EXHIBIT 10.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: October ___, 2004
Original Conversion Price (subject to adjustment herein): $2.29
$_______________
VARIABLE RATE CONVERTIBLE DEBENTURE
DUE OCTOBER ___, 2008
THIS DEBENTURE is one of a series of duly authorized and issued
Variable Rate Convertible Debentures of Diomed Holdings, Inc.., a Delaware
corporation, having a principal place of business at
_____________________________ (the "Company"), designated as its Variable Rate
Convertible Debenture, due October ___, 2008 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), the principal
sum of $_______________ on October ___, 2008 or such earlier date as the
Debentures are required or permitted to be repaid as provided hereunder (the
"Maturity Date"), in cash or in Common Stock, subject to the terms and
conditions herein, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in
Section 5(e)(ii).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday in the United States 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.
"Change of Control Transaction" means the occurrence after the
date hereof 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 effective control (whether
through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of 33% of the voting securities
of the Company, or (ii) a replacement at one time or within a three
year period of more than one-half of the members of the Company's board
of directors which is not approved by a majority of those individuals
who are members of the board of directors on the date hereof (or by
those individuals who are serving as members of the board of directors
on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on
the date hereof), or (iii) 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) or (ii).
"Closing Price" means, for any date, the price determined by
the first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on a Trading Market, the closing bid
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board,
the closing bid price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is
not then listed or quoted on the OTC Bulletin Board and if prices for
the Common Stock are then reported in the "Pink Sheets" published by
the National Quotation Bureau Incorporated (or a similar organization
or agency succeeding to its functions of reporting prices), the most
recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the
Purchasers and reasonably acceptable to the Company.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001 per
share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section
4(a) hereof.
"Conversion Price" shall have the meaning set forth in Section
4(b).
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"Conversion Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance
with the terms hereof.
"Dilutive Issuance" shall have the meaning set forth in
Section 5(b) hereof.
"Effectiveness Period" shall have the meaning given to such
term in the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question,
(i) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Conversion
Notices, if any, (ii) all liquidated damages and other amounts owing in
respect of the Debentures shall have been paid; (iii) there is an
effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the
shares issuable pursuant to the Transaction Documents (and the Company
believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iv) the Common Stock is
trading on the Trading Market and all of the shares issuable pursuant
to the Transaction Documents are listed for trading on a Trading Market
(and the Company believes, in good faith, that trading of the Common
Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (v) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the
issuance of all of the shares issuable pursuant to the Transaction
Documents, (vi) there is then existing no Event of Default or event
which, with the passage of time or the giving of notice, would
constitute an Event of Default and (vii) all of the shares issued or
issuable pursuant to the transaction documents in full, ignoring for
such purposes any conversion or exercise limitation therein, would not
violate the limitations set forth in Section 4(c)(ii) and (ix) no
public announcement of a pending or proposed Fundamental Transaction,
Change of Control Transaction or acquisition transaction has occurred
that has not been consummated.
"Event of Default" shall have the meaning set forth in Section
8.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Floor Price" shall have the meaning set forth in
Section 5(b).
"Fundamental Transaction" shall have the meaning set
forth in Section 5(e)(iii) hereof.
"Forced Conversion" shall have the meaning set forth in
Section 6(d).
"Forced Conversion Notice" shall have the meaning set
forth in Section 6(d).
"Force Conversion Notice Date" shall have the meaning set
forth in Section 6(d).
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"Interest Conversion Rate" means 100% of the lesser of (a) the
average of the 5 Closing Prices immediately prior to the applicable
Interest Payment Date (b) the average of the 4 Closing Prices
immediately prior to the applicable Interest Payment Date, (c) the
average of the 3 Closing Prices immediately prior to the applicable
Interest Payment Date, (d) the average of the 2 Closing Prices
immediately prior to the applicable Interest Payment Date and (e) the
Closing Price immediately prior to the applicable Interest Payment
Date; provided however, if Shareholder Approval has been obtained, the
discount shall be 10% off the above formula.
"Late Fees" shall have the meaning set forth in the second
paragraph to this Debenture.
"Mandatory Prepayment Amount" for any Debentures shall equal
the sum of (i) the greater of: (A) 130% of the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon,
or (B) the principal amount of Debentures to be prepaid, plus all other
accrued and unpaid interest hereon, 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 Closing 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
greater, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of such Debentures.
