EXHIBIT A
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FORM OF CONVERTIBLE DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF
DECEMBER 14, 2001, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE
PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE
CONVERSION RIGHTS OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT,
PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF
DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE
ACCELERATED.
No. 1 $1,425,000
14% CONVERTIBLE DEBENTURE
of
PCS Research Technology, Inc., formerly named DirectPlacement, Inc., a
Delaware corporation (together with its successors, the "Company"), for value
received hereby promises to pay to:
Global Capital Funding Group, L.P.
(the "Holder") and registered assigns, the principal sum of One Million Four
Hundred Twenty Five Thousand ($1,425,000) or, if less, the principal amount of
this Debenture then outstanding, on the Maturity Date by wire transfer of
immediately available funds to the Holder in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest, which shall begin to
accrue on the date of this Debenture, monthly as set forth in Section 3.2 of
this Convertible Debenture. The Maturity Date is December 28, 2005.
The interest rate shall be fourteen percent (14%) per annum (the
"Interest Rate") or, if less, the maximum rate permitted by applicable law. Past
due amounts (including interest, to the extent permitted by law) will also
accrue interest at the Interest Rate plus 2% per annum or, if less, the maximum
rate permitted by applicable law, and will be payable on demand ("Default
Interest"). Interest on this Convertible Debenture will be calculated on the
basis of a 360-day year of twelve 30 day months. All payments of principal and
interest hereunder shall be made for the benefit of the Holder pursuant to the
terms of the Agreement (hereafter defined). At the option of the Holder,
interest may be paid in cash or in shares of Common Stock. On each Conversion
Date, interest shall be paid in cash or shares of Common Stock on the portion of
the principal balance of the Convertible Debenture then being converted. The
number of shares of Common Stock issued as interest shall be determined by
dividing the dollar amount of interest due on the applicable Interest Payment
Date by the Conversion Price then in effect.
This Convertible Debenture (this "Convertible Debenture") is one of a
duly authorized issuance of $1,425,000 aggregate principal amount of Convertible
Debentures of the Company referred to in that certain Securities Purchase
Agreement dated as of December 14, 2001, between the Company and the Purchaser
named therein (the "Agreement") and has been exchanged for the Company's
$1,250,000 Principal Amount 10% Convertible Debenture dated December 14, 2001
held by Holder. The Agreement contains certain additional agreements among the
parties with respect to the terms of this Convertible Debenture, including,
without limitation, provisions which (A) limit the conversion rights of the
Holder, (B) specify voluntary and mandatory repayment, prepayment and redemption
rights and obligations and (C) specify Events of Default following which the
remaining balance due and owing hereunder may be accelerated. All such
provisions are an integral part of this Convertible Debenture and are
incorporated herein by reference. This Convertible Debenture is transferable and
assignable to one or more Persons, in accordance with the limitations set forth
in the Agreement. This Convertible Debenture is secured by certain assets of the
Company as set forth in that certain Security Agreement dated February 28, 2003.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Debenture and particulars of this Convertible Debenture held by such holder and
of all transfers of this Convertible Debenture. References to the Holder or
"Holders" shall mean the Person listed in the Register as registered holder of
such Convertible Debentures. The ownership of this Convertible Debenture shall
be proven by the Register.
1. Certain Terms Defined. All terms defined in the Agreement and
not otherwise defined herein shall have for purposes hereof the meanings
provided for in the Agreement.
2. Covenants. The Company covenants and agrees to observe and
perform each of its covenants, obligations and undertakings contained in the
Agreement, which obligations and undertakings are expressly assumed herein by
the Company and made for the benefit of the holder hereof.
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3. Payment of Principal and Interest.
3.1 Prepayment of Debenture. For so long as no Event of Default
shall have occurred and is continuing and the Company is not in receipt
of a Notice of Conversion from the Holder of the Debenture, the Company
may, at its option, prepay, in whole or in part, this Convertible
Debenture for a pre-payment price (the "Pre-payment Price") equal to
the outstanding principal amount of the Debenture, plus all accrued and
unpaid interest. The Company shall not be entitled to send any notice
of prepayment and begin the prepayment procedure unless it has (i) the
full amount of the Prepayment Price, in cash, available in a demand or
other immediately available account in a bank or similar financial
institution or (ii) immediately available credit facilities, in the
full amount of the Prepayment Price, with a bank or similar financial
institution on the date the prepayment notice is sent to the Holders of
this Convertible Debenture. Provided, however, the Company will process
any Notice of Conversion received prior to the issuance of a notice of
prepayment; and further provided that, after a notice of prepayment has
been issued, the Holder may issue a Notice of Conversion which will not
be honored unless the Company fails to make the prepayment payment when
due. In the event of such failure, the Notice of Conversion will be
honored as of the date of the Notice of Conversion
3.2 Payment of Debenture. The Company shall pay accrued interest
of $26,736 on February 28, 2003. The Company shall make monthly
payments of combined principal and accrued interest on the 28th day of
each month beginning March 28, 2003, in the amount of $25,000, until
July 28, 2003; and thereafter, the Company shall make principal and
accrued interest payments equal to $50,000 per month until the Maturity
Date. On the Maturity Date, the Company shall repay the remaining
unpaid principal balance of this Convertible Debenture and accrued and
unpaid interest. The Company may, and shall be obligated to, prepay all
or a portion of this Convertible Debenture on the terms specified in
the Agreement.
