Page 14 of 67 Pages
EXHIBIT I
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
ASSIGNED OR OTHERWISE TRANSFERRED OR DISPOSED EXCEPT IN COMPLIANCE WITH SUCH ACT
AND THE APPLICABLE RULES AND REGULATIONS THEREUNDER.
US $2,000,000 New York, New York
January 26, 1998
T/F PURIFINER, INC.
12% SENIOR SUBORDINATED CONVERTIBLE NOTE DUE 2003
T/F Purifiner, Inc., a Delaware corporation (the "Issuer"),
for value received hereby promises to pay to Quantum Industrial Partners LDC or
registered assigns (the "Holder") the principal amount of TWO MILLION DOLLARS
($2,000,000) plus any accrued and unpaid interest at such place or such bank
account in the United States of America as the Holder may from time to time
direct on January 1, 2003 in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
This Security is issued pursuant to a Note Exchange
Agreement dated as of January 26, 1998 by and between the Issuer and the Holder
(the "Exchange Agreement"). This Security is transferable and assignable at any
time, in whole or in part, to one or more purchasers or other persons. The
Issuer agrees to issue from time to time replacement Securities in the form
hereof to facilitate such transfers and assignments. In addition, after delivery
of an indemnity in form and substance satisfactory to the Issuer, the Issuer
also agrees to issue replacement Securities for the Security which have been
lost, stolen, mutilated or destroyed.
The Issuer shall keep at its principal office a register
(the "Register") in which shall be entered the names and addresses of the
registered holder(s) of the Security and particulars of all transfers of the
Security. The ownership of the Security shall be proven by the Register. For the
purpose of paying interest and principal on the Security, the Issuer shall be
entitled to rely on the name(s) and address(es) in the Register and
notwithstanding anything to the contrary contained in this Security, no Event of
Default (as defined below) shall occur under Section 6 if payment of principal
is made in accordance with the names and addresses and particulars contained in
the Register.
No provision of this Security shall alter or impair the
obligations of the Issuer, which are absolute and unconditional, to pay the
principal of and interest on this Security at the place, times, rate, and in the
currency, herein prescribed.
Page 15 of 67 Pages
1. Principal and Interest
----------------------
The principal of this Security shall bear interest at the
rate of 12% per annum (the "Interest Rate") which shall accrue from the most
--------------
recent Interest Payment Date to which interest has been paid on this Security,
or if no interest has been paid on this Security from December 19, 1997 until
payment in full of the principal amount has been made and be payable in cash
quarterly on April 1, July 1, October 1 and January 1 of each year (an "Interest
--------
Payment Date"), commencing on April 1, 1998, to the Holder hereof until the
-------------
principal amount is paid or made available for payment. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment will be paid
to the Holder of the Security at the close of business on the Record Date for
the interest payable on such Interest Payment Date. The "Record Date" for any
-----------
interest payment is the close of business on March 15, June 15, September 15 or
December 15, as the case may be, whether or not a Business Day, immediately
preceding the Interest Payment Date on which such Interest is payable; provided,
---------
however, that at the option of the Company, on any Interest Payment Date,
-------
interest may, in lieu of being paid in cash, accrue and be added to the
principal balance of this Security. "Business Day" means any day except a
-------------
Saturday, Sunday or other day on which commercial banks in the City of New York
are authorized by law to close.
Any amounts that have become due and payable hereunder and
remain unpaid by the Issuer shall accrue interest thereafter until payment in
full of such amount at the rate of fifteen percent (15%) (the "Default Rate")
-------------
per annum and shall be payable upon demand by the Holder.
Interest, whether at the Interest Rate or the Default Rate,
will be computed on the basis of a fraction, the denominator of which is 360 and
the numerator of which is the actual number of days elapsed from the date such
interest becomes due and payable.
Each of the Interest Rate and the Default Rate shall be
effective both before and after any judgment may be rendered in a court of
competent jurisdiction, provided, however, that if either the Interest Rate or
Default Rate is deemed to be in excess of the amount permitted to be charged by
the Issuer under applicable laws, the Holder shall be entitled to collect an
Interest Rate or Default Rate, as the case may be, only at the highest rate
permitted by law, and any interest collected by the Holder in excess of such
lawful amount shall be deemed a payment in reduction of the Principal Amount
then outstanding under this Security and shall be so applied.