"Market Price" shall mean $1.91, subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations
and other similar transactions of the Common Stock that occur after the
date of the Purchase Agreement.
"Maturity Conversion" shall have the meaning set forth in
Section 6(c)(iii).
"Maturity Conversion Notice" shall have the meaning set forth
in Section 6(c)(iii).
"Maturity Conversion Notice Date" shall have the meaning set
forth in Section 6(c)(iii).
"Maturity Conversion Price" shall have the meaning set forth
in Section 6(c)(iii).
"Optional Redemption" shall have the meaning set forth in
Section 6(a).
"Optional Redemption Amount" shall mean the sum of (i) 110% of
the principal amount of the Debenture then outstanding, (ii) accrued
but unpaid interest and (iii) all liquidated damages and other amounts
due in respect of the Debenture.
"Optional Redemption Notice" shall have the meaning set forth
in Section 6(a).
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"Optional Redemption Notice Date" shall have the meaning set
forth in Section 6(a).
"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.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of September __, 2004, to which the Company and the original
Holder are parties, 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 date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Conversion
Shares and naming the Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shareholder Approval" shall have the meaning given to such term in the
Purchase Agreement.
"Subsidiary" shall have the meaning given to such
term in the Purchase Agreement.
"Threshold Period" shall have the meaning given to such term
in Section 6(d).
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq SmallCap Market, the American Stock Exchange, the
New York Stock Exchange or the Nasdaq National Market.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
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"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the OTC Bulletin Board; (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board and
if prices for the Common Stock are then reported in the "Pink Sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (c) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in
good faith by the Holders and reasonably acceptable to the Company.
Section 2. Interest.
a) Payment of Interest in Cash or Kind. The Company shall pay
interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 400 basis
points plus the most recent 6-month LIBOR (London Interbank Offered
Rate), payable quarterly on March 31, June 30, September 30 and
December 31, beginning on the first such date after the Original Issue
Date and on each Conversion Date (as to that principal amount then
being converted), on each Forced Conversion Date (as to that principal
amount then being converted), on each Optional Redemption Date and on
the Maturity Date (except that, if any such date is not a Business Day,
then such payment shall be due on the next succeeding Business Day)
(each such date, an "Interest Payment Date"), in cash or shares of
Common Stock, or a combination of cash and shares of Common Stock, at
the Interest Conversion Rate, or a combination thereof; provided,
however, payment in shares of Common Stock may only occur if (i) during
the 20 Trading Days immediately prior to the applicable Interest
Payment Date all of the Equity Conditions have been met and (ii) unless
Shareholder Approval shall have been obtained, the applicable Interest
Conversion Rate is equal to or exceeds $1.91.
b) Company's Election to Pay Interest in Kind. Subject to the
terms and conditions herein, the decision whether to pay interest
hereunder in shares of Common Stock or cash shall be at the discretion
of the Company. Not less than 20 Trading Days prior to each Interest
Payment Date (the "Interest Payment Notice Date"), the Company shall
provide the Holder with written notice of its election to pay interest
hereunder either 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) and the exact
combination thereof. Within 20 Trading Days prior to an Interest
Payment Date, the Company's election (whether specific to an Interest
Payment Date or continuous) shall be irrevocable as to such Interest
Payment Date. Subject to the aforementioned conditions, failure to
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timely provide such written notice shall be deemed an election by the
Company to pay the interest on such Interest Payment Date in cash. The
Company's determination of whether to pay interest in cash or shares
shall be applied ratably to the Holders.
c) Interest Calculations. Interest shall be calculated on the
basis of a 360-day year and shall accrue daily commencing on the
Original Issue Date 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. Payment of interest in shares
of Common Stock shall otherwise occur pursuant to Section 4(d)(ii) and
only for purposes of the payment of interest in shares, the Interest
Payment Date shall be deemed the Conversion Date. Interest shall cease
to accrue with respect to any principal amount converted, provided that
the Company in fact delivers the Conversion Shares within the time
period required by Section 4(d)(ii). Interest hereunder will be paid to
the Person in whose name this Debenture is registered on the records of
the Company regarding registration and transfers of Debentures (the
"Debenture Register"). Except as otherwise provided herein, if at any
time the Company pays interest partially in cash and partially in
shares of Common Stock, then such payment shall be distributed ratably
among the Holders based upon the principal amount of Debentures held by
each Holder.
