EXHIBIT 10.2
------------
Exhibit A
---------
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION 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.
7% CONVERTIBLE DEBENTURE
------------------------
January 10, 2000 Original Principal Amount: $___________
FOR VALUE RECEIVED, SUNRISE TECHNOLOGIES INTERNATIONAL, INC., a Delaware
corporation (the "Company"), hereby promises to pay to the order of
[_____________] or its registered assigns ("Holder") the Principal Amount
(as defined in Section 3(a)(i) below), together with all accrued but unpaid
interest thereon, if any, on June 30, 2002 (the "Maturity Date") to the
extent such Principal Amount and interest has not been converted into the
Company's Common Stock, $.001 par value per share (the "Common Stock"), in
accordance with the terms hereof, and to pay interest on the unpaid
principal balance hereof at the rate of 7% per annum from the date hereof
(the "Issuance Date") until the same becomes due and payable on the
Maturity Date, or such earlier date upon acceleration or by conversion or
redemption in accordance with the terms hereof. Interest on this Debenture
shall accrue daily commencing on the Issuance Date and shall be computed on
the basis of a 360-day year, 30-day months and actual days elapsed and
shall be payable in accordance with Section 3(a)(ii) hereof.
Notwithstanding anything contained herein, this Debenture shall bear
interest from and after the occurrence and during the continuance of a
default pursuant to Section 5(a), at the rate equal to the lower of fifteen
percent (15%) per annum or the highest rate permitted by law. Unless
otherwise agreed or required by applicable law, payments will be applied
first to any unpaid collection costs, then to unpaid interest and fees and
any remaining amount to principal.
All payments of principal and interest on this Debenture (to the
extent such principal and/or interest is not converted into Common Stock or
interest is not paid in Common Stock in accordance with the terms hereof)
shall be made in lawful money of the United States of America by wire
transfer of immediately available funds to such account as the Holder may
from time to time designate by written notice in accordance with the
provisions of this Debenture or by Company check. Whenever any amount
expressed to be due by the terms of this Debenture is due on any day which
is not a Business Day (as defined below), the same shall instead be due on
the next succeeding day which is a Business Day. For purposes of this
Debenture, "Business Day" shall mean any day other than a Saturday, Sunday
or a day on which commercial banks in the City of New York are authorized
or required by law or executive order to remain closed. Each capitalized
term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in the Purchase Agreement dated on or about the Issuance
Date pursuant to which this Debenture was originally issued (the "Purchase
Agreement"). This Debenture and the other convertible debentures issued by
the Company on or about the Issuance Date pursuant to the Purchase
Agreement are collectively referred to in this Debenture as the
"Debentures."
The following terms and conditions shall apply to this Debenture:
Section 1. Interest. The Company shall pay the interest
hereunder quarterly in arrears on each April 1, July 1, October 1 and
January 1 (except that interest accrued through January 1, 2000 shall be
paid on April 1, 2000) either in cash or in shares of Common Stock at the
Company's option. Accrued but unpaid interest on any portion of the
Principal Amount which is redeemed or repurchased hereunder shall be paid
in cash concurrently with such redemption or repurchase. If the Company
elects to pay interest hereunder in shares of Common Stock, the number of
such shares to be issued on such payment date shall be the number
determined by dividing (x) the dollar amount of interest due, by (y) the
lower of the Conversion Price or 75% of the average of the ten (10) lowest
Market Prices during the full calendar month immediately preceding the date
of issuance of such shares. Such shares shall be issued and delivered on
the interest payment due date and shall be duly authorized, validly issued,
fully paid, non-assessable and free and clear of all encumbrances,
restrictions and legends.
Notwithstanding anything to the contrary contained herein, the
Company may not pay interest in shares of Common Stock (and must deliver
cash in respect thereof) on the Debentures if:
(1) 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 issue such interest upon conversion of all
Debentures;
(2) such shares are not registered for resale pursuant
to an effective registration statement and covered by a current related
prospectus, the use of which has not been suspended, that names the
recipient of such dividend as a selling stockholder thereunder and may not
be sold without restrictions pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (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 reasonably
acceptable to the holder;
(3) such shares are not listed on the Nasdaq National
Market, The Nasdaq SmallCap Market, the New York Stock Exchange, the
American Stock Exchange or any other national exchange or quotation system
on which the Common Stock is then listed for trading; or
(4) the Company shall have failed to pay any cash
interest payments when due (unless waived by holders of 75% in outstanding
principal amount of the Debentures).
