth
in Paragraph 9(b).
"Redemption Date" shall have the meaning set forth in
Paragraph 6(c).
"Subscription Agreement" shall mean the Convertible Securities
Subscription Agreement dated _______________, 1996, between the Company and the
Subscriber or Subscribers to the original issue of the Debentures and the
Warrants.
"Warrants" shall have the meaning provided in the Subscription
Agreement.
" , 1996 Debentures" shall mean the 5%
Convertible Debentures issued by the Company on ______________, 1996 in the
aggregate principal amount of _______________ Dollars (U.S. $__________).
" , 1996 Debentures" shall mean the 5%
Convertible Debentures issued by the Company on ______________, 1996 in the
aggregate amount of ________________ Dollars (U.S. $___________).
" , 1996 Debentures" shall mean the 5%
Convertible Debentures issued by the Company dated as of ____________ , 1996,
1996 in the aggregate principal amount of _______________________ Dollars (U.S.
$_________).
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Other terms defined in the Subscription Agreement or in the
Warrant or Registration Rights Agreement referred to therein and not otherwise
defined herein shall have the same meaning herein as they do in such other
instrument.
4. Merger, Consolidation. If at any time there occurs any
consolidation or merger of the Company with or into any other corporation or
other entity or person (whether or not the Company is the surviving
corporation) or any other corporate reorganization or transaction or series of
related transactions, in any of which in excess of 50% of the Company's voting
power is transferred (a "Paragraph 4 Transaction"), the Holders of this
Debenture, to the extent then outstanding and notwithstanding anything in
Paragraph 5(a) to the contrary, shall participate in any such transaction as a
class with common stockholders of the Company on the same basis as if this
Debenture had been converted one day prior the record date or effective date of
such transaction, as applicable, provided, however, that if a Paragraph 4
Transaction or the record date for determination of the Company's stockholders
entitled to participate in such Transaction shall occur at any time before the
first anniversary of the effectiveness of the Registration Statement
contemplated by the Registration Rights Agreement, both of which are referred
to in the Subscription Agreement, then, at the option of the Holder of this
Debenture, such Holder may treat the effective date of such Paragraph 4
Transaction as a Redemption Date and shall be entitled to receive the
redemption price with respect to such Redemption Date as is provided in
Paragraph 9(b). Such Holder shall be entitled to make such election at any
time up to ten (10) trading days after the effective date of the Paragraph 4
Transaction. Nothing in this Section 4 shall prohibit the Holder from
converting any part or all of this Debenture in accordance with the terms
hereof, up to and including the effective time and date of the Paragraph 4
Transaction.
5. Conversion. This Debenture is subject to conversion as
follows:
(a) (I) Holder's Right to Convert. This Debenture shall
be convertible at any time and from time to time, in whole or in part, at the
option of the Holder hereof, into fully paid, validly issued and nonassessable
shares of Common Stock.
(ii) Automatic Conversion. At maturity of this
Debenture, the principal indebtedness then outstanding hereunder (including
without limitation all PIK Interest then included therein) shall automatically
be converted into fully paid, validly issued and nonassessable shares of Common
Stock and, except for the Holder's right to receive the Common Stock into which
this Debenture is automatically so converted and except for any portion of this
Debenture which cannot be so converted by reason of the limitations provided or
referred to in Paragraphs 5(d) and 9(b) hereof, this Debenture shall be deemed
to have been canceled whether or not surrendered upon such automatic
conversion.
(iii) Forced Conversion. From and after the business
day following the conversion of the August 7, 1996 Debentures in their
entirety, but only for so long as the Registration Statement remains effective,
subject to section 5 (d) hereof, the Company may require the Holder to convert
any part or all of the principal indebtedness then outstanding hereunder into
fully paid, validly issued and nonassessable shares of Common Stock. The
Company shall notify the Holder of each such requirement by written notice (a
"Forced Conversion Notice") given to and received by the Holder at least 30
business days prior to the
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date of such Forced Conversion specified in such notice. Prior to such date of
Forced Conversion, the Holder may, pursuant to Section 5(a)(I) hereof, convert
the principal indebtedness covered by such Forced Conversion Notice and/or any
part or all of any other principal indebtedness then outstanding hereunder.