d) Late Fee. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at the rate of 18% per annum (or
such lower maximum amount of interest permitted to be charged under
applicable law) ("Late Fee") which will accrue daily, from the date
such interest is due hereunder through and including the date of
payment. Notwithstanding anything to the contrary contained herein, if
on any Interest Payment Date the Company has elected to pay interest in
Common Stock and is not able to pay accrued interest in the form of
Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then, at the
option of the Holder, the Company, in lieu of delivering either shares
of Common Stock pursuant to this Section 2 or paying the regularly
scheduled cash interest payment, shall deliver, within three Trading
Days of each applicable Interest Payment Date, an amount in cash equal
to the product of the number of shares of Common Stock otherwise
deliverable to the Holder in connection with the payment of interest
due on such Interest Payment Date and the highest Closing Price during
the period commencing on the Interest Payment Date and ending on the
Trading Day prior to the date such payment is made.
e) Prepayment. Except as otherwise set forth in this
Debenture, the Company may not prepay any portion of the principal
amount of this Debenture without the prior written consent of the
Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for
an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the
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same. No service charge will be made for such registration of transfer
or exchange.
b) Investment Representations. This Debenture has been issued
subject to certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred or exchanged
only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the
Company may treat the Person 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 4. Conversion.
a) Voluntary Conversion. At any time after the Original Issue
Date until this Debenture is no longer outstanding, 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 (subject
to the limitations on conversion set forth in Section 4(c) hereof). The
Holder shall effect conversions by delivering to the Company the form
of Notice of Conversion attached hereto as Annex A (a "Notice of
Conversion"), specifying therein the principal amount of Debentures to
be converted and the date on which such conversion is to be effected (a
"Conversion Date"). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of
Conversion is received by the Company pursuant to Section 9(a)
hereunder. To effect conversions hereunder, the Holder shall not be
required to physically surrender Debentures to the Company unless the
entire principal amount of this Debenture plus all accrued and unpaid
interest thereon has been so converted. Conversions hereunder shall
have the effect of lowering the outstanding principal amount of this
Debenture in an amount equal to the applicable conversion. The Holder
and the Company shall maintain records showing the principal amount
converted and the date of such conversions. The Company shall deliver
any objection to any Notice of Conversion within 2 Business Days of
receipt of such notice. The Holder and any assignee, by acceptance of
this Debenture, acknowledge and agree that, by reason of the provisions
of this paragraph, following conversion of a portion of this Debenture,
the unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
b) Conversion Price. The conversion price in effect on any
Conversion Date shall be equal to $2.29, subject to adjustment herein
(the "Conversion Price").
c) Xxxxxx's Restriction on Conversion.
a. The Holder shall not have the right to convert any
portion of this Debenture, pursuant to Section 4(a) or
8
otherwise, to the extent that after giving effect to such
conversion, the Holder (together with the Holder's
affiliates), as set forth on the applicable Notice of
Conversion, would beneficially own in excess of 4.99% of the
number of shares of the Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the
foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon
conversion of this Debenture with respect to which the
determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted
portion of this Debenture beneficially owned by the Holder or
any of its affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other
Debentures or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 4(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange
Act. To the extent that the limitation contained in this
section applies, the determination of whether this Debenture
is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is
convertible shall be in the sole discretion of such Holder. To
ensure compliance with this restriction, the Holder will be
deemed to represent to the Company each time it delivers a
Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the
Company shall have no obligation to verify or confirm the
accuracy of such determination. For purposes of this Section
4(c), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding
shares of Common Stock as reflected in (x) the Company's most
recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a
more recent public announcement by the Company or (z) any
other notice by the Company or the Company's Transfer Agent
setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder,
the Company shall within two Trading Days confirm orally and
in writing to the Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect
to the conversion or exercise of securities of the Company,
including this Debenture, by the Holder or its affiliates
since the date as of which such number of outstanding shares
of Common Stock was reported.
