NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. 1 $2,000,000
PREMIER LASER SYSTEMS, INC.
6% SECURED CONVERTIBLE DEBENTURE
DUE MAY 17, 2002
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of Premier Laser Systems, Inc., a California corporation, having a
principal place of business at 0 Xxxxxx, Xxxxxx, Xxxxxxxxxx 00000 (the
"COMPANY"), designated as its 6% Secured Convertible Debentures, due May 17,
2002, in the aggregate principal amount of $4,000,000 (the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to [ ], or its
registered assigns (the "HOLDER"), the principal sum of Two Million Dollars
($2,000,000), on May 17, 2002 or such earlier date as the Debentures are
required or permitted to be repaid as provided hereunder (the "MATURITY DATE")
and to pay interest to the Holder on such principal sum at the rate of 6% per
annum, payable on a quarterly basis on March 31, June 30, September 30 and
December 31 of each year while such Debentures are outstanding (each an
"INTEREST PAYMENT DATE") and on each Conversion Date (as defined herein) for
such principal amount, commencing on the earlier to occur of a Conversion Date
for such principal amount and June 30, 1999, in cash or shares of Common Stock
(as defined in Section 7). Subject to the terms and conditions herein, the
decision whether to pay interest hereunder in Common Stock or cash shall be at
the discretion of the Company. Interest shall accrue daily commencing on the
Original Issue Date (as defined in Section 7) until payment in full of the
principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Any interest not paid on any
Interest Payment Date shall continue to accrue and shall be due and payable upon
conversion of the Debentures. Interest hereunder will be paid to the Person (as
defined in Section 7) in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of Debentures (the
"DEBENTURE REGISTER"). All overdue accrued and unpaid interest shall entail a
late fee at the rate of 15% per annum (to accrue daily, from the date such
interest is due hereunder through and including the date of payment), payable in
cash. Not less than ten (10) Trading Days (as defined in Section 7) prior to an
Interest Payment Date, the Company shall provide the Holder notice of its
intention to pay interest in cash or shares of Common Stock (the Company may
indicate in such notice that the election contained in such notice shall
continue for later periods until revised). If interest is paid in shares of
Common Stock, the number of shares of Common Stock issuable on account of such
interest shall equal the cash amount of such interest on such Interest Payment
Date or Conversion Date (as applicable) divided by the Conversion Price (as
defined below) on such date. Notwithstanding anything to contrary set forth
herein, for purposes of determining the number of shares of Common Stock that
are issuable as payment of interest hereunder, the Conversion Price shall not be
subject to any Floor to which the Conversion Price would otherwise be subject.
Notwithstanding anything to the contrary contained herein, the Company
may not issue shares of Common Stock in payment of interest on the principal
amount if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay interest hereunder in shares of
Common Stock;
(ii) after the Interest Effectiveness Date (as defined in
Section 7) such shares (x) are not registered for resale pursuant to an
effective Underlying Shares Registration Statement (as defined in
Section 7) and (y) may not be sold without volume restrictions pursuant
to Rule 144(k) promulgated under the Securities Act (as defined in
Section 7), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent in
the form and substance acceptable to the applicable Holder and such
transfer agent (if the Company is permitted and elects to pay interest
in shares of Common Stock under this clause (ii) prior to the Interest
Effectiveness Date and thereafter an Underlying Shares Registration
Statement shall be declared effective by the Commission (as defined in
Section 7), the Company shall, within three (3) Trading Days after the
date of such declaration of effectiveness, exchange such shares for
shares of Common Stock that are free of restrictive legends of any
kind);
(iii) such shares are not listed or quoted on the Nasdaq
National Market ("NASDAQ") or on the New York Stock Exchange, American
Stock Exchange or the Nasdaq SmallCap Market (each, a "SUBSEQUENT
MARKET");
(iv) the Company has failed to timely satisfy its conversion
obligations hereunder; or
(v) the issuance of such shares would result in a violation of
Section 4(a)(ii)(A).