Notwithstanding anything herein to the contrary, during any Acquisition Period,
the Company may not issue a Forced Conversion Notice or require a Forced
Conversion, and any Forced Notice pending and outstanding at the beginning of
an Acquisition Period shall be null and void and without further force or
effect.
(iv) Accrued But Unpaid Interest. Notwithstanding
anything in this Debenture to the contrary, the conversion of any part or all
of the Outstanding Principal Amount of this Debenture shall include, without
limitation, the conversion of all the accrued but unpaid interest on the
Outstanding Principal Amount so converted.
(b) Conversion Price for Holder Converted Shares. The
Outstanding Principal Amount of this Debenture that is converted into shares of
Common Stock shall be convertible into the number of shares of Common Stock
which results from application of the following formula:
P + I
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Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on P as of the Holder Conversion Date
The number of shares of Common Stock into which the
Outstanding Principal Amount of this Debenture, and interest accrued thereon,
may be converted pursuant to this paragraph is hereafter referred to the
"Conversion Rate."
(C) Mechanics of Conversion. In order to convert this
Debenture (in whole or in part) into full shares of Common Stock, the Holder
shall surrender this Debenture, duly endorsed, by either overnight courier or
2-day courier, to the principal office of the Company, and, in case of such
conversion pursuant to Section 5(a)(I), shall give written notice in the form
of Exhibit 1 hereto (the "Conversion Notice") by facsimile (with the original
of such notice forwarded with the foregoing courier) to the Company at such
office that the Holder elects to convert the principal amount specified
therein, which such notice and election shall be irrevocable by the Holder;
provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of the Common Stock issuable upon such
conversion unless either the Debenture evidencing the principal amount is
delivered to the Company as provided above, or the Holder notifies the Company
that such Debenture(s) have been lost, stolen or destroyed and promptly
executes an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by its connection with such Debentures; and
provided further that each Conversion Notice shall provide for the Holder's
election to convert either (I) at least $100,000 of the Outstanding Principal
Amount of the Debenture or Debentures so to be converted, or (ii) if such
Outstanding Principal Amount shall then be less than $100,000, the entire
amount thereof.
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Upon receipt of such Conversion Notice, the Company
shall immediately verify the Holder's calculation of the Conversion Rate. In
the case of such Conversion Notice given by the Holder or in the case of
automatic conversion or Forced Conversion pursuant to Paragraph 5(a)(ii) or
(iii), as the case may be, the Company shall use its best efforts to issue and
deliver within two (2) business days after delivery to the Company of such
Debenture(s), or after receipt of such agreement and indemnification, to such
Holder of Debenture(s) at the address of the Holder, or to its designee, a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled as aforesaid, together with a Debenture or
Debentures for the principal amount of Debentures not submitted for conversion.
The date on which the Conversion Notice or the Forced Conversion Notice is
given (the "Holder Conversion Date") shall be deemed to be the date the Company
received by facsimile the Conversion Notice or gave the Forced Conversion
Notice, as the case may be. The person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Holder Conversion Date or on the Maturity Date, as the case may be.