Section 2. No Senior Debt. So long as any principal amount of
Debentures is outstanding, the Company and its subsidiaries shall not,
without the affirmative vote of the holders of at least 75% of the
principal amount of the Debentures then outstanding, incur any additional
indebtedness which is senior to the Debentures, except for capital leases
and financing for operating equipment and for working capital facilities
from commercial banks up to the greater of $15 million or 25% of revenues,
provided that such limitation shall not apply to financing for acquisitions
of companies or assets or licenses of products, patents or other
intellectual property.
Section 3. Conversion. The Holder shall have the right, at
the Holder's option, to convert this Debenture into shares of Common Stock
on the following terms and conditions:
(a) Any part of the Principal Amount (as defined below) of
this Debenture shall be convertible into shares of Common Stock (subject to
reduction pursuant to Section 3(i) below) at the Conversion Ratio at the
option of the Holder in whole or in part at any time following the Issuance
Date up to and including the day that all of the Principal Amount and
interest accrued but unpaid thereon, if any, are paid in full. The Holder
shall effect conversions by delivering to the Company a fully executed
notice of conversion in the form of conversion notice attached hereto as
Exhibit A (the "Conversion Notice"), which may be transmitted by facsimile.
Each Conversion Notice shall specify the outstanding Principal Amount of
this Debenture 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 received by the Company hereunder (the "Conversion Date"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that the Conversion Notice is deemed delivered pursuant
to Section 3(h) hereof. The Holder shall surrender this Debenture to the
Company with or promptly following the delivery of a Conversion Notice. If
the Holder is converting less than all of the outstanding Principal Amount
hereunder, or if a conversion hereunder cannot be effected in full for any
reason, the Company shall promptly deliver to the Holder (in the manner and
within the time set forth in Section 3(b) hereof) a Debenture for such
Principal Amount as has not been converted. As used herein, "Principal
Amount" shall refer to the sum of (i) the original principal amount of this
Debenture, and (ii) all accrued but unpaid interest payments hereunder.
(b) Not later than three (3) Trading Days after the
Conversion Date, the Company will deliver to the Holder (i) a certificate
or certificates which shall be free of restrictive legends and trading
restrictions representing the number of shares of Common Stock being
acquired upon the conversion of this Debenture (unless such securities are
neither registered under the Securities Act or tradeable pursuant to Rule
144 thereunder), and (ii) a Debenture representing the remaining Principal
Amount of this Debenture not converted, if any. In lieu of delivering
physical certificates representing the shares of Common Stock issuable upon
conversion of this Debenture, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the Holder, the
Company shall use its best efforts to cause its transfer agent to
electronically transmit such shares issuable upon conversion to the Holder
(or its designee), by crediting the account of the Holder's (or such
designee's) prime broker with DTC through its Deposit Withdrawal Agent
Commission system. If in the case of any Conversion Notice, such
certificate or certificates are not delivered to or as directed by the
Holder by the third Trading Day after the 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 this
Debenture tendered for conversion. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section 3(b), or
fails to delivery certificate or certificates for shares of Common Stock
being issued in payment of interest hereunder in accordance herewith, prior
to the fifth Trading Day after the Conversion Date or the interest payment
due date, as the case may be, the Company shall pay to the Holder, in cash,
an amount equal to 2% of the Principal Amount per month payable ratably in
Common Stock or cash, at the Holder's election; provided, however, that
such 2% amount shall not be payable (1) unless and until the Holder
provides the Company or its transfer agent with all accurate information
completed on the Conversion Notice, and (2) if such failure is due solely
to an event of "force majeure", where "force majeure" means circumstances
beyond the reasonable control of both the Company and its transfer agent
including acts of God, war, national emergency, labor strikes, fire or
flood (but not including inadequate staffing of workloads unless as a
result of a strike).