b. The Company shall not effect any conversion of
this Debenture pursuant to Section 4(a) or otherwise, to the
extent that after giving effect to such conversion, the Holder
(together with the Holder's affiliates), as set forth on the
applicable Notice of Conversion, would beneficially own in
excess of 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number
of shares of Common Stock beneficially owned by the Holder and
its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Debenture with respect
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to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock which would
be issuable upon (A) conversion of the remaining, nonconverted
portion of this Debenture beneficially owned by the Holder or
any of its affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other
Debentures or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 4(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange
Act. To the extent that the limitation contained in this
section applies, the determination of whether this Debenture
is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is
convertible shall be in the sole discretion of such Holder. To
ensure compliance with this restriction, the Holder will be
deemed to represent to the Company each time it delivers a
Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the
Company shall have no obligation to verify or confirm the
accuracy of such determination. For purposes of this Section
4(c), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding
shares of Common Stock as reflected in (x) the Company's most
recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a
more recent public announcement by the Company or (z) any
other notice by the Company or the Company's Transfer Agent
setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder,
the Company shall within two Trading Days confirm orally and
in writing to the Holder the number of shares of Common Stock
then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect
to the conversion or exercise of securities of the Company,
including this Debenture, by the Holder or its affiliates
since the date as of which such number of outstanding shares
of Common Stock was reported.
d) Mechanics of Conversion.
i. Conversion Shares Issuable Upon Conversion of
Principal Amount. The number of shares of Common Stock
issuable upon a conversion hereunder shall be determined by
the quotient obtained by dividing (x) the outstanding
principal amount of this Debenture to be converted as set
forth in the applicable Notice of Conversion by (y) the
Conversion Price. i.
ii. Delivery of Certificate Upon Conversion. Not
later than three Trading Days after any Conversion Date, the
Company will deliver to the Holder (A) a certificate or
certificates representing the Conversion Shares which shall be
free of restrictive legends and trading restrictions (other
than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the
conversion of Debentures (including, if so timely elected by
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the Company, shares of Common Stock representing the payment
of accrued interest) and (B) a bank check in the amount of
accrued and unpaid interest (if the Company is required to pay
accrued interest in cash). The Company shall, if available and
if allowed under applicable securities laws, 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.
iii. Failure to Deliver Certificates. If in the case
of any Notice of Conversion such certificate or certificates
are not delivered to or as directed by the applicable Holder
by the fifth Trading Day after a 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.
iv. Partial Liquidated Damages. If the Company fails
for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the third Trading
Day after the Conversion Date, the Company shall pay to such
Holder, in cash upon demand of such Holder, as liquidated
damages and not as a penalty, for each $1000 of principal
amount being converted, $10 per Trading Day (increasing to $20
per Trading Day after 10 Trading Days after such damages begin
to accrue) for each Trading Day after such third Trading Day
until such certificates are delivered. The Company's
obligations to issue and deliver the Conversion Shares upon
conversion of this Debenture in accordance with the terms
hereof are absolute and unconditional, irrespective of any
action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by
the Holder or any other Person of any obligation to the
Company or any violation or alleged violation of law by the
Holder or any other person, and irrespective of any other
circumstance which might otherwise limit such obligation of
the Company to the Holder in connection with the issuance of
such Conversion Shares; provided, however, such delivery shall
not operate as a waiver by the Company of any such action the
Company may have against the Holder. In the event a Holder of
this Debenture shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not
refuse conversion based on any claim that the Holder or any
one associated or affiliated with the Holder of has been
engaged in any violation of law, agreement or for any other
reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of this
Debenture shall have been sought and obtained and the Company
posts a surety bond for the benefit of the Holder in the
amount of 150% of the principal amount of this Debenture
outstanding, which is subject to the injunction, which bond
shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of
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which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same,
the Company shall issue Conversion Shares or, if applicable,
cash, upon a properly noticed conversion. Nothing herein shall
limit a Xxxxxx's right to pursue actual damages or declare an
Event of Default pursuant to Section 8 herein for the
Company's failure to deliver Conversion Shares 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.
v. Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the
Holder, if the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section
4(d)(ii) by the third Trading Day after the Conversion Date,
and if after such third Trading Day the Holder is required by
its brokerage firm to purchase (in an open market transaction
or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Conversion 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
actual sale price of the Common Stock at the time of the sale
(including brokerage commissions, if any) giving rise to such
purchase obligation and (B) at the option of the Holder,
either reissue Debentures in principal amount equal to 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(d)(ii). 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 actual sale
price of the Conversion Shares at the time of the sale
(including brokerage commissions, if any) giving rise to such
purchase obligation 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. 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(d)(iv) in respect of the certificates resulting in such
Buy-In.
12
vi. Reservation of Shares Issuable Upon Conversion.