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This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 7) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the Person (as defined in Section 7) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
SECTION 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) any default in the payment of the principal of, interest
on or liquidated damages in respect of, any Debentures, free of any
claim of subordination except in accordance with a subordination
agreement executed by the Holder, as and when the same shall become due
and payable (whether on the applicable Interest Payment Date, a
Conversion Date or the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of any of, any Debenture, the Purchase Agreement, the
Registration Rights Agreement (as defined in Section 7) or either of
the Security Agreements (as defined in Section 7), and such failure or
breach shall not have been remedied within 10 days after the date on
which notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries (for purposes of
this subsection (iii), "subsidiary" shall mean a subsidiary of the
Company representing 5% or more of the consolidated revenues of the
Company and its consolidated subsidiaries for the last fiscal year of
the Company prior to any of the events contemplated in this paragraph)
shall commence, or there shall be commenced against the Company or any
such subsidiary a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Company commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
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insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or any subsidiary
thereof or there is commenced against the Company or any subsidiary
thereof any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part
of its property which continues undischarged or unstayed for a period
of 60 days; or the Company or any subsidiary thereof makes a general
assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be unable to
pay, its debts generally as they become due; or the Company or any
subsidiary thereof shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or
the Company or any subsidiary thereof shall by any act or failure to
act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the
Company or any subsidiary thereof for the purpose of effecting any of
the foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness
for borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding one hundred
thousand dollars ($100,000), whether such indebtedness now exists or
shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
(v) the Common Stock shall be either delisted from the NASDAQ
or suspended from trading on the NASDAQ without resuming trading and/or
being relisted thereon or on a Subsequent Market or having such
suspension lifted for five (5) consecutive Trading Days or eight (8)
Trading Days in the aggregate (which need not be consecutive days);
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 7), shall agree to sell or dispose
all or in excess of 50% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction), or shall redeem or repurchase more than a de minimis
number of shares of Common Stock or other equity securities of the
Company (other than redemptions of Underlying Shares (as defined in
Section 7));
(vii) an Underlying Shares Registration Statement shall not
have been declared effective by the Commission on or prior to the 30th
day after the Effectiveness Date (as defined in the Registration Rights
Agreement);
-4-
(viii) if, during the Effectiveness Period, the effectiveness
of the Underlying Shares Registration Statement lapses for any reason
or the Holder shall not be permitted to resell Registrable Securities
under the Underlying Shares Registration Statement, in either case, for
more than five (5) consecutive Trading Days or an aggregate of eight
(8) Trading Days (which need not be consecutive days);
(ix) an Event (as hereinafter defined) shall not have been
cured to the satisfaction of the Holder prior to the expiration of
thirty (30) days from the Event Date (as defined below) relating
thereto (other than an Event resulting from a failure of an Underlying
Shares Registration Statement to be declared effective by the
Commission on or prior to the Effectiveness Date, which shall be
covered by Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the twelfth (12th) day after a
Conversion Date pursuant to and in accordance with Section 4(b) or the
Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests
for conversions of any Debentures in accordance with the terms hereof;
(xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In within seven (7) days after notice
is deemed delivered hereunder;
(xii) the Company shall issue in excess of an aggregate of
25,000 shares of Common Stock or shall issue Common Stock Equivalents
(as defined herein) entitling the holders thereof to acquire in excess
of an aggregate of 25,000 shares of Common Stock in connection with or
to any present or future lender or creditor of the Company or any
affiliate subsidiary thereof;
(xiii) except for (a) the issuance of up to 2,250,000 shares
of Common Stock in settlement of the litigation described in Schedule
2.1(g) to the Purchase Agreement and (b) the payment of up to an
aggregate of $250,000 in cash, the Company shall agree to pay or settle
any litigation or action for an amount in stock or cash that exceeds
the insurance coverage for such litigation or claim;
(xiv) the Company shall, without the consent of the Holders,
restructure any material portion of its present or future debt
obligations or payables (for purposes of this subsection, it is agreed
that solely extending the time for repayment of debt in any such
extensions whereby the aggregate annual rate of interest applicable to
such debt (inclusive of the consideration, if any, for such extension),
does not exceed the prime rate of interest then in effect as announced
by The Chase Manhattan Bank, N.A. plus 3% shall not constitute a
restructuring of debt); or
-5-
(xv) any of the Common Stock contemplated by clause (xiii) of
this Section 3 shall be registered under the Securities Act or have
registration rights (other than under Rule 144 promulgated under the
Securities Act).
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become, immediately
due and payable in cash. The aggregate amount payable upon an Event of Default
shall be equal to the sum of (i) the Mandatory Prepayment Amount (as defined in
Section 7) plus (ii) the product of (A) the number of Underlying Shares issued
in respect of conversions hereunder or as payment of interest hereunder, in
either case, within thirty (30) days of the date of a declaration of an Event of
Default and then held by the Holder and (B) the Per Share Market Value (as
defined in Section 7) on the date prepayment is due or the date the full
prepayment price is paid, whichever is greater. Interest shall accrue on the
prepayment amount hereunder from the seventh day after such amount is due (being
the date of an Event of Default) through the date of prepayment in full thereof
at the rate of 15% per annum. All Debentures and Underlying Shares for which the
full repayment price hereunder shall have been paid in accordance herewith shall
promptly, and in any event within two (2) Business Days, be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
Xxxxxx at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
SECTION 4. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER. This Debenture shall
be convertible into shares of Common Stock at the option of the Holder, in whole
or in part at any time and from time to time, after the Original Issue Date
(subject to the limitations on conversion set forth in Section 4(a)(ii) hereof).