(c) (i) The Conversion Price applicable to conversions of
the Principal Amount of this Debenture into Common Stock hereunder shall be
subject to adjustment as provided herein and in the Purchase Agreement.
(ii) If the Company, at any time while any Principal
Amount of this Debenture is outstanding, (a) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Junior
Securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the 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
3(c)(ii) 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 Principal
Amount of this Debenture is outstanding, shall distribute to all holders of
Common Stock evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Section 3(c)(ii) above), then in each such case the Conversion Price shall
be determined by multiplying the 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 Market Price of Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Market Price of
the Common Stock 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 Common Stock as
determined by the Company's Board of Directors in good faith; provided,
however, that if the holders of a majority of the outstanding principal of
the Debentures dispute such amount, such holders may select a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (an "Appraiser") paid
for by the holders of the outstanding principal of the Debentures then
outstanding, in which case the fair market value shall be equal to the
average of the determinations by the Company's Board of Directors and such
Appraiser. In either case the adjustments shall be described in a
statement provided to the holders of the Debentures 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.
(iv) All calculations under this Section 3 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(v) Whenever the Conversion Price is adjusted pursuant
to Section 3(c)(ii) or (iii) above, the Company shall promptly mail to each
holder of the Debentures, a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(vi) In case of (i) an acquisition after the date hereof
by an individual, legal entity or "group" within the meaning of Section
13(d) under the Exchange Act of voting securities of the Company pursuant
to which, after giving effect to such acquisition, such individual, legal
entity or group will beneficially own in excess of 50% of the issued and
outstanding 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 Company's Board of
Directors on the date thereof in one or a series of related transactions,
(iii) the merger of the Company with or into another entity, consolidation
or sale, transfer or disposition of all or substantially all of the assets
of the Company in one or a series of transactions or (iv) the execution by
the Company of an agreement to which the Company is a party or which it is
bound providing for an event set forth in (i), (ii) or (iii) above,
pursuant to which the Common Stock is converted into other securities, cash
or property (each, a "Business Combination"), the Holder shall have the
right thereafter to, at its option, (A) convert this Debenture, in whole or
in part, only into the shares of stock and other securities, cash and/or
property receivable upon or deemed to be held by holders of Common Stock
following such Business Combination, and the Holder 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 this Debenture could
have been converted immediately prior to such Business Combination would
have been entitled, subject to such further applicable adjustments set
forth in this Section 3 or (B) require the Company to redeem this
Debenture, in whole or in part, at a redemption price equal to the greater
of (i) the outstanding Principal Amount being redeemed plus any accrued and
unpaid cash interest thereon and (ii) the product of (x) the average of the
Market Price for the five (5) Trading Days immediately preceding the
Holder's election to have its Debentures redeemed and (y) the Conversion
Ratio; provided, however, that the redemption right contained in clause (B)
above shall only apply if any such Business Combination occurs without the
consent of the then incumbent Board of Directors of the Company or if any
such Business Combination occurs in connection with a transaction or series
of transactions in which the Company's Common Stock is issued, sold or
transferred at effectively a Per Share Selling Price less than the Market
Price at the time of such Business Combination, provided in each case any
securities issuable upon conversion hereof in accordance with this Section
following the Business Combination shall at all times be (A) covered by an
effective registration statement under the Securities Act and a deliverable
prospectus or freely tradeable under Rule 144(k) thereunder, and (B) listed
and traded on the Nasdaq Stock Market or another acceptable exchange or
market. The terms of any such Business Combination shall include such
terms so as to continue to give to the Holders the right to receive the
amount of securities, cash and/or property upon any conversion or
redemption following such Business Combination to which a holder of the
number of shares of Common Stock deliverable upon such conversion would
have been entitled in such Business Combination, and interest payable
hereunder shall be in cash or such new securities and/or property, at the
Holder's option. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(vii)If:
A. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock; or
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; or
D. the approval of any stockholders of the
Company shall be required in connection with any reclassification of the
Common Stock of the Company, 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 of exchange whereby the
Common Stock is converted into other securities, cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company.