(d) Limitation in Conversion. Notwithstanding anything
herein contained to the contrary, the number of shares of Common Stock to be
issued pursuant to a Conversion Notice, pursuant to the automatic conversion
provided in Paragraph 5(a)(ii) hereof or pursuant to Forced Conversion Notice
duly given in accordance with Paragraph 5(a)(iii) hereof shall not exceed the
number of such shares which, together with the Common Stock (I) theretofore
issued upon conversion of Debentures and exercise of the Warrants and (ii)
reserved for issuance pursuant to then unexpired and unexercised Warrants,
would exceed 3,943,003 shares of Common Stock, as theretofore adjusted pursuant
to the provisions hereof. If Conversion Notices or Forced Conversion Notices
issued on the same Holder Conversion Date by or to Holders of this and other
Debentures or if the automatic conversion of this and other Debentures would,
in the aggregate, result in the issuance of Common Stock exceeding the
limitation provided in this Paragraph 5(d), then the conversion that would then
be permitted within such limitation shall be made pro rata according to the
number of shares which, but for such limitation, would be issued pursuant to
such Conversion Notices or Forced Conversion Notices or upon such automatic
conversion, as the case may be, or in the case of Forced Conversion Notices,
the Holder may at its option notify the Company of the suspension of the Forced
Conversion pursuant to such Forced Conversion Notice unless and until the same
would no longer so exceed such limitation.
6. Redemption. The Company shall have the following redemption
obligations.
(a) Company's Obligation To Redeem. Any portion of this
Debenture which, at any time on or before the Maturity Date, by reason of the
limitation provided in Paragraph 5(d), cannot be converted shall, at the
Holder's option expressed by notification to the Company (a "Redemption
Notice"), be redeemed by the Company for cash consideration to be paid by the
Company to each Holder of the Debentures being redeemed; provided however, that
if such Redemption Notice, given by the Holder shall not be included in or
accompanied by a Conversion Notice covering all of the Common Stock into which
this Debenture can then be converted, the Company may, by notice to the Holder,
suspend such requested redemption pursuant to this Paragraph 6(a) for a period
of up to 60 calendar days if the Company (I) decides to seek approval of its
stockholders of the issuance pursuant to the conversion of the Debentures of
such
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3,943,003 shares and of such number of shares of its Common Stock in excess
thereof as well as enable their full conversion of all of the Debentures into
Common Stock at all times on or before the Maturity Date in accordance with the
terms thereof other than the limitation provided in Paragraph 6(d), (ii)
pursues such approval with all due diligence during such suspension and (iii)
obtains such approval within such 60 days, and if such approval shall be so
obtained, such Redemption Notice and such limitation shall be of no further
force or effect. In the event at any time less than all the outstanding
Debentures are redeemed, the Company shall redeem from each Holder a pro rata
amount of Debentures based upon the Outstanding Principal Amount of Debentures
held by such Holder in relationship to the aggregate Outstanding Principal
Amount of all Debentures.
(b) Redemption Price. The redemption price for the
portion of this Debenture being redeemed pursuant to Paragraph 6(a) hereof
shall equal the greater of (I) the redemption price determined pursuant to
Paragraph 9(b), and (ii) 110% of the Outstanding Principal Amount of this
Debenture being so redeemed, plus accrued but unpaid interest on such Amount.
(C) Mechanics of Redemption. In the event the Company
shall be required to redeem any part or all of the Outstanding Principal Amount
of the Debentures, the Company shall send by either overnight courier or 2-day
courier (with a copy sent by facsimile) notice of such determination to the
record Holders of the Debentures being redeemed (the "Redemption Debentures").
If the Company shall be required so to redeem less then the Outstanding
Principal Amount of all Debentures, such redemption shall be made from each
Holder, pro rata according to the portion of the total Outstanding Principal
Amount of all Debentures then held by each Holder. The notice shall provide
that the redemption shall occur on a date (the "Redemption Date") that is no
later than 5 business days after the date such notice was sent by confirmed
facsimile to such record Holders. On the Redemption Date the Redemption
Debentures shall be redeemed automatically without any further action by the
Holders of such Debentures and whether or not the Debentures are surrendered to
the Company; provided, that the Company shall be obligated to pay the cash
consideration due to a Holder of such Debentures upon redemption when such
Debentures are either delivered to the principal office of the Company or the
Holder notifies the Company that such Debentures have been lost, stolen or
destroyed and executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection with such
Debenture. Thereupon, there shall be promptly issued and delivered to such
Holder, within three business days after the Redemption Date and delivery to
the Company of such Debentures, or after receipt of such agreement and
indemnification, at the address of such Holder on the books of the Company,
payment in immediately available funds to the name as shown on such surrendered
Debenture in the amount of the redemption price as calculated as set forth in
Paragraph 6(b).