The number of shares of Common Stock issuable upon a conversion hereunder shall
be determined by dividing the outstanding principal amount of this Debenture to
be converted, plus all accrued but unpaid interest thereon, by the Conversion
Price. The Holder shall effect conversions by surrendering the Debentures (or
such portions thereof) to be converted, together with the form of conversion
notice attached hereto as EXHIBIT A (a "CONVERSION NOTICE") to the Company. Each
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Conversion Notice is deemed to have been
delivered hereunder (a "CONVERSION DATE"). If no Conversion Date is specified in
a Conversion Notice, the Conversion Date shall be the date that such Conversion
Notice is deemed delivered hereunder. Subject to Section 4(b), each Conversion
Notice, once given, shall be irrevocable. If the Holder is converting less than
all of the principal amount represented by the Debenture(s) tendered by the
Holder with the Conversion Notice, or if a conversion hereunder cannot be
-6-
effected in full for any reason, the Company shall honor such conversion to the
extent permissible hereunder and shall promptly deliver to such Holder (in the
manner and within the time set forth in Section 4(b)) a new Debenture for such
principal amount as has not been converted.
(ii) CERTAIN CONVERSION RESTRICTIONS
(A)(1) A Holder may not convert Debentures or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 7) and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of interest on, the Debentures held by such Holder after
application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of Debentures are convertible shall be in the sole discretion
of the Holder. The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 75 days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.
(2) A Holder may not convert Debentures or
receive shares of Common Stock as payment of interest hereunder to the extent
such conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, the Debentures held by such Holder after application of this
Section. The Holder shall have the sole authority and obligation to determine
whether the restriction contained in this Section applies and to the extent that
the Holder determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Debentures are
convertible shall be in the sole discretion of the Holder. The provisions of
this Section may be waived by a Holder (but only as to itself and not to any
other Holder) upon not less than 75 days prior notice to the Company. Other
Holders shall be unaffected by any such waiver.
(B) If the Common Stock is then listed for trading on
the NASDAQ or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not issue in
excess of 2,992,287 shares of Common Stock upon conversions of Debentures or as
payment of interest thereon in shares of Common Stock, which number shall be
subject to adjustment pursuant to Sections 4(c)(ii), (iii), (v), (vi) and (x)
(such number of shares, the "ISSUABLE MAXIMUM"). The Issuable Maximum equals
19.999% of the number of shares of Common Stock outstanding immediately prior to
the closing of transactions set forth in the Purchase Agreement. If on any
Conversion Date (A) the Common Stock is listed for trading on the NASDAQ or the
Nasdaq SmallCap Market, (B) the Conversion Price then in effect is such that the
-7-
aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding Debentures and as payment of interest
thereon in shares of Common Stock, together with any shares of Common Stock
previously issued upon conversion of Debentures and as payment of interest
thereon, would exceed the Issuable Maximum, and (C) the Company shall not have
previously obtained the vote of shareholders (the "SHAREHOLDER APPROVAL"), if
any, as may be required by the applicable rules and regulations of the Nasdaq
Stock Market (or any successor entity) applicable to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum pursuant to the terms
hereof, then the Company shall issue to the Holder requesting a conversion a
number of shares of Common Stock equal to the Issuable Maximum and, with respect
to the remainder of the principal amount of Debentures then held by such Holder
for which a conversion in accordance with the Conversion Price would result in
an issuance of shares of Common Stock in excess of the Issuable Maximum (the
"EXCESS PRINCIPAL"), the converting Holder shall have the option to require the
Company to either (1) use its best efforts to obtain the Shareholder Approval
applicable to such issuance as soon as is possible, but in any event not later
than the 75th day after such request, or (2) pay cash to the converting Holder
in an amount equal to the Mandatory Prepayment Amount for the Excess Principal.
If the Company fails to pay the Mandatory Prepayment Amount in full pursuant to
this Section, the Company will pay interest thereon at a rate of 15% per annum
to the converting Holder, accruing daily from the Conversion Date until such
amount, plus all such interest thereon, is paid in full.