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Debenture, and shall cause
to be mailed to the Holder at its last address as it shall appear upon the
books of the Company, on or prior to the date notice to the Company's
stockholders generally is given, 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 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 Common Stock
of record shall be entitled to exchange their shares of 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.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely
for the purpose of issuance upon conversion of this Debenture, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of the Debentures, not less than such number of
shares of 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 this Section 3) upon the conversion of this Debenture
hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid, nonassessable and freely tradeable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of
Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the Market Price 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 Common Stock
on conversion of this Debenture or in payment of interest hereunder shall
be made without charge to the Holder for any documentary stamp or similar
taxes that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than that of
the Holder 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) After all of the Principal Amount and accrued but unpaid
interest at any time owed on this Debenture have been paid in full or
converted into Common Stock, this Debenture shall automatically be deemed
be canceled.
(h) Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, including, without limitation, any
Conversion Notice, shall be in writing and delivered personally, by
facsimile, or by a nationally recognized overnight courier service to the
Company at the facsimile telephone number or address of the principal place
of business of the Company as set forth in the Purchase Agreement. 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, or by a nationally recognized overnight courier service
addressed to the Holder at the facsimile telephone number or address of the
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 delivered (i) upon receipt, when delivered personally, (ii)
when sent by facsimile, upon receipt if received on a Business Day prior to
5:00 p.m. (Eastern Time), or on the first Business Day following such
receipt if received on a Business Day after 5:00 p.m. (Eastern Time) or
(iii) upon receipt, when deposited with a nationally recognized overnight
courier service.
(i) (A) Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by the
holder upon conversion pursuant to the terms hereof shall not exceed a
number that, when added to the total number of shares of Common Stock
deemed beneficially owned by such holder (other than by virtue of the
ownership of securities or rights to acquire securities that have
limitations on the Holder's right to convert, exercise or purchase similar
to the limitation set forth herein), together with all shares of Common
Stock deemed beneficially owned by the holder's "affiliates" (as defined in
Rule 144 of the Securities Act) that would be aggregated for purposes of
determining whether a group under Section 13(d) of the Securities Exchange
Act of 1934, as amended, exists, would exceed 9.99% of the total issued and
outstanding shares of the Company's Common Stock (the "Restricted Ownership
Percentage"); provided that (w) the holder hereof shall have the right at
any time and from time to time to reduce its Restricted Ownership
Percentage immediately upon notice to the Company and (x) each holder shall
have the right at any time and from time to time, to increase its
Restricted Ownership Percentage immediately (subject to waiver) in the
event of a pending or announced change of control transaction (including
without limitation a transaction that would result in a transfer of more
than 50% of the Company's voting power or equity, or a transaction that
would result in a person or "group" being deemed the beneficial owner of
50% or more of the Company's voting power or equity).
(B) Each time (a "Covenant Time") the holder makes a
Triggering Acquisition (as defined below) of shares of Common Stock (the
"Triggering Shares") pursuant to this Debenture, the holder will be deemed
to covenant that it will not, during the balance of the day on which such
Triggering Acquisition occurs, and during the 61-day period beginning
immediately after that day, acquire additional shares of Common Stock
pursuant to Debentures existing at that Covenant Time, if the aggregate
amount of such additional shares so acquired (without reducing that amount
by any dispositions) would exceed (x) 9.99% of the number of shares of
Common Stock outstanding at that Covenant Time (including the Triggering
Shares) minus (y) the number of shares of Common Stock actually owned by
the Holder at that Covenant Time (regardless of how or when acquired, and
including the Triggering Shares). "Triggering Acquisition" means the
exercise of this Debenture by the holder; provided, however, that with
respect to the exercise of this Debenture, if the associated issuance of
shares of Common Stock does not occur, such event shall cease to be a
Triggering Acquisition and the related covenant under this paragraph shall
terminate. At each Covenant Time, the Holder shall be deemed to waive any
right it would otherwise have to acquire shares of Common Stock to the
extent that such acquisition would violate any covenant given by the Holder
under this paragraph.
(x) The covenant to be given pursuant to this paragraph
will be given at every Covenant Time and shall be calculated based on the
circumstances then in effect. The making of a covenant at one Covenant
Time shall not terminate or modify any prior covenants.
The Holder may therefore from time to time be subject to multiple
such covenants, each one having been made at a different Covenant Time, and
some possibly being more restrictive than others. The Holder must comply
with all such covenants then in effect.