4. Conversion.
4.1 Conversion of Convertible Debenture. Subject to Section 5
hereof, the Holder shall have the right, at its option, at any time
from and after the date of issuance of this Convertible Debenture,
convert the principal amount of this Convertible Debenture, or any
portion of such principal amount, into that number of fully paid and
nonassessable shares of Common Stock (as such shares shall then be
constituted) determined pursuant to this Section 4.1. The number of
shares of Common Stock to be issued upon each conversion of this
Convertible Debenture shall be determined by dividing the Conversion
Amount (as defined below) by the Conversion Price in effect on the date
(the "Conversion Date") a Notice of Conversion is delivered to the
Company, as applicable, by the Holder by facsimile or other reasonable
means of communication dispatched prior to 5:00 p.m., E.S.T. The term
"Conversion Amount" means, with respect to any conversion of this
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Convertible Debenture, the sum of (1) the principal amount of this
Convertible Debenture to be converted in such conversion plus (2)
accrued and unpaid interest, if any, on such principal amount at the
interest rates provided in this Convertible Debenture to the Conversion
Date plus (3) Default Interest, if any, on the interest referred to in
the immediately preceding clause (2) plus (4) at the Holder's option,
any amounts owed to the Holder pursuant to Section 4.3 hereof, Section
10.1 of the Agreement or Section 10.4 of the Agreement.
4.2 Conversion Price. At the option of the Holder, any portion or
all of the outstanding principal amount of this Convertible Debenture
shall be converted into a number of shares of Common Stock at the
conversion price (the "Conversion Price") equal to $0.20.
4.3 Authorized Shares.
(1) Consistent with Section 7.11 of the Agreement, the
Company (i) shall promptly irrevocably instruct the Company's transfer
agent to issue certificates for the Common Stock issuable upon
conversion of this Convertible Debenture and (ii) agrees that its
issuance of this Convertible Debenture shall constitute full authority
to its officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for
shares of Common Stock in accordance with the terms and conditions of
this Convertible Debenture.
(2) If at any time a Holder of this Convertible Debenture
submits a Notice of Conversion (x) the Company does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in full in accordance with the provisions of this Article 4
or (y) the Company is prohibited by the applicable rules of the OTC
Bulletin Board or the National Market on which the Common Shares are
listed and traded at that time to effect such conversion in full as
provided in subsection (d) below, without stockholder approval (each, a
"Conversion Default"), the Company shall issue to the Holder all of the
shares of Common Stock which are then available to effect such
conversion. The portion of this Convertible Debenture which the Holder
included in its Conversion Notice and which exceeds the amount which is
then convertible into available shares of Common Stock (the "Excess
Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the Holder's option at any time after) the
date additional shares of Common Stock are authorized by the Company,
or its stockholders, as applicable, at which time the Conversion Price
in respect thereof shall be the lower of (i) the Conversion Price on
the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date thereafter elected by the Holder in
respect thereof. The Company shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount
of (N/365) x .24 x the Excess Amount on the Conversion Date in respect
of the Conversion Default (the "Conversion Default Date"), where N =
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the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company, or its stockholders, as
applicable, authorizes a sufficient number of shares of Common Stock to
effect conversion of the full outstanding principal balance of this
Convertible Debenture. The Company shall use its best efforts to
authorize, or cause its stockholders to authorize within 40 days of the
occurrence of a Conversion Default, as applicable, a sufficient number
of shares of Common Stock as soon as practicable following the earlier
of (i) such time that the Holder notifies the Company or that the
Company otherwise becomes aware that there are or likely will be
insufficient shares to allow full conversion thereof and (ii) a
Conversion Default. The Company shall send notice to the Holder of the
authorization of additional shares of Common Stock, the Authorization
Date and the amount of Holder's accrued Conversion Default Payments.
The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time
as there are sufficient authorized shares of Common Stock) at the
Market Price, at the Holder's option, as follows:
(1) In the event the Holder elects to take such
payment in cash, cash payment shall be made to Holder by the
fifth Business Day of the month following the month in which
it has accrued; and
(2) In the event the Holder elects to take such
payment in Common Stock, the Holder may convert such payment
amount into Common Stock at the Conversion Price (as in effect
at the time of conversion) at any time after the fifth
Business Day of the month following the month in which it has
accrued (at such time as there are sufficient authorized
shares of Common Stock) in accordance with the terms of this
Article 4.