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
Debenture, 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 5) 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 Registration
Statement is then effective under the Securities Act,
registered for public sale in accordance with such
Registration Statement.
vii. Fractional Shares. 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 Closing 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.
viii. Transfer Taxes. 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.
ix. Unless Shareholder Approval has been obtained and
deemed effective in accordance with the rules and regulations
of the Trading Market, the Company shall not make any issuance
whatsoever of Common Stock or Common Stock Equivalents to the
extent such issuance would otherwise cause an adjustment of
the Conversion Price of the Debentures or the Exercise Price
of the Warrants, or the exercise price of any Common Stock
Equivalents issued pursuant to the transactions contemplated
by Sections 2.3(a)(iii) and 2.3(b)(v) of the Purchase
Agreement, below the applicable Floor Prices (as defined
herein and in the Warrants). The Holder shall be entitled to
obtain injunctive relief against the Company to preclude any
13
such issuance, which remedy shall be in addition to any right
to collect damages and the Company expressly waives any
requirement that any court require the Holder to post any bond
in connection therewith.
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any
time while the 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 (which, for avoidance of doubt, shall
not include any shares of Common Stock issued by the Company pursuant
to this Debenture, including as interest thereon), (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 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.
b) Subsequent Equity Sales. If the Company or any Subsidiary
thereof, as applicable, at any time while Debentures are outstanding,
shall offer, sell, grant any option to purchase or offer, sell or grant
any right to reprice its securities, or otherwise dispose of or issue
(or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock, at an effective price per
share less than the then Conversion Price ("Dilutive Issuance"), as
adjusted hereunder (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options
or rights per share which is issued in connection with such issuance,
be entitled to receive shares of Common Stock at an effective price per
share which is less than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price), then the
Conversion Price shall be reduced to equal the effective conversion,
exchange or purchase price for such Common Stock or Common Stock
Equivalents (including any reset provisions thereof) at issue;
provided, however, prior to the date the Company obtains Shareholder
Approval in accordance with the rules and regulations of the Trading
Market, in no event shall the Conversion Price be adjusted under this
Section 5(b) to less than $2.20, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of
this Agreement (the "Floor Price"). Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued and
14
this provision is invoked. The Company shall notify the Holder in
writing, no later than three business days following the issuance of
any Common Stock or Common Stock Equivalents subject to this section,
indicating therein the applicable issuance price, or of applicable
reset price, exchange price, conversion price and other pricing terms.
c) Pro Rata Distributions. 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 Conversion Price shall be determined by multiplying
such 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
Closing Price determined as of the record date mentioned above, and of
which the numerator shall be such Closing Price 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 and considering the value to be received by the
Company for the proceeds, if any, of the exercise of the rights or
issuance of the indebtedness giving rise to the adjustment of the
Conversion Price hereunder. 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.
d) Calculations. All calculations under this Section 5 shall
be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 5, the number of shares of
Common Stock outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding.
e) Notice to Holders.
i. Adjustment to Conversion Price. Whenever the
Conversion Price is adjusted pursuant to any of this Section
5, the Company shall promptly mail to each Holder a notice
setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the
Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or
exercise price at which such securities may be converted or
exercised in the case of a Variable Rate Transaction (as
defined in the Purchase Agreement), or the lowest possible
adjustment price in the case of an MFN Transaction (as defined
in the Purchase Agreement).
15
ii. Notice to Allow Conversion by Xxxxxx. 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, 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.
iii. Fundamental Transaction. If, at any time while
this Debenture is outstanding, (A) the Company effects any
merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to
which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property,
or (D) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for
other securities, cash or property (in any such case, a
"Fundamental Transaction"), then upon any subsequent
conversion of this Debenture, the Holder shall have the right
to receive, for each Conversion Share that would have been
issuable upon such conversion absent such Fundamental
16
Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder
of one share of Common Stock (the "Alternate Consideration").
For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Common Stock
in such Fundamental Transaction, and the Company shall
apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon
any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the
foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue
to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder's right to convert such
debenture into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this
paragraph (c) and insuring that this Debenture (or any such
replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
iv. Exempt Issuance. Notwithstanding the foregoing,
no adjustment will be made under this Section 5 in respect of
an Exempt Issuance.