(C) Notwithstanding anything contained herein, in no
event shall the Company issue shares of Common Stock hereunder to the
extent that the total number of shares issued or deemed issued to the
Investors under the Purchase Agreement (when added to the Underlying Shares
and Warrant Shares) would exceed 19.9% of the Company's issued and
outstanding shares of Common Stock on the date of the Purchase Agreement.
Instead, the Company shall redeem Debentures at 120% of the Purchase Price
in the aggregate principal amount necessary to place the Investors in the
same economic position they would have been if not for such limitation.
Only shares acquired pursuant to the Purchase Agreement, Debentures and
Warrants will be included in determining whether the limitations would be
exceeded for purposes of this paragraph.
(j) Notwithstanding and in addition to anything contained
herein, if during the MFN Period (as defined in Section 7.1 of the Purchase
Agreement), the Company sells any shares of its Common Stock at a Per Share
Selling Price (as defined in Section 7.1 of the Purchase Agreement) lower
than the Conversion Price per share, then the Conversion Price per share
under this Debenture shall be adjusted downward to equal such lower Per
Share Selling Price, regardless of whether such adjusted Conversion Price
falls below the $3.00 floor set forth in the definition of "Conversion
Price" in the Purchase Agreement. The Company shall give to the Holder
written notice of any such sale within 72 hours of the closing of any such
sale. If an adjustment ("Adjustment") of the Conversion Price is required
as provided herein or in the Purchase Agreement, the Company shall deliver
to the Holder within eight calendar days of the closing of the transaction
giving rise to the Adjustment ("Delivery Date") a notice ("Adjustment
Notice") stating that such Conversion Price has been automatically adjusted
as of the Delivery Date, and such notice shall constitute an amendment to
this Debenture. In the event the Company fails to deliver the Adjustment
Notice by the applicable Delivery Date, such failure to notify shall not
affect automatic adjustment of the Conversion Price. This Section 3(j)
shall not apply to (i) sales of shares of Common Stock by the Company upon
conversion or exercise of any convertible securities, options or warrants
outstanding prior to the date hereof; or (ii) sales of shares of Common
Stock by the Company pursuant to the provisions of any shareholder-approved
option or similar plan heretofore adopted by the Company. This provision
shall similarly apply to successive sales of shares of Common Stock by the
Company and shall not affect the other Conversion Price adjustments
contained herein.
Section 4. Redemption. (a) The Company shall have the right,
exercisable at any time upon thirty (30) business days' prior written
notice ("Redemption Notice") to the holders of the Debentures given at any
time on or after the second anniversary of the Issuance Date (the period
from the Redemption Notice until Holder's receipt of the Redemption Price
being referred to as the "Post-Call Period"), to redeem all or any portion
of this Debenture which has not previously been converted or redeemed, at a
redemption price ("Redemption Price") consisting of (i) cash equal to 130%
of the outstanding Principal Amount hereunder (including without limitation
accrued and unpaid interest thereon), and (ii) A Warrants to purchase such
number of shares of Common Stock equal to 30% of the Underlying Shares
which would have been issued or issuable upon conversion of the portion of
the outstanding Principal Amount hereunder being redeemed, provided that
such new A Warrants shall expire five (5) years from their issuance date
and have an exercise price equal to the then applicable "Warrant Price"
under the A Warrants (and shall be subject to further adjustment as
provided in the A Warrants). The entire Redemption Price shall be paid and
issued on the Redemption Date (as defined below). The Holder may convert
this Debenture in whole or in part, including any portion subject to a
Redemption Notice, during the Post-Call Period, and the Company shall honor
all Conversion Notices delivered during such period. Any Redemption Notice
under this Section 4(a) shall indicate the Principal Amount of Debentures
to be redeemed and the date (subject to the terms hereof) on which such
redemption is to occur ("Redemption Date"). If the Company intends to
redeem less than all of the then outstanding Debentures issued under the
Purchase Agreement, it shall do so on a pro rata basis among such holders
in accordance with this Section 4(a). If any portion of the applicable
Redemption Price under this Section shall not be paid by the Company within
seven (7) days after the Redemption Date, interest shall accrue thereon
(valuing the A Warrants portion of the Redemption Price at the Market Price
multiplied by the applicable number of underlying Warrant Shares) at the
rate of 15% per annum until the Redemption Price plus all such interest is
paid in full (which amount shall be paid as liquidated damages and not as a
penalty). In addition, if any portion of such Redemption Price remains
unpaid for more than seven (7) days after the Redemption Date, the Holder
may elect to invalidate ab initio such redemption, notwithstanding anything
herein contained to the contrary, and the Company shall be prohibited from
exercising such redemption right pursuant to this Section 4(a) again.