2. Subordination
-------------
The payment obligations evidenced by this Security shall be
subordinate to any indebtedness of the Issuer for cash advanced by any bank or
other financial institution ("Bank Debt") but shall rank senior to all other
----------
indebtedness of the Issuer. The Issuer shall not issue, directly or indirectly,
any indebtedness which is senior to the indebtedness evidenced by this Security
unless such indebtedness is Bank Debt.
3. Redemption
----------
A. Optional Redemption. This Security will be redeemable
at the option of the Issuer at any time, in whole or in part, upon not less than
thirty (30) nor more than sixty (60) days' notice, at 100% principal amount
thereof, plus accrued and unpaid interest.
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Page 16 of 67 Pages
At least thirty (30) days but not more than sixty (60) days
before a redemption date, the Issuer shall send a notice of redemption,
first-class mail, postage prepaid, facsimile with answer back and courier to
follow to the Holder(s) of this Security to be redeemed at the address(es) of
the Holder as they appear in the Register.
If this Security is redeemed subsequent to a Record Date
with respect to any Interest Payment Date specified above and on or prior to
such Interest Payment Date, then any accrued interest will be paid on such
Interest Payment Date to the Holder of the Security on such Record Date.
B. Mandatory Redemption. The Security will be redeemable
at the option of the Holder(s) in whole or in part at any time on or after the
earlier of (i) January 1, 2001 and (ii) the date on which the Issuer raises cash
proceeds aggregating at least $10 million from any transaction or series of
transactions involving the sale of debt, equity or assets (a "Put Date") upon
not less than five (5) business days written notice to the Issuer at 100%
principal amount thereof, plus accrued and unpaid interest. The Issuer covenants
and agrees that it will immediately (but in any event within one (1) Business
Day) advise the Holder of the occurrence of any Put Date described in clause
(ii) above.
4. Affirmative Covenants of Issuer
-------------------------------
X. Xxxxxx and Inspections. The Issuer will permit the
Holder, upon reasonable notice, to (i) visit and inspect the properties of the
Issuer during business hours, (ii) inspect and make extracts from and copies of
its books and records, and (iii) discuss with and obtain information from its
principal officers, its business, assets, liabilities, financial position,
results of operations and business prospects. The Issuer will also permit the
Holder to discuss with its respective auditors its businesses, assets,
liabilities, financial positions, results of operations and business prospects.
B. Reporting. The Issuer will make available or cause to be
made available to each Holder as soon as practicable (except to the extent such
Holder specifically requests otherwise):
(i) all annual, quarterly and periodic reports prescribed
by Sections 13, 14 and 15(d) of the Exchange Act
(whether or not the Issuer is subject to such
requirements);
(ii) all reports furnished to the Issuer's board members and
securityholders;
(iii)any reports (including management reports) submitted
to the Issuer by the Issuer's independent public
accountants;
(iv) a copy of the annual budget for the Issuer (in no event
later than 60 days after the commencement of each
fiscal year) and any material amendment thereto;
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Page 17 of 67 Pages
(v) notice of the commencement of and progress of any
material proceedings or investigations by or before any
governmental body, court or arbitrator against, or to
the extent known to the Issuer, in any other way
relating adversely to the Issuer;
(vi) notice of any material adverse change with respect to
the business, financial position, results of operations
or prospects of the Issuer;
(vii)notice and details of any default or the occurrence or
non-occurrence of any event which constitutes, or which
with the passage of time or giving of notice or both
would constitute a default by the Issuer under any
material agreement other than this Agreement to which
the Issuer is party or by which any of its properties
may be bound;
(viii) such other information or reports relating to the
Issuer as the Holder may reasonably request.
C. Reservation and Issuance of Common Stock. The Issuer
covenants that it will at all times reserve and keep available out of its
authorized shares of Common Stock par value $.001 per share (the "Common
------
Stock"), free from preemptive rights, solely for the purpose of issue upon
-----
conversion of the Securities as herein provided, such number of shares of the as
shall then be issuable upon the conversion of all outstanding shares of the
Securities into Common Stock. The Issuer covenants that all shares of Common
Stock which shall be so issuable shall, when issued, be duly and validly issued
and fully paid and non-assessable.
D. Compliance With Governmental Requirements. The Issuer
covenants that if any shares of Common Stock required to be reserved for
purposes of conversion of Securities hereunder require registration with or
approval of any governmental authority under any Federal or State law, or any
national securities exchange, before such shares may be issued upon conversion,
the Issuer will use its best efforts to cause such shares to be duly registered
or approved, as the case may be.