Section 6. Redemption and Forced Conversion.
a) Optional Redemption at Election of Company. Subject to the
provisions of this Section 6, if at any time after the 1 year
anniversary of the Effective Date each of the Closing Prices during any
20 consecutive Trading Day period is less than the then Conversion
Price (such period commencing only after such anniversary date, such
period the "Redemption Threshold Period"), the Company may, within 1
Trading Day of any Redemption Threshold Period, deliver a notice to the
Holders (an "Optional Redemption Notice" and the date such notice is
deemed delivered hereunder, the "Optional Redemption Notice Date") of
its irrevocable election to redeem on the 20th Trading Day following
the Optional Redemption Notice Date (such date, the "Optional
Redemption Date" and such redemption, the "Optional Redemption") all of
the then outstanding Debentures, for an amount, in cash, equal to the
Optional Redemption Amount. The Optional Redemption Amount is due in
full on the Optional Redemption Date. The Company may only effect an
optional redemption if during the Redemption Threshold Period through
to the Optional Redemption Date, each of the Equity Conditions shall
have been met. If any of the Equity Conditions shall cease to be
satisfied at any time during the required period, then the Holder may
17
elect to nullify the Optional Redemption Notice by notice to the
Company within 3 Trading Days after the first day on which any such
Equity Condition has not been met (provided that if, by a provision of
the Transaction Documents the Company is obligated to notify the Holder
of the non-existence of an Equity Condition, such notice period shall
be extended to the third Trading Day after proper notice from the
Company) in which case the Optional Redemption Notice shall be null and
void, ab initio. Any election by the Company under this Section 6(a)
shall require the redemption of all Debentures.
b) Redemption Procedure. The payment of cash pursuant to an
Optional Redemption shall be made on the Optional Redemption Date. If
any portion of the cash payment for an Optional Redemption shall not be
paid by the Company by the respective due date, interest shall accrue
thereon at the rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the Optional Redemption
Amount, plus all amounts owing thereon is paid in full. Alternatively,
if any portion of the Optional Redemption Amount remains unpaid after
such date, the Holders may elect, by written notice to the Company
given at any time thereafter, to invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary, and, with
respect the failure to honor the Optional Redemption, the Company shall
have no further right to exercise such Optional Redemption. The Holder
may elect to convert the outstanding principal amount of the Debenture
pursuant to Section 4 prior to actual payment in cash for any
redemption under this Section 6 by fax delivery of a Notice of
Conversion to the Company. The Company covenants and agrees that it
will honor all Conversion Notices tendered from the time of delivery of
the Optional Redemption Notice through the date all amounts owing
thereon are due and paid in full.
c) Forced Conversion.
i. Notwithstanding anything herein to the contrary,
if after the 1 year anniversary of the Effective Date each of
the Closing Prices for any 20 consecutive Trading Days (such
period commencing only after such anniversary date, such
period the "Conversion Threshold Period")) equals or exceeds
175% of the then Conversion Price, the Company may, within 1
Trading Day of the end of any Conversion Threshold Period,
deliver a notice to the Holder (a "Forced Conversion Notice"
and the date such notice is received by the Holder, the
"Forced Conversion Notice Date") to cause the Holder to
immediately convert all or part of the then outstanding
principal amount of Debentures pursuant to Sections 4(a) and
4(b). The Company may only effect a Forced Conversion Notice
if all of the Equity Conditions are met through the Conversion
Threshold Period until the date of the applicable Forced
Conversion. Any Forced Conversion shall be applied ratably to
all Holders based on their initial purchases of Debentures
pursuant to the Purchase Agreement.
ii. Notwithstanding anything herein to the contrary,
if (A) the Company has obtained Shareholder Approval in
accordance with the rules and regulations of the Trading
Market and (B) during the period beginning on the 80th Trading
18
Day prior to the Maturity Date until the 60th Trading Day
prior to the Maturity Date the average daily trading volume of
the Common Stock equals or exceeds 65,000 (subject to
adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this
Agreement) (such period the "Maturity Threshold Period"), the
Company may, within 1 Trading Day of the end of such Threshold
Period, deliver a notice to the Holder (a "Maturity Conversion
Notice" and the date such notice is received by the Holder,
the "Maturity Conversion Notice Date") to cause the Holder to
immediately convert all of the then outstanding principal
amount of Debentures pursuant to Section 4(a) (the "Maturity
Conversion"); provided, however, the conversion price for such
Maturity Conversion shall be equal to the lesser of (x) the
then Conversion Price and (y) 90% of the average of the VWAPs
for the 20 Trading Days immediately prior to the Maturity Date
(the "Maturity Conversion Price"). The Company may only effect
a Maturity Conversion Notice if all of the Equity Conditions
are met through the Threshold Period until the date of the
applicable Maturity Conversion. Any Maturity Conversion shall
be applied ratably to all Holders based on their initial
purchases of Debentures pursuant to the Purchase Agreement.