(b) (i) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(other than those required by Section 3.1(b) of the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of Debentures (subject to the limitations set forth in Section
4(a)(ii) hereof), (ii) Debentures in a principal amount equal to the principal
amount of Debentures not converted, (iii) a bank check in the amount of accrued
and unpaid interest (if the Company has elected or is required to pay accrued
interest in cash), and (iv) if the Company has elected and is permitted
hereunder to pay accrued interest in shares of Common Stock, certificates, which
shall be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement), representing such shares
of Common Stock; PROVIDED, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
the principal amount of Debentures until Debentures are delivered for conversion
to the Company, or the Holder notifies the Company that such Debentures have
been lost, stolen or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon request of the
Holder, if available, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions. If in the case of any
Conversion Notice such certificate or certificates, including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid interest hereunder, are not delivered to or as
directed by the applicable Holder by the third (3rd) Trading Day after the
-8-
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the principal amount of
Debentures tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i), including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid interest hereunder, by the third (3rd) Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $5,000 for each Trading Day after such
third (3rd) Trading Day until such certificates are delivered. Nothing herein
shall limit a Holder's right to pursue actual damages for the Company's failure
to deliver certificates representing shares of Common Stock upon conversion
within the period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in respect of
conversions of Debentures or as payment of interest thereon by the third (3rd)
Trading Day after the Conversion Date, the Holder may, by notice to the Company,
require the Company to issue shares of Common Stock pursuant to Section 4(c),
except that for such purpose the Conversion Price applicable thereto shall be
the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provision of this Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid interest hereunder, by the third (3rd) Trading Day after the
Conversion Date, and if after such third (3rd) Trading Day the Holder purchases
(in an open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which the Holder
anticipated receiving upon such conversion (a "BUY-IN"), then the Company shall
(A) pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder anticipated receiving from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either reissue
Debentures in principal amount equal the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its delivery
requirements under Section 4(b)(i). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of Debentures with respect to which the market price of
the Underlying Shares on the date of conversion was a total of $10,000 under
clause (A) of the immediately preceding sentence, the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
-9-
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 4(b)(ii) in respect of the certificates resulting in such Buy-In.
(c) (i) The conversion price (the "CONVERSION PRICE") in
effect on any Conversion Date shall be the lesser of (1) the lesser of (I) 3.135
and (II) the lowest exercise price of the Class B Warrants (as defined in
Section 7) from and after the Closing Date under the Purchase Agreement (if the
amount under this clause (II) shall have been decreased due to a decrease in the
exercise price of the Class B Warrants and thereafter such exercise price shall
be increased, the amount due under this clause (II) shall not be readjusted
upwards and shall remain the lower amount) (the lower such amount, the "INITIAL
CONVERSION PRICE") and (2) 90% of the average of the three (3) lowest Per Share
Market Values during the twenty (20) Trading Days immediately preceding the
applicable Conversion Date (which Trading Days may include Trading Days prior to
the Original Issue Date), provided, that such twenty (20) Trading Day period
shall be extended for the number of Trading Days during such period in which (A)
trading in the Common Stock is suspended by the NASDAQ or a Subsequent Market on
which the Common Stock is then listed, or (B) after the date declared effective
by the Commission, the Underlying Shares Registration Statement is not
effective, or (C) after the date declared effective by the Commission, the
Prospectus included in the Underlying Shares Registration Statement may not be
used by the Holder for the resale of Underlying Shares. Notwithstanding the
foregoing, the Conversion Price shall not be less than the Floor (as defined in
Section 7) for so long as the Floor remains in effect in accordance with Section
6; PROVIDED, that the Floor shall be subject to reduction due to operation of
this Section 4(c). If (a) an Underlying Shares Registration Statement is not
filed on or prior to the Filing Date (as defined under the Registration Rights
Agreement) (if the Company files such Underlying Shares Registration Statement
without affording the Holder the opportunity to review and comment on the same
as required by Section 3(a) of the Registration Rights Agreement, the Company
shall not be deemed to have satisfied this clause (a)), or (b) the Company fails
to file with the Commission a request for acceleration in accordance with Rule
12d1-2 promulgated under the Exchange Act, within five (5) days of the date that
the Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Shares Registration Statement will not be
"reviewed," or not subject to further review, or (c) the Underlying Shares
Registration Statement is not declared effective by the Commission on or prior
to the Effectiveness Date, or (d) such Underlying Shares Registration Statement
is filed with and declared effective by the Commission but thereafter ceases to
be effective as to all Registrable Securities at any time prior to the
expiration of the Effectiveness Period (as defined in the Registration Rights
Agreement), without being succeeded within ten (10) days by an amendment to such
Underlying Shares Registration Statement or by a subsequent Underlying Shares
Registration Statement filed with and declared effective by the Commission, or
(e) the Common Stock shall be delisted or suspended from trading on the NASDAQ
or on any Subsequent Market for more than three (3) Business Days (which need
not be consecutive days), (f) the conversion rights of the Holders are suspended
for any reason (which shall not be triggered due to the operation of the
restrictions set forth in Section 4(a)(ii) hereof), or (g) an amendment to the
Underlying Shares Registration Statement is not filed by the Company with the
Commission within ten (10) days of the Commission's notifying the Company that
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such amendment is required in order for the Underlying Shares Registration
Statement to be declared effective (any such failure or breach being referred to
as an "EVENT," and for purposes of clauses (a), (c), (f) the date on which such
Event occurs, or for purposes of clause (b) the date on which such five (5) day
period is exceeded, or for purposes of clauses (d) and (g) the date which such
10 day-period is exceeded, or for purposes of clause (e) the date on which such
three (3) Business Day-period is exceeded, being referred to as "EVENT DATE"),
then, on the Event Date and on each monthly anniversary thereof until such time
as the applicable Event is cured, the Company shall pay to the Holder 2.5% of
the aggregate principal amount of the Debentures then outstanding in cash, as
liquidated damages and not as penalty. The provisions of this Section are not
exclusive and shall in no way limit the Company's obligations under the
Registration Rights Agreement.