7. Stock Splits: Dividends, Adjustments, Reorganizations.
(a) Stock Splits and Combinations. The Company shall not
effect or fix a record date for any stock split, subdivision or combination
with an effective date within five (5) trading days of a Redemption Date, the
giving of a Conversion or Forced Conversion Notice, or the effective date of a
Paragraph 4 Transaction.
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(b) Certain Dividends and Distribution. The Company
shall not make, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, with an effective date within five (5)
trading days of a Redemption Date, the giving of a Conversion or Forced
Conversion Notice, or the effective date of a Paragraph 4 Transaction.
(C) Adjustment for Other Dividends and Distributions. In
the event the Company at any time or from time to time after the Closing Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock (including, without limitation,
rights to acquire Common Stock or such other securities), then and in each such
event provision shall be made so that the Holders of Debentures shall receive
upon conversion thereof pursuant to Paragraph 5 hereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of such other
securities of the Company to which a Holder on the relevant record or payment
date, as applicable, of the number of shares of Common Stock so receivable upon
conversion would have been entitled, plus any dividends or other distributions
which would have been received with respect to such securities had such Holder
thereafter, during the period from the date of such event to and including the
Holder Conversion Date, retained such securities, subject to all other
adjustments called for during such period under this Paragraph 7 with respect
to the rights of the Holders of the Debentures. For purposes of this Paragraph
7(c), the number of shares of Common Stock so receivable upon conversion by the
Holder shall be deemed to be that number which the Holder would have received
upon conversion of the entire Outstanding Principal Amount hereof if the Holder
Conversion Date had been the day preceding the date upon which the Company
announced the making of such dividend or other distribution.
(d) Adjustment for Reclassification, Exchange and
Substitution. In the event that at any time or from time to time after the
Closing Date, the Common Stock issuable upon the conversion of the Debentures
is changed into the same or a different number of shares of any class or
classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or
reorganization provided for elsewhere in this Paragraph 7 or a merger or
consolidation, provided for in Paragraph 4), then and in each such event each
Holder of Debentures shall have the right thereafter to convert such Debenture
into the kind of stock receivable upon such recapitalization, reclassification
or other change by holders of shares of Common Stock all subject to further
adjustment as provided herein. In such event, the formulae set forth herein
for conversion and redemption shall be equitably adjusted to reflect such
change in number of shares or, if shares of a new class of stock are issued, to
reflect the market price of the class or classes of stock (applying the same
factors used in determining the Market Price for Shares of Common Stock) issued
in connection with the above described transaction.
(e) Reorganizations. If at any time or from time to time
after the Closing Date there is a capital reorganization of the Common Stock
(other than a recapitalization, subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Paragraph 7) then, as a part
of such reorganization, provision shall be made so that the Holders of the
Debentures shall thereafter be entitled to receive upon conversion of the
Debentures the number of shares of stock or other securities or property to
which a holder of the number of shares of
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Common Stock deliverable upon conversion would have been entitled on such
capital reorganization. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Paragraph 7 with respect to the
rights of the Holders of the Debentures after the reorganization to the end
that the provisions of this Paragraph 7 shall be applicable after that event
and be as nearly equivalent as may be practicable, including, by way of
illustration and not limitation, by equitably adjusting the formulae set forth
herein for conversion and redemption to reflect the market price of the
securities or property (applying the same factors used in determining the
Market Price for Shares of Common Stock) issued in connection with the above
described transaction.