E. Notification of Certain Matters. The Issuer shall
notify the Holders promptly (and in any event no later than 10 days prior to any
applicable record date) of any proposal for the authorization or issuance of
rights or other distributions to securityholders, any subdivision, combination
or reclassification affecting the capital stock, any merger or consolidation
affecting the Issuer, the voluntary or involuntary dissolution, liquidation or
winding-up of the Issuer or any sale or transfer of any significant portion of
the Issuer's assets.
5. Negative Covenants
------------------
A. Restricted Payments. Without the written consent of a
majority of holders of an aggregate principal amount of the Securities
outstanding (the "Majority Holders"), the Issuer will not make to any Person (i)
----------------
any dividend or other payment or distribution on any capital stock of the
Issuer; (ii) any payment on account of the purchase, redemption, retirement or
other acquisition of any shares of the Issuer's capital stock any option,
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Page 18 of 67 Pages
warrant or other right to acquire shares of the Issuer's capital stock, or (iii)
any defeasance, redemption, repurchase or other acquisition or retirement for
value prior to scheduled maturity of any indebtedness ranked pari passu or
---- -----
subordinate in right of payment to the Securities and having a maturity date
subsequent to the maturity of the Securities. "Person" means an individual,
------
corporation, limited liability company, partnership, association, trust or other
entity or organizations, including a government or political subdivision or an
agency or instrumentality thereof.
B. Transactions with Affiliates. Without the written
consent of the Majority Holders, the Issuer shall not conduct any business or
enter into any transactions or series of similar transactions with an Affiliate
of the Issuer or any legal or beneficial owner of 5% or more of any class of
capital stock of the Issuer with an Affiliate of such owner unless the terms of
such business transaction or series of transactions are set forth in writing and
as favorable to the Issuer as terms that would be obtainable at the time for a
comparable transaction or series of similar transactions in arm's length
dealings with an unrelated third person. For purposes of this paragraph B,
Quantum Industrial Partners LDC shall not be deemed to be and Affiliate.
Notwithstanding the foregoing, the Issuer shall not make, or cause any other
party to make, any loans to any shareholders of the Company. The Company further
agrees that it will not enter into any transaction with any Affiliate or any
legal or beneficial owner of 5% or more of any class of capital stock of the
Company or an Affiliate or family member of such person unless the terms of such
transaction have been presented to and approved by the Board of Directors of the
Issuer. "Affiliate" of any Person means any other Person directly or indirectly
---------
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
----------- ----------
foregoing.
C. Amendment to Certain Documents. The Issuer shall not
enter into any amendment of, or agree to or accept or consent to any waiver of
any of the material provisions of its certificate of incorporation (including
any certificate of designation) or By-laws.
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Page 19 of 67 Pages
6. Default
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The occurrence of any of the following events or conditions
shall constitute an event of default (each an "Event of Default") with respect
----------------
to the Issuer of this Security:
(a) Any amounts due under this Security are not paid on the
day after the due date therefore.
(b) The Issuer or any subsidiary of the Issuer (i) shall
commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets,
or Issuer shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against Issuer any
case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of ninety (90)
days.
(c) The Issuer shall fail to perform any agreement or
covenant on its part contained herein or in the Exchange
Agreement.
(d) Any default by the Issuer or any subsidiary with
respect to any indebtedness (whether existing or hereinafter
created) which would permit the holder thereof to declare such
indebtedness to be due and payable prior to its stated maturity.
Upon the occurrence and during the continuance of an Event
of Default, the Holder will have the option, upon notice to the Issuer, of
declaring the principal amount hereunder together with unpaid accrued interest
thereon to be immediately due and payable.
The Issuer agrees to pay on demand all of the Holder's costs
and expenses, including without limitation reasonable attorneys' fees, in
connection with the collection of any sums due the Holder, the enforcement or
protection of its rights hereunder, any amendment to this Security or any waiver
hereunder or under the Exchange Agreement.
No failure on the part of the Holder or other holders hereof
to exercise any right or remedy hereunder, whether before or after the happening
of a default shall constitute a waiver thereof, and no waiver of any past
default shall constitute waiver of any future default or of any acceptance of a
past due installment, or indulgence granted from time to time shall be construed
to be a waiver of the right to insist upon prompt payment thereafter or to
impose late charges retroactively or prospectively, or shall be deemed to be a
novation of this Security or as a reinstatement of the debt evidenced hereby or
as a waiver of such right or acceleration or any other right, or be construed so
as to preclude the exercise of any right which the Holder may have, whether by
the laws of the State of New York, by agreement or otherwise; and the Issuer
hereby expressly waives the benefit of any statute or rule of law or equity
which would produce a result contrary to or in conflict with the foregoing.
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Page 20 of 67 Pages
7. Conversion
----------
Subject to and upon compliance with the provisions of this
Section, the principal amount of this Security, or any portion thereof may, at
any time and at or before the close of business on January 1, 2003, or
thereafter if any Event of Default shall occur and be continuing, be converted
into duly authorized, validly issued, fully-paid and nonassessable shares of
Common Stock at $2.75 per share (the "Conversion Price"), or, in case an
-----------------
adjustment in the Conversion Price and the securities or other property issuable
upon conversion has taken place pursuant to Section 8 hereof, then at the
applicable Conversion Price and in such securities or other property as so
adjusted, upon surrender of the Security or Securities, the principal amount of
which is so to be converted, to the Issuer at any time during usual business
hours at the Issuer's offices, accompanied by a written notice of election to
convert as provided in the form attached hereto and, if so required by the
Issuer, by a written instrument or instruments of transfer in form satisfactory
to the Issuer duly executed by the registered holder or his attorney duly
authorized in writing.
No payment or adjustment will be made for dividends on any
Common Stock except as provided in Section 8 hereof. On conversion of a
Security, that portion of any interest accrued and unpaid interest attributable
to the period from December 19, 1997 to the Conversion Date with respect to the
converted Security shall not be canceled, extinguished or forfeited, but rather
shall be deemed to be paid in full to the Holder thereof through delivery of the
Common Stock, in exchange for the Security being converted pursuant to the
provisions hereof. If the Holder converts more than one Security at the same
time, the number of shares of Common Stock issuable upon the conversion shall be
based on the total Principal Amount of the Securities converted.
As promptly as practicable after the surrender, as herein
provided, of any Security or securities for conversion, the Issuer shall deliver
or cause to be delivered at its said office or agency to or upon the written
order of the holder of the Security or securities so surrendered a certificate
or certificates representing the number of duly authorized, validly issued,
fully-paid and nonassessable shares of Common Stock, into which such Security or
Securities may be converted in accordance with the provisions of Section 7.
Prior to delivery of such certificate or certificates, the Issuer shall require
a written notice at its said office or agency from the Holder of the Security or
securities so surrendered stating that the holder irrevocably elects to convert
such Security or Securities, or, if less than the entire principal amount
thereof is to be converted, stating the portion thereof to be converted. Such
notice shall also state the name or names (with address and social security or
other taxpayer identification number) in which said certificate or certificates
are to be issued. Such conversion shall be deemed to have been made at the time
that such Security or Securities shall have been surrendered for conversion and
such notice shall have been received by the Issuer, the rights of the holder of
such Security or Securities as a Securityholder shall cease at such time, the
person or persons entitled to receive the shares of Common Stock, upon
conversion of such Security or Securities shall be treated for all purposes as
having become the record holder or holders of such shares of Common Stock at
such time and such conversion shall be at the Conversion Price in effect at such
time. In the case of any Security which is converted in part only, upon such
conversion, the Issuer shall execute and deliver to the holder thereof, as
requested by such holder, a new Security or securities of authorized
denominations in aggregate principal amount equal to the unconverted portion of
such Security.
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Page 21 of 67 Pages
8. Adjustment of Conversion Price
------------------------------
The Conversion Price in effect at any time shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(i) In case the Issuer shall at any time after the date
hereof (1) declare or pay a dividend in shares of Common Stock or
make a distribution of Common Stock, (2) subdivide its
outstanding shares of Common Stock, (3) combine its outstanding
shares of Common Stock into a smaller number of shares of Common
Stock or (4) issue any shares of its capital stock in a
reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger in
which the Issuer is the continuing entity), the number of shares
of Common Stock purchasable upon conversion immediately prior
thereto shall be adjusted so that the Holder of the Securities
shall be entitled to receive the number shares of Common Stock or
other securities of the Issuer which he would have owned or have
been entitled to receive after the happening of any of the events
described above, had conversion occurred immediately prior to the
happening of such event or any record date with respect thereto.