(ii) If the Company, at any time while any Debentures
are outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any
Debentures are outstanding, shall issue rights, options or warrants (other than
the rights, options and warrants outstanding prior to the Original Issue Date
and specified in Schedule 2.1(c) to the Purchase Agreement but not any
modifications thereof) to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Per Share Market Value at the record date mentioned
below, then the Initial Conversion Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered (plus the
amounts payable on exercise of the corresponding options, warrants or rights)
would purchase at such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
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issuance of which resulted in an adjustment in the Initial Conversion Price
pursuant to this Section, if any such right, option or warrant shall expire and
shall not have been exercised, the Initial Conversion Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Initial Conversion Price made pursuant to the
provisions of this Section after the issuance of such rights or warrants) had
the adjustment of the Initial Conversion Price made upon the issuance of such
rights, options or warrants been made on the basis of offering for subscription
or purchase only that number of shares of the Common Stock actually purchased
upon the exercise of such rights, options or warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while Debentures are outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt (other than the rights,
options and warrants outstanding prior to the Original Issue Date and specified
in Schedule 2.1(c) to the Purchase Agreement but not any modifications thereof)
that are convertible into or exchangeable for shares of Common Stock ("COMMON
STOCK EQUIVALENTS") entitling any Person to acquire shares of Common Stock, in
any case at a price per share less than the Conversion Price then in effect,
then the Conversion Price shall be multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such shares of Common Stock or such Common Stock
Equivalents plus the number of shares of Common Stock which the offering price
for such shares of Common Stock or Common Stock Equivalents (plus the amounts
payable on exercise of the corresponding options, warrants or rights) would
purchase at the Conversion Price, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock so issued or issuable,
PROVIDED, that for purposes hereof, all shares of Common Stock that are issuable
upon conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued. No adjustment shall be made under this
Section 4(c)(iv) as a result of a lowering of the exercise price for the Class B
Warrants or as a result of the issuance of up to 2,250,000 shares of Common
Stock in connection with the litigation disclosed in Schedule 2.1(g) to the
Purchase Agreement (but there will be an adjustment hereunder for any issuance
in excess of such number of shares). However, upon the expiration of any Common
Stock Equivalents the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section, if any such Common Stock Equivalents
shall expire and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to the
provisions of this Section after the issuance of such Common Stock Equivalents)
had the adjustment of the Conversion Price made upon the issuance of such Common
Stock Equivalents been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon
the exercise of such Common Stock Equivalents actually exercised.
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(v) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value determined as of the record date mentioned above, and of
which the numerator shall be such Per Share Market Value on such record date
less the then fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of Directors in good faith;
PROVIDED, HOWEVER, that in the event of a distribution exceeding ten percent
(10%) of the net assets of the Company, if the Holders of a majority in interest
of the Debentures dispute such valuation, such fair market value shall be
determined by a nationally recognized or major regional investment banking firm
or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "APPRAISER") selected in good faith by the holders of a majority in
interest of Debentures then outstanding; and PROVIDED, FURTHER, that the
Company, after receipt of the determination by such Appraiser shall have the
right to select an additional Appraiser, in good faith, in which case the fair
market value shall be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a statement
provided to the Holders of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holders shall have the
right thereafter to, at their option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal amount of
Debentures, plus all interest and other amounts due and payable thereon, at a
price determined in accordance with Section 3(b). The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vii) All calculations under this Section 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
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(viii) Whenever the Initial Conversion Price is
adjusted pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly
mail to each Holder a notice setting forth the Initial Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(ix) If (A) the Company shall declare a dividend (or
any other distribution) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common Stock; (C)
the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; PROVIDED, HOWEVER, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the effective date of the event
triggering such notice.