(f) Conversion Price Adjustment. In the event that the
Company issues or sells any Common Stock or securities which are convertible
into or exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of its Common Stock or any such convertible securities (other than
issuance of the Warrants and shares of Common Stock pursuant to the exercise
thereof, shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the Closing Date and listed in the
Exchange Act Reports but including, without limitation, any such issuance in a
Paragraph 4 Transaction or other Acquisition) at an effective purchase price
(or for consideration in a Paragraph 4 Transaction, Acquisition or other
transaction) per Common Share which is less than the Conversion Date Market
Price then in effect or the then Market Price For Common Shares, in each such
case each of the X percentages under the definition Conversion Date Market
Price in effect under the Debentures immediately prior to such issue or sale
shall be reduced effective concurrently with such issue or sale to percentages
determined by multiplying each such percentage then in effect by a fraction,
(x) the numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue, including, without
duplication, those deemed to have been issued under any provision of the
Debentures plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Market Price For Common Shares or Conversion Date Market Price, as the
case may be, then in effect; and (y) the denominator of which shall be the
number of shares of Common Stock of the Company outstanding immediately after
such issue or sale including, without duplication those deemed to have been
issued under any provision of the Debentures. For purposes of the foregoing ,
the amount of consideration received by the Company for any such issuance or
sale, other than Cash, shall be the fair market value thereof as determined by
the Company's Board of Directors , or at the option of the Holder of Debentures
evidencing 50% or more of the principal indebtedness then evidenced thereby, by
an investment banker or other appraiser selected by such Holders and reasonably
acceptable to the Company.
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In the event of any such issuance for a consideration
which is less than the Market Price For Common Shares and also less than the
Conversion Price Market Date then in effect, then there shall be only one such
adjustment to each such X percentage by reason of such issuance, such
adjustment to be that which results in the greatest reduction of each X
percentage computed as aforesaid.
(g) In the event of a reasonable, good faith dispute
between a Holder of Debentures and the Company with respect to the adjustment
required by Paragraph 7(d), 7(e) or 7(f) then, at the option of either the
Holder or the Company, the dispute shall be submitted to the American
Arbitration Association for resolution according to the then applicable rules
thereof. The cost of such proceeding shall be shared 50% by the Holder or
Holders involved in the dispute and 50% by the Company, except that each party
shall bear its own legal and other expenses.
8. Fractional Shares. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable upon any
conversion shall be rounded up or down to the nearest whole share.
9. Reservation of Stock Issuable Upon Conversion.
(a) Reservation Requirement. The Company has reserved
and the Company shall continue to reserve and keep available at all times, free
of preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of its Common Stock upon
conversion of the Debentures or upon exercise of Warrants; provided, however,
that the number of shares so reserved shall at all times be at least 3,943,003
shares, of which _________ shares shall be so reserved, first, for issuance
upon the exercise of any Warrants issued hereunder and any Warrants issued in
connection with the August 7, 1996, Debentures, the August 29, 1996 Debentures
and the September 13, 1996 Debentures second, for issuance upon the conversion
of these Debentures, the August 7, 1996 Debentures, the August 29, 1996
Debentures and the September 13, 1996 Debentures, if and to the extent none or
less than all of the Warrants are so issued or, if issued, expire without
exercise. The number of shares so reserved may be reduced by the number of
shares actually delivered pursuant to conversion of Debentures and exercise of
Warrants (provided that, in no event shall the number of shares so reserved be
less than the maximum number required to satisfy remaining conversion rights on
the unconverted Debentures and remaining exercise rights under any Warrants
issued hereunder) and the number of shares so reserved shall be increased or
decreased proportionally to reflect stock splits, stock dividends,
distributions or subdivisions or combinations of the Company's Common Stock.