An adjustment made pursuant to this paragraph (i) shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(ii) In case the Issuer shall at any time after the date
hereof issue rights, options or warrants to all holders of its
outstanding Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share which is
lower at the record date mentioned below than the higher (A) of
the market price per share of the Common Stock (as defined in
Section (v) below) and (B) the Conversion Price, then the number
of shares of Common Stock thereafter purchasable upon conversion
shall be determined by multiplying the number of shares of Common
Stock theretofore purchasable upon conversion by a fraction, of
which the numerator shall be the number of shares of Common Stock
outstanding on the record date for determining stockholders
entitled to receive such rights, options or warrants plus the
number of additional shares of Common Stock offered for
subscription or purchase, and of which the denominator shall be
the number of shares of Common Stock outstanding on the record
date for determining stockholders entitled to receive such
rights, options or warrants plus the number of shares which the
aggregate offering price of the total number of shares of Common
Stock so offered would purchase at the current market price per
share of Common Stock at such record date. Such adjustment shall
be made whenever such rights, options or warrants are issued, and
shall become effective as of immediately after the record date
for the determination of stockholders entitled to receive such
rights, options or warrants.
(iii)In case the Issuer shall at any time after the date
hereof distribute to all holders of its shares of Common Stock
evidences of its indebtedness or assets (including securities and
cash dividends not paid out of funds legally available for the
payment of dividends under the laws of the jurisdiction of
incorporation of the Issuer or not made in the ordinary course of
8
Page 22 of 67 Pages
business), but excluding dividends or distributions referred to
in Section (i) above or rights or options or warrants referred to
in Section (ii) above, then in each case the number of shares of
Common Stock thereafter purchasable upon conversion shall be
determined by multiplying the number of shares of Common Stock
theretofore purchasable upon conversion by a fraction, of which
the numerator shall be then current market price per share of
Common Stock (as defined in Section (v) below) on the date of
such distribution, and of which the denominator shall be then
current market price per share of Common Stock, less then fair
value (as reasonably determined in good faith by the Board of
Directors of the Issuer, whose reasonable determination shall be
conclusive) of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights or
securities or warrants applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution
retroactive to the record date for the determination o
shareholders entitled to receive such distribution.
(iv) In case the Issuer shall at any time after the date
hereof issue shares of Common Stock, or rights, options, warrants
or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding (A)
shares, rights, options, warrants or convertible or exchangeable
securities issued in any of the transactions described in
Sections (i) through (iii) above and (B) 42,650 options
contemplated to be issued to G & S Technologies, Inc., as
described in Schedule 3.8 to the Exchange Agreement, a price per
share of Common Stock (as determined in accordance with Section
(v) below) that is lower than the higher of (A) the current
market value per share of Common Stock (as determined in
accordance with Section (v) below) on the date of such sale or
issuance or on the date of the agreement for such sale or
issuance (whichever is more) and (B) the Conversion Price, then
in each case the number of shares of Common Stock thereafter
purchasable upon conversion shall be increased by multiplying the
number of shares of Common Stock theretofore purchasable upon the
conversion by a fraction, the numerator of which shall be (I) the
total number of shares of Common Stock issuable in connection
with such sale and issuance, and the denominator of which shall
be (II) the number of shares of Common Stock that the aggregate
consideration received (determined as provided below) for such
sale or issuance would purchase at the higher of the prices
referred to in (A) and (B) above. Such adjustment shall be made
successively whenever such an issuance is made. For the purposes
of such adjustments, the shares of Common Stock that the holder
of such rights, options, warrants, or convertible or exchangeable
securities shall be entitled to subscribe for or purchase shall
be deemed to be issued and outstanding as of the date of such
sale and issuance and the consideration received by the Issuer
therefor shall be deemed to be the consideration received by the
Issuer, plus the consideration or premiums stated in such rights,
options, warrants or convertible or exchangeable securities to be
paid for the shares of Common Stock covered thereby. In case the
issuer shall sell and issue shares of Common Stock or rights,
options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase Common Stock,
for a consideration consisting, in whole or in part, of property
9
Page 23 of 67 Pages
other than cash or its equivalent, then in determining the "price
per share of Common Stock" and the "consideration received by the
Issuer" for purposes of the first sentence of this Section (iv),
the Board of Directors of the Issuer shall determine, on a
reasonable basis and in good faith, the fair value of such
property. In case the Issuer shall sell and issue rights,
options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of
Common Stock together with one or more other securities as part
of a unit at a price per unit, then in determining the "price per
share of Common Stock" and the consideration received by the
Issuer for purposes of the first sentence of this Section (iv),
the Board of Directors shall determine, on a reasonable basis and
in good faith, the fair value of the rights, options, warrants or
convertible or exchangeable securities then being sold as part of
such unit.