(x) In case of any (1) merger or consolidation of the
Company with or into another Person that would constitute a Change of Control
Transaction, or (2) sale by the Company of more than one-half of the assets of
the Company (on an as valued basis) in one or a series of related transactions,
or (3) tender or other offer or exchange (whether by the Company or another
Person) pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, stock, cash or property of the
Company or another Person; then a Holder shall have the right to (A) if
permitted under Section 3(b) hereof, exercise its rights of prepayment under
Section 3(b) with respect to such event, (B) convert its aggregate principal
amount of Debentures then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
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aggregate principal amount of Debentures could have been converted immediately
prior to such merger, consolidation or sales would have been entitled, (C) in
the case of a merger or consolidation, (x) require the surviving entity to issue
convertible debentures in a principal amount equal to the aggregate principal
amount of Debentures then held by such Holder, plus all accrued and unpaid
interest and other amounts owing thereon, which newly issued debentures shall
have terms identical (including with respect to conversion) to the terms of this
Debenture and shall be entitled to all of the rights and privileges of a Holder
of Debentures set forth herein and the agreements pursuant to which the
Debentures were issued (including, without limitation, as such rights relate to
the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible debentures, shall have the right to
convert such instrument only into shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger or consolidation, or (D) in the event of an exchange or
tender offer or other transaction contemplated by clause (3) of this Section,
tender or exchange its aggregate principal amount of Debentures for such
securities, stock, cash and other property receivable upon or deemed to be held
by holders of Common Stock that have tendered or exchanged their shares of
Common Stock following such tender or exchange, and such Holder shall be
entitled upon such exchange or tender to receive such amount of securities, cash
and property as the shares of Common Stock into which such aggregate principal
amount of Debentures could have been converted (taking into account all then
accrued and unpaid interest) immediately prior to such tender or exchange would
have been entitled as would have been issued. In the case of clause (C), the
conversion price applicable for the newly issued convertible debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale, consolidation, tender or exchange shall include
such terms so as to continue to give the Holders of Debentures the right to
receive the securities, cash and property set forth in this Section upon any
conversion or redemption following such event. This provision shall similarly
apply to successive such events.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
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(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at 0
Xxxxxx, Xxxxxx, Xxxxxxxxxx 00000 (facsimile number (000) 000-0000), attention
Chief Financial Officer, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section, with a copy to Xxxxx & Xxxxxx, LLP, 000 Xxxxx
Xxxxxxxxx, Xxxxx Xxxx, XX 00000 (facsimile number (000) 000-0000), attention
Xxxxxx X. Xxxxxxxxxxx, Esq. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier service, or
(v) upon actual receipt by the party to whom such notice is required to be
given.
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SECTION 5. OPTIONAL PREPAYMENT.
(a) The Company shall have the right, exercisable at any time
and from time to time in accordance with the terms hereof, upon twenty (20)
Trading Days prior written notice to the Holders of the Debentures to be prepaid
and accompanied by any waiver required by holders of senior indebtedness of the
Company for such prepayment (an "OPTIONAL PREPAYMENT NOTICE"), to prepay all or
any portion of the outstanding principal amount of the Debentures which have not
previously been repaid or for which Conversion Notices have not previously been
delivered. The prepayment price applicable to prepayments under this Section
5(a) shall equal the Optional Prepayment Price (as defined in Section 7) and
shall be paid in cash. Any such prepayment shall be free of any claim of
subordination. The Company shall not be entitled to deliver an Optional
Prepayment Notice to the Holders if: (i) the number of shares of Common Stock at
the time authorized, unissued and unreserved for all purposes is insufficient to
satisfy the Company's conversion obligations of the aggregate principal amount
of Debentures then outstanding, or (ii) there is neither an effective Underlying
Shares Registration Statement under which the Holders can resell all of the
issued Underlying Shares and all of the Underlying Shares as are issuable upon
conversion in full of the principal amount of Debentures subject to prepayment
under the Optional Prepayment Notice (which Underlying Shares Registration
Statement must be effective through the applicable Optional Prepayment Date, as
defined below) nor may all of such issued and issuable Underlying Shares be sold
by the Holders subject to such prepayment without volume restrictions pursuant
to Rule 144 promulgated under the Securities Act, as determined by counsel to
the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent in the form and substance acceptable to the Holders and such
transfer agent, or (iii) the Common Stock is not then listed for trading on the
NASDAQ or on a Subsequent Market. The Holders shall have the right to tender,
and the Company shall honor, Conversion Notices delivered prior to the
expiration of the twentieth (20th) Trading Day after receipt by the Holders of
an Optional Prepayment Notice for such Debentures (the 20th Trading Day after
receipt by the Holders of an Optional Prepayment Notice is referred to herein as
the "OPTIONAL PREPAYMENT DATE").
(b) The Company shall have the right to prepay up to 20% of
the then outstanding principal amount of Debentures in any two consecutive month
period at an Optional Prepayment Price equal to the Profit Sharing Prepayment
Price (as defined in Section 7), but only if the Per Share Market Value for each
of the twenty (20) consecutive Trading Days preceding the date of the Optional
Prepayment Notice for which such prepayment price is sought is equal to or
greater than 135% of the Initial Conversion Price. The provisions of Sections
5(a) and (c) relating to the other conditions and provisions governing
prepayments shall apply to a prepayment seeking the pricing set forth in this
Section 5(b).
(c) If any portion of the Optional Prepayment Price shall not
be paid by the Company by the second (2nd) Business Day following the Optional
Prepayment Date, the Optional Prepayment Price shall be increased by 15% per
annum (to accrue daily) until paid (which amount shall be paid as liquidated
damages and not as a penalty). In addition, if any portion of the Optional
Prepayment Price remains unpaid through the expiration of the Optional
Prepayment Date, the Holder subject to such prepayment may elect by written
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notice to the Company to either (x) demand conversion in accordance with the
formula and the time period therefor set forth in Section 4 of any portion of
the principal amount of Debentures for which the Optional Prepayment Price, plus
accrued liquidated damages thereof, has not been paid in full (the "UNPAID
PREPAYMENT PRINCIPAL AMOUNT"), in which event the applicable Per Share Market
Value shall be the lower of the Per Share Market Value calculated on the
Optional Prepayment Date and the Per Share Market Value as of the Holder's
written demand for conversion, or (y) invalidate AB INITIO such optional
redemption, notwithstanding anything herein contained to the contrary. If the
Holder elects option (x) above, the Company shall within three (3) Trading Days
after such election is deemed delivered hereunder to the Holder deliver the
shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Principal Amount subject to such conversion demand and otherwise perform its
obligations hereunder with respect thereto; or, if the Holder elects option (y)
above, the Company shall promptly, and in any event not later than three (3)
Trading Days from receipt of notice of such election, return to the Holder new
Debentures for the full Unpaid Prepayment Principal Amount. If, upon an election
under option (x) above, the Company fails to deliver the shares of Common Stock
issuable upon conversion of the Unpaid Prepayment Principal Amount within the
time period set forth in this Section, the Company shall pay to the Holder in
cash, as liquidated damages and not as a penalty, $2,500 per day until the
Company delivers such Common Stock to the Holder.
SECTION 6. MANDATORY PREPAYMENT/ELIMINATION OF FLOOR.
(a) If the Conversion Price for twenty-one (21) consecutive
days shall be equal to or below $1.50, the Holder may, at any time thereafter,
deliver a notice to the Company (the "HOLDER NOTICE") requiring the Company to
act in accordance with the immediately following sentence. Within three (3)
Business Days after delivery of the Holder Notice under this Section 6(a), the
Company shall notify the Holder of its election to either (i) prepay the entire
outstanding principal amount of the Debentures which have not previously been
repaid or for which Conversion Notices have not previously been delivered,
together with interest and other amounts owed in respect thereof, at a price
equal to the Mandatory Prepayment Price, no later than ten (10) Business Days
from such election, or (ii) discontinue and remove permanently the Floor. The
Company shall honor Conversion Notices delivered prior to the expiration of the
three (3) Business Day period contemplated by this Section 6(a), provided, that
such conversions shall be subject to the Floor. A failure of the Company to
timely elect under this Section 6(a) shall be deemed an election to discontinue
permanently the Floor.
(b) If the Conversion Price for ten (10) consecutive Trading
Days shall be equal to or less than $1.25, then the Holder may deliver a Holder
Notice, requiring the Company to act in accordance with the immediately
following sentence. Within three (3) Business Days after delivery of the Holder
Notice under this Section 6(b), the Company shall notify the Holder of its
election to either (i) prepay the entire outstanding principal amount of the
Debentures which have not previously been repaid or for which Conversion Notices
have not previously been delivered, together with interest and other amounts
owed in respect thereof, at a price equal to the Mandatory Prepayment Price, no
later than ten (10) Business Days from such election, or (ii) discontinue and
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remove permanently the Floor. The Company shall honor Conversion Notices
delivered prior to the expiration of the three (3) Business Day period
contemplated by this Section 6(b), provided, that such conversions shall be
subject to the Floor. A failure of the Company to timely elect under this
Section 6(b) shall be deemed an election to discontinue permanently the Floor.
SECTION 7. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York or the State of California are authorized or required by law
or other government action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 40% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the Company's
securities continue to hold at least 60% of such securities following such
transaction or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"CLASS B WARRANTS" means the Company's Class B Warrants,
entitling the holders thereof to purchase 7,592,460 shares of Common Stock.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Class A Common Stock, no par value
per share, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FLOOR" means the lower of (i) $1.50, and (ii) 80% of the
lowest exercise price of the Class B Warrants from and after the Closing Date
under the Purchase Agreement (if the amount under this subsection (ii) shall
have been decreased due to a decrease in the exercise price of the Class B
Warrants and thereafter such exercise price shall be increased, the amount due
under this subsection (ii) shall not be readjusted upwards and shall remain the
lower amount). However, if the Company shall issue the shares of Common Stock
permitted by clause (a) of Section 3(a)(xiii) and the issuance or resale of any
such shares shall be registered prior to the date that is 64 Trading Days after
the date that an Underlying Shares Registration Statement is first declared
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effective by the Commission (provided, that such 64 Trading Day period shall be
extended for the number of Trading Days during such period in which (A) trading
in the Common Stock is suspended by the NASDAQ or a Subsequent Market on which
the Common Stock is then listed, or (B) after the date declared effective by the
Commission, the Underlying Shares Registration Statement is not effective, or
(C) after the date declared effective by the Commission, the Prospectus included
in the Underlying Shares Registration Statement may not be used by the Holder
for the resale of Underlying Shares), then the then applicable Floor shall be
reduced by 10%.
"INTEREST EFFECTIVENESS DATE" means the earlier to occur of
(x) the Effectiveness Date and (y) the date that an Underlying Shares
Registration Statement is declared effective by the Commission.
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal
the sum of (i) the greater of (A) 115% of the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon, and (B) the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is demanded
or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in
full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.
"OPTIONAL PREPAYMENT PRICE" shall equal (A) the sum of (i) the
principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, divided by the Conversion Price on (x) the Optional Prepayment
Date or (y) the date the Optional Prepayment Price is paid in full, whichever is
less, multiplied by the Per Share Market Value on (x) the Optional Prepayment
Date or (y) the date the Optional Prepayment Price is paid in full, whichever is
greater, and (ii) all other amounts, expenses, costs and liquidated damages due
in respect of such Debentures, or (B) when applicable under Section 5(b), the
Profit Sharing Prepayment Price.
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.
"PER SHARE MARKET VALUE" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or a Subsequent Market,
the closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or agency
-20-
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (d) if the Common Stock is not then publicly traded the fair
market value of a share of Common Stock as determined by an Appraiser selected
in good faith by the Holders of a majority in interest of the principal amount
of Debentures then outstanding.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PROFIT SHARING PREPAYMENT PRICE" shall equal 115% of the
principal amount of Debentures to be prepaid in accordance with Section 5(b),
plus all accrued and unpaid interest thereon and all other amounts, expenses,
costs and liquidated damages due in respect of such Debentures.
"PURCHASE AGREEMENT" means the Secured Convertible Debenture
Purchase Agreement, dated as of the Original Issue Date, between the Company and
the original Holder of Debentures, as amended, modified or supplemented from
time to time in accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"QUALIFIED FACILITY" means a credit facility or factoring
arrangement with a nationally or regionally recognized institutional lender,
whereby such lender has made available to the Company a minimum of $500,000 in a
financing without conditions or restrictions (including with respect to
borrowing base requirements) as to the availability of funds whereby such lender
has required the Company to grant a first priority security interest in the
collateral secured by the security interests granted pursuant to the Security
Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENTS" means collectively (i) the Security
Agreement, dated as of the Original Issue Date between the Company and the
original Holders of Debentures, as amended modified or supplemented from time to
time in accordance with its terms, and (ii) the Intellectual Property Security
Agreement dated as of the Original Issue Date between the Company and the
original Holders of Debentures, amended modified or supplemented from time to
time in accordance with its terms.
"TRADING DAY" means (a) a day on which the Common Stock is
traded on the NASDAQ or on such Subsequent Market on which the Common Stock is
then listed or quoted, or (b) if the Common Stock is not listed on the NASDAQ or
a Subsequent Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
-21-
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); PROVIDED, HOWEVER, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
SECTION 8. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation of
the Company. This Debenture ranks PARI PASSU with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof. Except for debt issued under a Qualified
Facility, the Company shall not issue any debt or other instrument which shall
be pari passu with or senior to the Debentures in right of payment, whether with
respect to interest or upon liquidation, dissolution or otherwise.
SECTION 9. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
SECTION 10. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
SECTION 11. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holders hereby irrevocably submit
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
-22-
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
SECTION 12. Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Debenture. Any waiver must be in writing.
SECTION 13. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest due hereunder shall violate applicable laws
governing usury, the applicable rate of interest due hereunder shall equal the
maximum permitted rate of interest.
SECTION 14. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
SECTION 15. The payment obligations under this Debenture and
the obligations of the Company to the Holder arising upon the conversion of all
or any of the Debentures in accordance with the provisions hereof are secured
pursuant to the Security Agreements.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Secured
Convertible Debenture to be duly executed by a duly authorized officer as of the
date first above indicated.
PREMIER LASER SYSTEMS, INC.
By: /S/ XXXXXXX XXXXXX
-------------------------------------
Name: Xxxxxxx Xxxxxx
Title: CEO
Attest:
By: /S/ XXXXXX X. XxXXXX
--------------------------------
Name: Xxxxxx X. XxXxxx
Title: VP, HR & Admin.
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
Class A Common Stock, no par value per share (the "Common Stock"), of Premier
Laser Systems, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations: ______________________________________________
Date to Effect Conversion
______________________________________________
Principal Amount of Debentures to be Converted
______________________________________________
Number of shares of Common Stock to be Issued
______________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