(c) The Holder's election pursuant to this Section 4.3
shall be made in writing to the Company at any time prior to 5:00 p.m.,
E.S.T., on the third Business Day of the month following the month in
which Conversion Default payments have accrued. If no election is made,
the Holder shall be deemed to have elected to receive cash. Nothing
herein shall limit the Holders right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) due to the
Company's failure to maintain a sufficient number of authorized shares
of Common Stock.
(d) In no event shall the Company issue more than the
Maximum Number of Shares upon conversion of this Convertible Debenture,
unless the Company shall have obtained approval by the stockholders of
the Company ("Stockholder Approval") or a waiver of such requirement by
the OTC Bulletin Board or the National Market on which the Common
Shares are listed and traded at that time. Once the Maximum Number of
Shares has been issued (the date of which is hereinafter referred to as
the "Maximum Conversion Date"), unless the Company shall have obtained
Stockholder Approval or a waiver of such requirement by the OTC
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Bulletin Board or the National Market on which the Common Shares are
listed and traded at that time within 40 days of the Maximum Conversion
Date, the Company shall pay to the Holder within five (5) Business Days
of the Maximum Conversion Date (or, if the Company is, in good faith,
using its best efforts to obtain Stockholder Approval, then the earlier
of (x) 40 days following the Maximum Conversion Date, and (y) such date
that it becomes reasonably apparent that Stockholder Approval will not
be obtained within such 40 days period), the Redemption Price plus
accrued and unpaid Default Interest, if any. The Maximum Number of
Shares shall be subject to adjustment from time to time for stock
splits, stock dividends, combinations, capital reorganizations and
similar events relating to the Common Stock occurring after the date
hereof as contemplated by Article XI of the Agreement. With respect to
each Holder of Convertible Debentures, the Maximum Number of Shares
shall refer to such Holder's pro rata share thereof based upon the
aggregate principal balance of the Convertible Debentures then
outstanding. In the event that the Company obtains Stockholder
Approval, approval of the OTC Bulletin Board or the National Market on
which the Common Shares are listed and traded at that time, or
otherwise is able to increase the number of shares to be issued above
the Maximum Number of Shares (such increased number being the "New
Maximum Number of Shares"), the references to Maximum Number of Shares
above shall be deemed to be, instead, references to the New Maximum
Number of Shares.
4.4 Method of Conversion.
(a) Notwithstanding anything to the contrary set forth
herein, upon conversion of this Convertible Debenture in accordance
with the terms hereof, the Holder shall not be required to physically
surrender this Convertible Debenture to the Company unless the entire
unpaid principal amount of this Convertible Debenture is so converted.
Rather, records showing the principal amount converted (or otherwise
repaid) and the date of such conversion or repayment shall be
maintained on a ledger substantially in the form of Annex A attached
hereto (a copy of which shall be delivered to the Company or transfer
agent with each Notice of Conversion). It is specifically contemplated
that the Holder hereof shall act as the calculation agent for
conversions and repayments. In the event of any dispute or
discrepancies, such records maintained by the Holder shall be
controlling and determinative in the absence of manifest error or
failure of Holder to record the principal amount converted (or
otherwise repaid) from time to time, in which events the record of the
Company shall be controlling and determinative. The Holder and any
assignee, by acceptance of this Convertible Debenture, acknowledge and
agree that, by reason of the provisions of this paragraph, following a
conversion of a portion of this Convertible Debenture, the principal
amount represented by this Convertible Debenture will be the amount
indicated on Annex A attached hereto (which may be less than the amount
stated on the face hereof).
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(b) The Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock or other securities or
property on conversion of this Convertible Debenture in a name other
than that of the Holder (or in street name), and the Company shall not
be required to issue or deliver any such shares or other securities or
property unless and until the person or persons (other than the Holder
or the custodian in whose street name such shares are to be held for
the Holder's account) requesting the issuance thereof shall have paid
to the Company the amount of any such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
(c) Subject to Section 5 hereof, upon receipt by the
Company of a Notice of Conversion, the Holder shall be deemed to be the
holder of record of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid
interest on this Convertible Debenture shall be deemed reduced to
reflect such conversion, and, unless the Company defaults on its
obligations under this Article 4, all rights with respect to the
portion of this Convertible Debenture being so converted shall
forthwith terminate except the right to receive the Common Stock or
other securities, cash or other assets, as herein provided, on such
conversion. Subject to Section 5 hereof, if the Holder shall have given
a Notice of Conversion as provided herein, the Company's obligation to
issue and deliver the certificates for shares of Common Stock shall be
absolute and unconditional, irrespective of the absence of any action
by the Holder to enforce the same, any waiver or consent with respect
to any provisions thereof, the recovery of any judgment against any
person or any action by the Holder to enforce the same, any failure or
delay in the enforcement of any other obligation of the Company to the
Holder of record, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder of any
obligation to the Company, and subject to Section 4.4(a) irrespective
of any other circumstance which might otherwise limit such obligation
of the Company to the Holder in connection with such conversion. The
date of receipt (including receipt via telecopy) of such Notice of
Conversion shall be the Conversion Date so long as it is received
before 5:00 p.m., E.S.T., on such date.