(v) For the purpose of any computation under sections (ii)
through (iv) above, the current market price per share of Common
Stock at any date shall be the average of the current market
value of Common Stock for the 20 consecutive trading days
commencing 30 trading days prior to such date; provided, that, if
-------- ----
the Common Stock is not then publicly traded, the current market
price per share shall be the average of the market value of the
Common Stock of the last 20 consecutive trading days prior to the
last day of trading; provided, however that such date is not
earlier than 180 days prior to the date as of which such price is
required to be determined, and otherwise such price shall be
determined by an opinion of a nationally recognized independent
investment bank selected by the mutual agreement of the Issuer
and the Holder. In the case of rights, options, warrants or
convertible or exchangeable securities, the price per share of
Common Stock shall be determined by dividing (x) the total amount
received or receivable by the Issuer in consideration of the sale
and issuance of such rights, options, warrants or convertible or
exchangeable securities, plus the total consideration payable to
the Issuer upon exercise or conversion or exchange thereof, by
(y) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable
securities.
(vi) No adjustment in the number of shares of Common Stock
convertible hereunder shall be required unless such adjustment
would result in an increase or decrease of at least one percent
(1%) of the number of shares of Common Stock for which shares of
the Securities are convertible; provided, that any adjustments
-------- ----
which by reason of this Section (vi) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. Whenever an adjustment shall be made pursuant to (i)
through (v) above, the Conversion Price shall be adjusted
accordingly. All calculations shall be made to the nearest
one-thousandth of a share.
(vii)No adjustment in the number of shares of Common Stock
received upon conversion need be made under Sections (ii) through
(iv) above if the Issuer issues or distributes to the Holder of
the Securities shares of Common Stock, the shares, rights,
options, warrants, or evidences of indebtedness or assets
10
Page 24 of 67 Pages
referred to in those Sections which such Xxxxxx would have been
entitled to receive had this conversion not occurred prior to the
happening of such event or the record date with respect thereto.
(viii) For the purpose of this Section 8, the term "shares
of Common Stock" shall mean (i) Common Stock of the Issuer, or
(ii) any other class of stock resulting from successive changes
or reclassifications of such shares consisting solely of changes
in par value, or from par value to no par value, or from no par
value to par value. In the event that at any time, as a result of
an adjustment made pursuant to clause (ii) above, the Holders
shall become entitled to receive any securities of the Issuer
other than shares of Common Stock, thereafter the number of such
other shares so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
shares of Common Stock contained in Section (i) through (iv)
above, and the other provisions of this Section 8 shall apply on
like terms to any such other securities.
(ix) Except as provided in Sections (i) through (iii) above,
no adjustment in respect of any dividends shall be made during
the term of the Securities or upon the conversion of the
Securities.
(x) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges with respect to which an
adjustment shall have been made pursuant to Section (ii) or (iv)
above, if any rights, options, warrants or conversion or exchange
privileges thereof have not been exercised, the number of shares
of Common Stock purchasable upon conversion will, upon such
expiration, be readjusted and will thereafter be such as it would
have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (i) the
only shares of Common Stock so issued were the shares of Common
Stock, if any, actually issued or sold upon the exercise of such
rights, options or warrants or conversion or exchange rights and
(ii) such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Issuer upon such
exercise, conversion or exchange plus the aggregate
consideration, if any actually received by the Issuer for the
issuance, sale or grant of all such rights, options or warrants,
whether or not exercised.
Whenever the number of shares purchasable upon conversion
shall be adjusted as required by the provisions of this Section 8, the Issuer
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officers'
certificate showing the adjusted number of shares determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment and the
manner of computing such adjustment. Each such officers' certificate shall be
signed by the chairman, president or chief financial officer of the Issuer and
by the secretary or any assistant secretary of the Issuer. Each such officers'
certificate shall be made available at all reasonable times for inspection by
any holder of shares of the Securities and the Issuer shall, forthwith after
each such adjustment, mail a copy, by first-class mail, of such certificate to
the each of the Holders.