Section 7. Negative Covenants. So long as 10% of the principal amount
of this Debenture is outstanding, the Company will not and will not permit any
of its Subsidiaries to directly or indirectly:
a) enter into, create, incur, assume or suffer to exist any
indebtedness or liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom that is senior to, or pari
passu with, in any respect, the Company's obligations under the
Debentures, excluding purchase money security interests granted to
suppliers to the Company and any of the foregoing that are made in the
ordinary course of business of the Company and its Subsidiaries;
b) amend its certificate of incorporation, bylaws or to her
charter documents so as to adversely affect any rights of the Holder;
c) repay, repurchase or offer to repay, repurchase or
otherwise acquire more than a de minimis number of shares of its Common
Stock or other equity securities other than as to the Conversion Shares
to the extent permitted or required under the Transaction Documents or
as otherwise permitted by the Transaction Documents; or
d) enter into any agreement with respect to any of the
foregoing.
Section 8. 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
19
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 (A) the principal of
amount of any Debenture, or (B) interest (including Late Fees)
on, or liquidated damages in respect of, any Debenture, in
each case free of any claim of subordination, as and when the
same shall become due and payable (whether on a Conversion
Date or the Maturity Date or by acceleration or otherwise)
which default, solely in the case of an interest payment or
other default under clause (B) above, is not cured, within 3
Trading Days;
ii. the Company shall fail to observe or perform any
other covenant or agreement contained in this Debenture or any
of the other Transaction Documents (other than a breach by the
Company of its obligations to deliver shares of Common Stock
to the Holder upon conversion which breach is addressed in
clause (xii) below) which failure is not cured, if possible to
cure, within the earlier to occur of (A) 5 Trading Days after
notice of such default sent by the Holder or by any other
Holder and (B)10 Trading Days after the Company shall become
or should have, with the exercise of reasonable care, become
aware of such failure;
iii. a default or event of default (subject to any
grace or cure period provided for in the applicable agreement,
document or instrument) shall occur under (A) any of the
Transaction Documents other than the Debentures, or (B) any
other material agreement, lease, document or instrument to
which the Company or any Subsidiary is bound and which is not
covered during the applicable cure period;
iv. any representation or warranty made herein, in
any other Transaction Document, in any written statement
pursuant hereto or thereto, or in any other report, financial
statement or certificate made or delivered to the Holder or
any other holder of Debentures shall be untrue or incorrect in
any material respect as of the date when made or deemed made;
v. (i) the Company or any of its Subsidiaries 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 or any Subsidiary commences any other
proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any Subsidiary
thereof or (ii) 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 (iii) the Company or any Subsidiary thereof is adjudicated
by a court of competent jurisdiction insolvent or bankrupt; or
any order of relief or other order approving any such case or
proceeding is entered; or (iv) the Company or any Subsidiary
20
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 (v) the
Company or any Subsidiary thereof makes a general assignment
for the benefit of creditors; or (vi) 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
(vii) 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
(viii) 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 (ix) any
corporate or other action is taken by the Company or any
Subsidiary thereof for the purpose of effecting any of the
foregoing;
vi. the Company or any Subsidiary 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
$150,000, 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;
vii. the Common Stock shall not be eligible for
quotation on or quoted for trading on a Trading Market and
shall not again be eligible for and quoted or listed for
trading thereon within five Trading Days;
viii. the Company shall be a party to any Change of
Control Transaction or Fundamental Transaction, shall agree to
sell or dispose of all or in excess of 40% 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 its outstanding
shares of Common Stock or other equity securities of the
Company (other than redemptions of Conversion Shares and
repurchases of shares of Common Stock or other equity
securities of departing officers and directors of the Company;
provided such repurchases shall not exceed $100,000, in the
aggregate, for all officers and directors during the term of
this Debenture) or the Company or any of its Subsidiaries
shall sell, pledge, dispose of or otherwise encumber any of
its respective Intellectual Property Rights; provided,
however, that nothing contained in this subsection 8(a)(viii)
shall be deemed to limit the Company's ability to license its
Intellectual Property or abandon or discontinue prosecution of
any of its Intellectual Property in the ordinary course of its
business;
21
ix. a Registration Statement shall not have been
declared effective by the Commission on or prior to the 180th
calendar day after the Closing Date or any other or any other
Event (as defined in the Registration Rights Agreement);
x. if, during the Effectiveness Period (as defined in
the Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder
shall not be permitted to resell Registrable Securities (as
defined in the Registration Rights Agreement) under the
Registration Statement, in either case, for more than 30
consecutive Trading Days or 60 non-consecutive Trading Days
during any 12 month period; provided, however, that in the
event that the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets
or a similar transaction and in the written opinion of counsel