(b) Notwithstanding anything to the contrary herein,
the Company shall be prohibited from exercising its right to redeem this
Debenture unless during the entire Post-Call Period and the entire twenty
(20) consecutive Trading Day period immediately preceding the Redemption
Notice (i) all the Underlying Shares with respect to this Debenture are
either (A) covered by an effective registration statement under the
Securities Act and a deliverable prospectus or (B) freely tradeable under
Rule 144(k) thereunder, and (ii) the Underlying Shares with respect to this
Debenture are listed and traded on the Nasdaq Stock Market.
Section 5. Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i)
default in payment of the Principal Amount or accrued but unpaid interest
thereon of any of the Debentures on or after the date such payment is due
(to the extent such principal and/or amount has not been converted into
Common Stock in accordance with the terms hereof) which default continues
for three (3) days after notice of such non-payment; (ii) any principal
payment under the Debentures shall have been accelerated, (iii) failure by
the Company for thirty (30) days after written notice to it to comply with
any material provision of any of the Debentures, the Purchase Agreement,
the Registration Rights Agreement or the Warrants (including without
limitation the failure to issue the requisite number of shares of Common
Stock upon conversion hereof and the failure to redeem Debentures upon the
Holder's request following a Business Combination pursuant to Section
3(c)(vi)); (iv) a material breach by the Company of its representations or
warranties in the Purchase Agreement or Registration Rights Agreement; (v)
any default after any cure period under, or acceleration prior to maturity
of, any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company or for money borrowed the repayment of which is
guaranteed by the Company, whether such indebtedness or guarantee now
exists or shall be created hereafter; (vi) if the Company pursuant to or
within the meaning of any Bankruptcy Law (A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case, (C) consents to the appointment of a Custodian of it or
for all or substantially all of its property; (D) makes a general
assignment for the benefit of its creditors; or (E) admits in writing that
it is generally unable to pay its debts as the same become due; or (vii) a
court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (1) is for relief against the Company in an involuntary
case, (2) appoints a Custodian of the Company or for all or substantially
all of its property, or (3) orders the liquidation of the Company or any
subsidiary. The Term "Bankruptcy Law" means Title 11, U.S. Code, or any
similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
(b) Remedies. If an Event of Default occurs and is
continuing with respect to any of the Debentures, the Holder may declare
all of the then outstanding Principal Amount of this Debenture and all
other Debentures held by the Holder, including any interest due thereon, to
be due and payable immediately, except that in the case of an Event of
Default arising from events described in clauses (vi) and (vii) of Section
5(a), this Debenture shall become due and payable without further action or
notice. In the event of such acceleration, the amount due and owing to the
Holder shall be the greater of (1) the outstanding Principal Amount of the
Debentures held by the Holder (plus all accrued and unpaid interest, if
any) and (2) the product of (A) the product of the average of Market Price
for the five (5) Trading days immediately preceding the Holder's
acceleration and (B) the Conversion Ratio. In either case the Company
shall pay interest on such amount in cash at a rate of 15% per annum to the
Holder if such amount is not paid within 7 days of Holder's request. The
remedies under this Debenture shall be cumulative.
Section 6. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is the Principal Amount of this Debenture (and any accrued but
unpaid interest thereon, if any) to be converted in such conversion, and of
which the denominator is the Conversion Price at such time.
"Junior Securities" means the Company's capital stock and all
other equity securities and all debt securities of the Company which are
junior in rights and liquidation preference to the Debentures.
"Person" means a corporation, an association, a partnership, a
limited liability company, an organization, a business, an individual, a
government or political subdivision thereof or a governmental agency.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, between the
Company and the original holders of the Debentures.