11
Page 25 of 67 Pages
9. Reclassification, Reorganization, Consolidation or Merger
---------------------------------------------------------
In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the Issuer (other than a
subdivision or combination of the outstanding Common Stock and other than a
change in the par value of Common Stock) or in case of any consolidation or
merger of the Issuer with or into another corporation (other than a merger with
a subsidiary in which merger the Issuer is the continuing corporation and that
does not result in any reclassification, capital reorganization or other change
of outstanding shares of Common Stock of the class issuable upon conversion) or
in case of any sale, lease, transfer or conveyance to another corporation of the
property and assets of the Issuer as an entirety or substantially as an
entirety, the Issuer shall, as a condition precedent to such transaction, cause
effective provisions to be made so that the Holder shall have the right
thereafter, by converting such Xxxxxx's shares of the securities, to receive in
lieu of the receipt of shares of Common Stock the kind and amount of shares of
stock and other securities and property (including cash) receivable upon such
reclassification, capitalization, reorganization and other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that would have been received upon conversion immediately prior to
such reclassification, capitalization, reorganization, change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments in respect of such shares of stock and other securities and property
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Security. The foregoing provisions of this paragraph shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that in connection with any such
capitalization reorganization or reclassification, consolidation, merger, sale
or conveyance, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for, or of, a security
of the Issuer other than Common Stock, any such issue shall be treated as an
issue of Common Stock covered by the provisions of Paragraph (iv) of Section 8.
10. Miscellaneous
-------------
This Security shall be deemed to be a contract under the
laws of the State of New York, and for all purposes shall be construed in
accordance with the laws of said State, without regard to any conflict of law
provisions. The parties hereto, including all guarantors or endorsers, hereby
waive presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Security, except as specifically provided herein, and assent to extensions of
the time of payment, or forbearance or other indulgence without notice. The
Holder of this Security by acceptance of this Security agrees to be bound by the
provisions of this Security which are expressly binding on such Holder.
In determining whether the holders of the requisite
aggregate principal amount of Securities have concurred in any direction,
consent or waiver under this Security, Securities which are owned by the Issuer
or any other obligor on the Securities or by any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Issuer or any other obligor on the Securities shall be disregarded and deemed
not to be outstanding for the purpose of any such determination; provided that
--------
12
Page 26 of 67 Pages
any Securities owned by Quantum Industrial Partners LDC or any Affiliate thereof
shall be deemed outstanding for purposes of making such a determination.
The Issuer may not assign any of its rights or delegate any
of its obligations under this Security (or any part thereof) without the prior
written consent of the Holder.
The Issuer represents, warrants and covenants to Holder that
it shall use its last efforts to repay this Security in accordance with the
terms hereof.
The Section headings herein are for convenience only and
shall not affect the construction hereof.
13
Page 27 of 67 Pages
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed under its corporate seal.
T/F PURIFINER, INC.
[Seal]
By __________________________________
Name:
Title
Dated: ___________ __, 1998
Attest:
______________________________
14
Page 28 of 67 Pages
[FORM OF CONVERSION NOTICE]
12% Senior Subordinated Convertible Note due 2003
To: T/F Purifiner, Inc.
The undersigned owner of this Security hereby: (i)
irrevocably exercises the option to convert this Security, or the portion hereof
below designated, for shares of Common Stock, par value $.01 per share ("Common
------
Stock"), of T/F Purifiner, Inc. in accordance with the terms of this Security
-----
and (ii) directs that such shares of Common Stock deliverable upon the
conversion, together with any check in payment for fractional shares and any
Security(ies) representing any unconverted principal amount hereof, be issued
and delivered to the registered holder hereof unless a different name has been
indicated below. If shares are to be delivered registered in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto.
Dated: ___________________
Name: _______________________________________
_________________________________________________
Signature
Principal Amount to be Converted: (if less than
all)
$ ____________________________________________
Fill in for registration of shares if to be delivered, and
of Securities if to be issued, otherwise than to and in the name of the
registered holder.
_________________________________________________
Social Security or Other
Taxpayer Identification Number
_________________________________________________
(Name)
_________________________________________________
(Street Address)
_________________________________________________
(City, State and Zip Code)
15