to the Company, the Registration Statement, would be required
to be amended to include information concerning such
transactions or the parties thereto that is not available or
may not be publicly disclosed at the time, the Company shall
be permitted an additional 30 consecutive Trading Days
one-time during any 12 month period relating to such an event;
xi. an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of
the Holder prior to the expiration of thirty days from the
Event Date (as defined in the Registration Rights Agreement)
relating thereto (other than an Event resulting from a failure
of an Registration Statement to be declared effective by the
Commission on or prior to the Effectiveness Date (as defined
in the Registration Rights Agreement), which shall be covered
by Section 8(a)(ix);
xii. the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after
a Conversion Date pursuant to and in accordance with Section
4(d) 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;
xiii. the Company shall fail for any reason to pay in
full the amount of cash due pursuant to a Buy-In within 7
Trading Days after notice therefor is delivered hereunder or
shall fail to pay all amounts owed on account of an Event of
Default within five days of the date due;
xiv. the Company shall fail to have available a
sufficient number of authorized and unreserved shares of
Common Stock to issue to such Holder upon a conversion
hereunder; or
xv. any Person shall breach the agreements delivered
to the initial Holders pursuant to Section 2.2(a)(v) of the
Purchase Agreement and the Company does not obtain Shareholder
Approval.
22
b) Remedies Upon Event of Default. If any Event of Default
occurs, the full principal amount of this Debenture, together with
interest and other amounts owing in respect thereof, to the date of
acceleration shall become, at the Holder's election, immediately due
and payable in cash. The aggregate amount payable upon an Event of
Default shall be equal to the Mandatory Prepayment Amount. Commencing 5
days after the occurrence of any Event of Default that results in the
eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at the rate of 18% per annum, or such lower
maximum amount of interest permitted to be charged under applicable
law. All Debentures for which the full Mandatory Prepayment Amount
hereunder shall have been paid in accordance herewith shall promptly 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 and the Holder shall have
all rights as a Debenture holder until such time, if any, as the full
payment under this Section shall have been received by it. No such
rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders or by the Company hereunder,
including, without limitation, any Notice of Conversion, shall be made
in accordance with Section 5.4 of the Purchase Agreement.
b) Absolute Obligation. 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 debt obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter
issued under the terms set forth herein.
c) Lost or Mutilated Debenture. 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.
d) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal
23
laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the
state and federal courts sitting in the City of New York, Borough of
Manhattan (the "New York Courts"). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), 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 such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served
in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it
under this Debenture 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. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all
right to trial by jury in any legal proceeding arising out of or
relating to this Debenture or the transactions contemplated hereby. If
either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action
or proceeding shall be reimbursed by the other party for its attorneys
fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.
e) Waiver. 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.
f) Severability. 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 or
other amount deemed interest due hereunder violates applicable laws
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest
24
on this Debenture as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefits or advantage of
any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted
to the Holder, but will suffer and permit the execution of every such
as though no such law has been enacted.
g) Next Business Day. 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.
h) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
*********************
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.
DIOMED HOLDINGS, INC.
By:
--------------------------------
Name:
Title:
26
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the Variable
Rate Convertible Debenture of Diomed Holdings, Inc.., a Delaware corporation
(the "Company"), due on October ___, 2008, into shares of common stock, par
value $0.001 per share (the "Common Stock"), of 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 the 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.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Company's Common Stock
does not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act, as further specified under Section 4(c) of this Debenture.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debentures to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account
of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
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SCHEDULE 1
CONVERSION SCHEDULE
The Variable Rate Convertible Debentures due on October ___, 2008, in the
aggregate principal amount of $____________ issued by Diomed Holdings, Inc..
This Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.
Dated:
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Aggregate
Principal
Amount
Remaining
Subsequent to
Conversion
Date of Conversion (or original
(or for first entry, Amount of Principal
Original Issue Date) Conversion Amount) Company Attest
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