"Trading Day" means a day on which the Common Stock is traded
on the Nasdaq National Market or other stock exchange or market on which
the Common Stock has been listed.
"Underlying Shares" means the shares of Common Stock into which
the Debentures are convertible in accordance with the terms hereof and the
Purchase Agreement.
Section 7. General
(a) Payment of Expenses. The Company agrees to pay all
reasonable charges and expenses, including attorneys' fees and expenses,
which may be incurred by the Holder in successfully enforcing this
Debenture and/or collecting any amount due under this Debenture.
(b) Savings Clause. In case any provision of this Debenture
is held by a court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions
of this Debenture will not in any way be affected or impaired thereby. In
no event shall the amount of interest paid hereunder exceed the maximum
rate of interest on the unpaid principal balance hereof allowable by
applicable law. If any sum is collected in excess of the applicable
maximum rate, the excess collected shall be applied to reduce the principal
debt. If the interest actually collected hereunder is still in excess of
the applicable maximum rate, the interest rate shall be reduced so as not
to exceed the maximum allowable under law.
(c) Amendment. Neither this Debenture nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the Company and Holder.
(d) Assignment, Etc. The Holder may assign or transfer this
Debenture to any transferee only with the prior consent of the Company,
which may not be unreasonably withheld or delayed, provided that the Holder
may assign or transfer this Debenture to any of such Holder's affiliates
without the consent of the Company. This Debenture shall be binding upon
the Company and its successors and shall inure to the benefit of the Holder
and its successors and permitted assigns.
(e) No Waiver. No failure on the part of the Holder to
exercise, and no delay in exercising any right, remedy or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
by the Holder of any right, remedy or power hereunder preclude any other or
future exercise of any other right, remedy or power. Each and every right,
remedy or power hereby granted to the Holder or allowed it by law or other
agreement shall be cumulative and not exclusive of any other, and may be
exercised by the Holder from time to time.
(f) Governing Law; Jurisdiction.
(i) THIS DEBENTURE WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY
CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE
APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.
(ii) The Company irrevocably submits to the exclusive
jurisdiction of any State or Federal Court sitting in the State of New
York, County of New York, over any suit, action, or proceeding arising out
of or relating to this Debenture. The Company irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action, or
proceeding brought in such a court and any claim that suit, action, or
proceeding has been brought in an inconvenient forum.
The Company agrees that the service of process upon it
mailed by certified or registered mail (and service so made shall be deemed
complete three days after the same has been posted as aforesaid) or by
personal service shall be deemed in every respect effective service of
process upon it in any such suit or proceeding. Nothing herein shall
affect Holder's right to serve process in any other manner permitted by
law. The Company agrees that a final non-appealable judgement in any such
suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
(iii)THE COMPANY HERETO KNOWINGLY AND VOLUNTARILY WAIVES
ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY
LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
DEBENTURE.
(g) Replacement Debentures. This Debenture may be exchanged
by Holder at any time and from time to time for a Debenture or Debentures
with different denominations representing an equal aggregate Principal
Amount, as reasonably requested by Holder, upon surrendering the same. No
service charge will be made for such registration or exchange. In the
event that Holder notifies the Company that this Debenture has been lost,
stolen or destroyed, a replacement Debenture identical in all respects to
the original Debenture (except for registration number and Principal
Amount, if different than that shown on the original Debenture), shall be
issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection with the Debenture.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Debenture to be
duly executed on the day and in the year first above written.
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
By:
Name:
Title:
Attest:
EXHIBIT A
---------
FORM OF NOTICE OF CONVERSION
(To be Executed by the Holder
in order to Convert a Debenture)
The undersigned hereby elects to convert the aggregate Principal Amount (as
defined in the Debenture) indicated below of this Debenture into shares of
Common Stock, par value $.001 per share (the "Common Stock"), of Sunrise
Technologies International, 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.
The undersigned hereby represents that the number of shares of Common Stock
issuable pursuant to this Notice of Conversion does not violate or breach
the restrictions on conversions contained in Section 3 of the Debenture.
Conversion information:
Date to Effect Conversion
Aggregate Principal Amount of Debenture Being Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