(b) Conversion Deficiency. If the Company does not have
a sufficient number of shares of Common Stock available to satisfy the
Company's obligations to a Holder of Debentures upon receipt of a Conversion
Notice, Forced Conversion Notice or automatic conversion on the Maturity Date
or if one or more Debentures cannot be fully converted pursuant to Paragraphs
5(a)(I), (ii) or (iii) by reason of the limitation provided in Section 5(d) (in
either case, a "Conversion Deficiency"), from and after the fifth (5th) day
following a Conversion Deficiency (which for all purposes shall be deemed to
have occurred upon the Company's receipt
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of the applicable Conversion Notice), each Holder of the Debentures shall have
the right to demand from the Company immediate redemption of any portion of the
Debentures with respect to which the Company does not have a sufficient number
of shares available so to satisfy such obligations of the Company or with
respect to which conversion is limited by Paragraph 5(d), as the case may be,
in either case in cash at a redemption price per Debenture equal to the dollar
amount which is the product of (x) the Conversion Rate then applicable to the
Debentures so to be redeemed pursuant to this Paragraph 9(b) and (y) the Market
Price for Shares of Common Stock on the Exchange of the Company's Common Stock
on the date on which the Conversion Notice or Forced Conversion Notice was
delivered or the Maturity Date (in the case of an automatic conversion) occurs;
provided however, that no notice of redemption may be delivered by a Holder
subsequent to receipt by such Holder of notice from the Company (sent by
overnight or 2-day courier with a copy sent by facsimile) of availability of
sufficient shares of Common Stock (within the limitation of Paragraph 5(d)) to
perfect conversion (a "Post Deficiency Conversion") of all the Debentures;
provided further that such right shall be reinstated if the Company shall
thereafter fail to perfect such Post-Deficiency Conversion by delivery of
Common Stock certificates in accordance with the applicable provisions of
Paragraph 5(b) hereof and, to the extent not so converted, payment of all
accrued and unpaid interest in cash with respect thereto within five business
days of delivery of the notice of Post-Deficiency Conversion. In addition to
the foregoing, upon a Conversion Deficiency, the rate of interest on all of the
Debentures shall, to the maximum extent permitted by applicable law, be
increased by two percent (2%) (i.e. from 5% to 7%) commencing on the first day
of the thirty (30) day periods (or part thereof) following a Conversion
Deficiency, an additional three percent (3%) commencing on the first day of
each of the second and third such thirty (30) day period (or part thereof), and
an additional one percent (1%) on the first day of each consecutive thirty (30)
day period (or part thereof) thereafter until such securities have been duly
converted or redeemed as herein provided. Any such interest which is not paid
when due shall, to the maximum extent permitted by law, accrue interest until
paid at the rate from time to time applicable to interest on the Debentures as
to which the Conversion Deficiency has occurred.
10. No Impairing. The Company shall not intentionally take any
action which would impair the contractual rights and privileges of the
Debentures set forth herein or of the Holders thereof.
11. Holders' Rights if Shares are Delisted or if Trading in Common
Stock is Suspended. In the event that at anytime on or after the date hereof
and prior to the third anniversary of the Closing Date, trading in the shares
of the Company's Common Stock is suspended on the Exchange for such shares for
a period of five consecutive trading days, other than as a result of the
suspension of trading in securities in general, or if such Shares are delisted
and not relisted within ten (10) days thereafter, then, at a Holder's option,
the Company shall redeem such Holder's Debentures at a Redemption Date
designated by such Holder, and at the redemption price provided in Paragraph
6(b)(I) or Paragraph 9(b), whichever is greater.
12. Limitations on Holder's Right to Convert and on Forced
Conversion. Notwithstanding anything to the contrary contained herein, each
Conversion Notice shall contain a representation that, and a Forced Conversion
shall not require a Holder to convert any part of this Debenture in excess of
the portion then convertible into that number of shares of the
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Company's Common Stock specified in the Holder's representation to the Company
that, after giving effect to the shares of the Company's Common Stock to be
issued pursuant to such Conversion Notice or in such Forced Conversion, the
total number of shares of the Company's Common Stock deemed beneficially owned
by the Holder, together with all shares of the Company's Common Stock deemed
beneficially owned by the Holder's "affiliates" as defined in Rule 144 of the
Act, will not exceed 4.9% of the total issued and outstanding shares of the
Company's Common Stock.
13. Rights of First Refusal. The Holders shall have a right of
first refusal pro rata according to the Holders' ownership of Debentures on the
date on which the Company's notice pursuant to this Paragraph 13 is given on
any Equity Offerings for a period of one (1) year from the date hereof, so long
as the Holders still hold any Debentures and provided such Equity Offerings are
made pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended, including without limitation Regulations D
and S thereunder. The Company shall give the Holders written notice of its
proposal to make such an Equity Offering and shall provide with such notice
copies of the documentation, with the economic terms of the transaction
specified, pursuant to which the Equity Offering is to be effected. Such
Holders shall have ten (10) business days from receipt of such notice to
deliver a written notice to the Company that such Holders wish to exercise
their right of first refusal with respect to the entire Equity Offering or a
part thereof. Failure by such Holders to respond within such period shall be
deemed an irrevocable waiver of their right of first refusal with respect to
such Equity Offering, provided that such offering is completed upon such terms
and with such documentation within thirty (30) calendar days after said ten
(10) day period. If such Holders exercise their right of first refusal with
respect to any Equity Offering, they must close the transactions contemplated
by the proposed issuance within ten (10) business days of the exercise of their
right hereunder on the same economic terms and using the same documentation
provided in the Company's notice to the Holders. If the Holders fail to close
the transaction for any reason other than a breach by the Company of its
obligations hereunder, such Holders' right of first refusal shall irrevocably
terminate with respect to such Equity Offering.
14. Obligations Absolute. No provision of this Debenture, other
than conversion as provided herein, 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 manner,
herein prescribed.
15. Waivers of Demand, Etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of all
sums owing and to be owing hereon, regardless of and without any notice (except
as required by law), diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
16. Replacement Debentures. In the event that any Holder notifies
the Company that its Debenture(s) have been lost, stolen or destroyed,
replacement Debenture(s) identical in all respects to the original Debenture(s)
(except for registration number and Outstanding Principal
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Amount, if different than that shown on the original Debenture(s)) shall be
issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such Debenture(s).
17. Payment of Expenses. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Subscription Agreement or the Registration
Rights Agreement dated August 29, 1996, among the Company and Holders of
Debentures; provided however, that if a court of competent jurisdiction shall
enter a final judgment, with no further right of appeal therefrom, to the
effect that the Holder is not entitled to have such debts and expenses of
enforcement paid by the Company, the Company shall have no further obligation
hereunder and shall be entitled to be reimbursed for any such debts and
expenses theretofore paid by it pursuant to this Paragraph 17.
18. Defaults. If one or more of the following described "Events
of Default" shall occur:
(a) The Company shall default in the
payment of (I) interest on this Debenture, and such
default shall continue for five (5) business days
after the due date thereof, or (ii) the principal of
this Debenture; or
(b) Any of the representations or
warranties made by the Company herein, in the
Subscription Agreement, or in any certificate or
financial or other written statements of the Company
heretofore or hereafter furnished by or on behalf of
the Company in connection with the execution and
delivery of this Debenture or the Subscription
Agreement shall be false or (when taken together with
other information furnished by or on behalf of the
Company, including Exchange Act Reports) misleading
in any material respect at the time made; or
(C) The Company shall fail to perform or
observe any covenant or agreement in the Subscription
Agreement, or any other covenant, term, provision,
condition, agreement or obligation of the Company
under this Debenture and such failure shall continue
uncured for a period of ten (10) business days after
notice from the Holder of such failure; or
(d) The Company shall (1) become
insolvent; (2) admit in writing its inability to pay
its debts generally as they mature; (3) make a
general assignment for the benefit of creditors or
commence proceedings for its dissolution; or (4)
apply for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial
part of its property or business; or
(e) A trustee, liquidator or receiver
shall be appointed for the Company or for a
substantial part of its property or business without
its
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consent and shall not be discharged within forty-five
(45) days after such appointment; or
(f) 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 forty-five (45) days thereafter, or
(g) Any money judgment, writ or warrant
of attachment, or similar process in excess of Five
Hundred Thousand Dollars ($500,000) 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 and unstayed for a period
of forty-five (45) days or in any event later than
ten (10) days prior to the date of any proposed sale
thereunder; or
(h) Bankruptcy, reorganization,
insolvency or liquidation proceedings or other
proceedings, or relief under any bankruptcy law or
any law for the relief of debt shall be instituted by
or against the Company and, if instituted against the
Company, shall not be dismissed within forty-five
(45) 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 to any
material allegations of, or default in answering a
petition filed in, any such proceeding;
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, by notice to
the Company declare the Debenture immediately due and payable, and the Holder
may immediately, and without expiration of any period of grace, enforce any and
all of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, the Debenture shall be redeemed at a
redemption price per Debenture equal to the redemption price provided in
Paragraph 6(b).
19. Savings Clause. In case any provision of this Debenture is
held by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
20. Entire Agreement. This Debenture and the agreements referred
to in this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and a
majority-in-interest of the Holders.
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21. Assignment, Etc. The Holder may, subject to compliance with
the Subscription Agreement, without notice, transfer or assign this Debenture
or any interest herein and may mortgage, encumber or transfer any of its rights
or interest in and to this Debenture or any part hereof and, without
limitation, each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to transfer or assign its
interest; provided, however, that before the Registration Statement
contemplated by the Registration Rights Agreement becomes effective, (I) each
such assignee, transferee and mortgagee shall be a sophisticated investor as
contemplated by Section 2.3 of the Subscription Agreement and each such
assignment, transfer, mortgagee or other encumbrance shall comply with
Regulation D under the Securities Act as though such transaction has been a
part of the original offer and sale of the Debentures by the Company and
Regulation D was applicable thereto, or (ii) the holder will furnish the
Company with an opinion of counsel to the effect that such assignment,
transfer, mortgage or other encumbrance is otherwise exempt from the
registration requirements under the Securities Act. Each such assignee,
transferee and mortgagee shall have all of the rights and obligations of the
Holder under this Debenture. The Company agrees that, subject to compliance
with the Subscription Agreement, after receipt by the Company of written notice
of assignment from the Holder or from the Holders' assignee, all principal,
interest, and other amounts which are then due and thereafter become due under
this Debenture shall be paid to such assignee at the place of payment
designated in such notice. This Debenture shall be binding upon the Company
and its successors and shall inure to the benefit of the Holder and its
successors and assigns.
22. No Waiver. No failure on the part of the Holder to exercise,
and no delay in exercising any right, remedy or power hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise by the Holder of
any right, remedy or power hereunder preclude any other or future exercise of
any other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
23. Miscellaneous. Unless otherwise provided herein, any notice
or other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered or mailed to said party by certified mail,
return receipt requested, at its address set forth herein or such other address
as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered personally
or, if sent by mail or facsimile, then when actually received by the party to
whom it is addressed. Whenever the sense of this Debenture requires, words in
the singular shall be deemed to include the plural and words in the plural
shall be deemed to include the singular. If more than one Company is named
herein, the liability of each shall be joint and several. Paragraph headings
are for convenience only and shall not affect the meaning of this document.
24. Choice of Law and Venue: Waiver of Jury Trial. THIS
DEBENTURE SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Company hereby
agrees that all actions or proceedings arising directly or indirectly from or
in connection with this Debenture shall, at the Holder's sole option, be
litigated only in the United States District Court for the Southern District of
New York located in New York County, New York. The Company consents to the
jurisdiction and venue of the foregoing courts and consents
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that any process or notice of motion or other application to either of said
courts or a judge thereof may be served inside or outside the State of New York
or the Southern District of New York by registered mail, return receipt
requested, directed to the Company at its address set forth in this Debenture
(and service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as may
be permissible under the rules of said courts.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: As of _________________
MRV COMMUNICATIONS, INC.
By:____________________________
Print Name:____________________
Print Title:___________________
Print Address:_________________
ATTEST
_____________________________
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