(d) Notwithstanding the foregoing, if a Holder has not
received certificates for all shares of Common Stock prior to the
expiration of the Deadline with respect to a conversion of any portion
of this Convertible Debenture for any reason, then (unless the Holder
otherwise elects to retain its status as a holder of Common Stock by so
notifying the Company), the Holder shall regain the rights of a Holder
of this Convertible Debenture with respect to such unconverted portions
of this Convertible Debenture and the Company shall, as soon as
practicable, return such unconverted Convertible Debenture to the
holder or, if the Convertible Debenture has not been surrendered,
adjust its records to reflect that such portion of this Convertible
Debenture not been converted. In all cases, the Holder shall retain all
of its rights and remedies (including, without limitation, (i) the
right to receive Conversion Default Payments to the extent required
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thereby for such Conversion Default and any subsequent Conversion
Default and (ii) the right to have the Conversion Price with respect to
subsequent conversions determined in accordance with Section 4.3 for
the Company's failure to convert this Convertible Debenture.
(e) In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the
Company's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, upon
request of the Holder and its compliance with the provisions contained
in Section 4.1 and in this Section 4.4, the Company shall use its best
efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Holder by crediting the
account of Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission System.
5. Redemption by Company.
5.1 Company's Right to Redeem. In accordance with the provisions
of the Purchase Agreement, the Company may be required under certain
circumstances, to redeem in whole or in part, the remaining unpaid
principal amount of this Convertible Debenture, for cash at a
redemption price (the "Redemption Price") equal to the Prepayment Price
on the redemption date.
5.2 Mechanics of Redemption. The Company shall effect each such
redemption within 10 business days of receiving a notice to redeem by
facsimile with a copy by either overnight or 2-day courier from the
Holder of this Convertible Debenture. Such redemption notice shall
indicate whether the Company is required to redeem all or part of such
portion of the Convertible Debenture and the applicable Redemption
Price.
5.3 Payment of Redemption Price. The Redemption Price shall be
paid to the Holder of this Convertible Debenture within 10 business
days of the delivery of the notice of such redemption to such Holder.
6. Reserved.
7. Miscellaneous. This Convertible Debenture shall be deemed to
be a contract made under the laws of the State of Delaware, and for all purposes
shall be governed by and construed in accordance with the laws of said State.
The parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Convertible Debenture, except as specifically provided herein, and asset to
extensions of the time of payment, or forbearance or other indulgence without
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notice. The Company hereby submits to the exclusive jurisdiction of the United
States District Court for the State of Delaware and any state court sitting in
Delaware for purposes of all legal proceedings arising out of or relating to
this Convertible 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 proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in an
inconvenient forum. The Company hereby irrevocably waives any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Convertible Debenture.
The Holder of this Convertible Debenture by acceptance of this
Convertible Debenture agrees to be bound by the provisions of this Convertible
Debenture which are expressly binding on such Holder.
Signature Page Follows
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: February 28, 2003
PCS RESEARCH TECHNOLOGY, INC.
By: /s/ XXXXX X. XXXXXXXXXX
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Name: Xxxxx X. Xxxxxxxxxx
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Title:
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Convertible Debenture
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ANNEX A
CONVERSION AND REPAYMENT LEDGER
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Interest Principal Converted
Date Principal Balance Converted or Paid or Paid New Principal Balance Issuer Initials Holder Initials
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FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL INSTRUCTIONS:___________________________________________________________
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible Debenture)
The undersigned hereby irrevocably elects to convert $________
of the principal balance of the Convertible Debenture into shares of Common
Stock, ____ par value per share (the "Common Stock"), of PCS Research
Technology, Inc. (the "Company") according to the conditions hereof, as of the
date written below. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any. The undersigned, as contemplated by Section
5.1 of the Securities Purchase Agreement pursuant to which the Convertible
Debenture was issued, hereby states that the representations and warranties of
the undersigned set forth therein are true and correct in all material respects
as of the date hereof (provided, the undersigned makes no representations
concerning its investment intent with respect to the Common Stock received upon
this conversion).
Conversion calculations:
Date of Conversion
Applicable Conversion Price
Number of Shares
Name/Signature
Address:
