EXHIBIT 4.2
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE UNITED STATES 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.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
CONVERSION SET FORTH IN A CONVERTIBLE SUBORDINATED DEBENTURE PURCHASE AGREEMENT,
DATED AS OF DECEMBER 1, 1997, BETWEEN DIGITAL BIOMETRICS, INC. (THE "COMPANY")
AND THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
No. A-1 U.S. $50,000
DIGITAL BIOMETRICS, INC.
8% CONVERTIBLE SUBORDINATED DEBENTURE DUE DECEMBER 1, 2000
THIS DEBENTURE is one of a series of duly authorized issued debentures
in an aggregate principal amount of up to $2,500,000, of Digital Biometrics,
Inc., a Delaware corporation and having a principal place of business at 0000
Xxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxxx, 00000 (the "Company"), designated as its 8%
Convertible Subordinated Debentures, due December 1, 2000 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to KA INVESTMENTS LDC,
or registered assigns (the "Holder"), the principal sum of Fifty Thousand
Dollars ($50,000), on or prior to December 1, 2000 or such earlier date as the
Debentures are required to be repaid as provided hereunder (the "Maturity Date")
and to pay interest to the Holder on the principal sum at the rate of 8% per
annum, payable upon conversion as provided hereunder, or on the Maturity Date if
not earlier converted. Interest shall accrue daily commencing on the Original
Issue Date (as defined in Section 6) 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. Interest shall be calculated on the basis of a
360-day year and for the actual number of days elapsed. 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 the Debentures (the "Debenture
Register"). All overdue, accrued and unpaid interest and other amounts due
hereunder shall bear interest at the rate of 15% per annum from the date such
interest is due hereunder through and including the date of payment. The
principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address of the Holder
last appearing on the Debenture Register, except that principal paid on December
1, 2000 and interest due hereunder may, at the Company's option, be paid in
shares of the Common Stock (as defined in Section 6) calculated based upon the
Conversion Price (as defined below) on the Conversion Date, Maturity Date or the
date upon which interest shall cease to accrue, as the case may be. All amounts
due hereunder shall be paid in cash or Common Stock as provided for herein.
Notwithstanding anything to the contrary contained herein, the Company may not,
without the prior written consent of the Holder, issue shares of the Common
Stock in payment of interest on the principal amount or principal on December 1,
2000 if: (i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury stock, is
insufficient to pay interest or principal hereunder in shares of Common Stock;
(ii) such shares are not either registered for resale pursuant to an Underlying
Securities Registration Statement (as defined in Section 6) or freely
transferable without volume restrictions pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Holder, in form and substance acceptable to the Holder; (iii) such shares are
not listed on the Nasdaq National Market (or the American Stock Exchange, Nasdaq
SmallCap Market or The New York Stock Exchange) and any other exchange on which
the Common Stock is then listed for trading; or (iv) the issuance of such shares
would result in the recipient thereof beneficially owning more than 4.999% of
the issued and outstanding shares of Common Stock as determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Payment
of interest on the Debentures in shares of Common Stock is also subject to the
provisions of Section 4(a)(ii).
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the
Company and any agent of the Company may treat the person in whose name this
Debenture is duly registered on the Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture is overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary.
Section 3. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(a) any default in the payment of the principal of, interest
on, or liquidated damages in respect of, this Debenture, free of any
claim of subordination, as and when the same shall become due and
payable (whether on the Conversion Date or the Maturity Date or by
acceleration or otherwise). Notwithstanding anything to the contrary,
no Event of Default shall exist upon the occurrence of a default in the
payment of interest on this Debenture that the Company cures within
five (5) days following receipt of written notice of such default;
(b) the Company shall fail to observe or perform any other
material covenant, agreement or warranty contained in, or otherwise
commit any breach of, this Debenture, the Purchase Agreement or the
Registration Rights Agreement (as defined in Section 6), and such
failure or breach shall not have been remedied within 10 days after the
date on which notice of such failure or breach shall have been given;
(c) 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 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 there is commenced
against the Company or any subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period
of 60 days; or the Company or any subsidiary thereof is adjudicated
insolvent or bankrupt; or any order of relief or other order approving
any such case or proceeding is entered; or the Company or any
subsidiary thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Company or any
subsidiary thereof makes a general assignment for the benefit of
creditors; or the Company shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any subsidiary thereof shall call a
meeting of its creditors with a view to arranging a composition or
adjustment of its debts; or the Company or any subsidiary thereof shall
by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or any corporate or other action
is taken by the Company or any subsidiary thereof for the purpose of
effecting any of the foregoing;
(d) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness of the Company in an
amount exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(e) the Common Stock shall be delisted from the Nasdaq
National Market or any other national securities exchange or market on
which such Common Stock is listed for trading or suspended from trading
thereon without being relisted on the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange or New York Stock
Exchange or having such suspension lifted, as the case may be, within
two Trading Days; or
(f) the Company shall be a party to any merger or
consolidation pursuant to which the Company shall not be the surviving
entity or shall dispose of all or substantially all of its assets in
one or more transactions, or shall redeem more than a de minimis number
of shares of Common Stock (other than redemptions of Underlying
Shares).
If during the time that any portion of this Debenture remains outstanding, any
Event of Default occurs and is continuing, and in every such case, then the
Holders of a majority in interest of the outstanding principal amount of
Debentures may, by notice to the Company, declare the full principal amount of
this Debenture, together with all accrued but unpaid interest and other amounts
owing hereunder, to the date of acceleration, to be, plus the Adjustment Amount
(as defined in Section 6) whereupon the same shall become, immediately due and
payable in cash (notwithstanding anything herein contained to the contrary)
without presentment, demand, protest or other notice of any kind, all of which
are waived by the Company, notwithstanding anything herein contained to the
contrary, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded
and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
Section 4. Conversion.
(a)(i) This Debenture shall be convertible into shares of the
Common Stock at the option of the Holder in whole or in part at any time and
from time to time upon the earlier to occur of (1) the date an Underlying
Securities Registration Statement is declared effective by the U.S. Securities
and Exchange Commission (the "Commission") and (2) the 90th day after the
Original Issue Date, and prior to the close of business on the Maturity Date.
The number of shares of Common Stock as shall be issuable upon a conversion
hereunder shall be determined by dividing the principal amount of, plus accrued
but unpaid interest on, the Debenture to be converted by the Conversion Price
(as defined below), each as subject to adjustment as provided hereunder. The
Holder shall effect conversions by surrendering the Debentures (or such portions
thereof) to be converted, together with the form of conversion notice attached
hereto as Exhibit A (the "Holder Conversion Notice") to the Company. Each Holder
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Holder Conversion Notice is deemed to have
been delivered hereunder (the "Holder Conversion Date"). If no Holder Conversion
Date is specified in a Holder Conversion Notice, the Holder Conversion Date
shall be the date that the Holder Conversion Notice is deemed delivered
hereunder. Subject to Sections 4(a)(ii) and 4(b) hereof and Section 3.8 of the
Purchase Agreement, each Holder Conversion Notice, once given, shall be
irrevocable. If the Holder is converting less than all of the principal amount
represented by the Debenture(s) tendered by the Holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) Certain Regulatory Approval. If on any Conversion
Date (A) the Common Stock is listed for trading on the Nasdaq National Market,
Nasdaq SmallCap Market or American Stock Exchange, (B) the Conversion Price then
in effect is such that the aggregate number of shares of the Common Stock that
would then be issuable upon conversion of the entire outstanding principal
amount of Debentures, together with any shares of the Common Stock previously
issued upon conversion of Debentures and as payment of interest thereunder would
equal or exceed 20% of the number of shares of the Common Stock outstanding on
the Original Issue Date (such number of shares, up to the number of shares as
equals such amount, the "Issuable Maximum"), and (C) the Company has not
previously obtained the Stockholder Approval (as defined below), then the
Company shall issue to the Holder requesting such conversion the Issuable
Maximum and, with respect to any shares of the Common Stock that otherwise would
have been issuable to such holder in respect of the Conversion Notice at issue
or in respect of payment of interest hereunder in excess of the Issuable
Maximum, the Holder shall have the option to require the Company to either (1)
as promptly as possible, but in no event later than 90 days after such
Conversion Date, convene a meeting of the holders of the Common Stock and obtain
the Stockholder Approval or (2) prepay the balance of the aggregate principal
amount of the Debentures then outstanding and held by such Holder. The
prepayment amount shall equal the Mandatory Prepayment Amount (as defined in
Section 6) for Debentures to be prepaid; provided, however, that if the Holder
has requested that the Company obtain Stockholder Approval under paragraph (1)
above and the Company fails for any reason to obtain such Stockholder Approval
within the time period set forth in (1) above, the Company shall be obligated to
prepay Debentures in accordance with the provisions of paragraph (2) above, and
in such case the interest contemplated by the immediately succeeding sentence
shall be deemed to accrue from the Conversion Date. If the Holder has requested
that the
Company prepay Debentures pursuant to this Section and the Company fails for any
reason to pay the prepayment price under (2) above within seven days after the
Conversion Date, the Company will pay interest on such prepayment price at a
rate of 15% per annum to the converting Holder, accruing from the Conversion
Date until the prepayment price plus any accrued interest thereon is paid in
full. The entire Mandatory Prepayment Amount, including interest thereon, shall
be paid in cash. "Stockholder Approval" means the approval by a majority of the
total votes cast on the proposal, in person or by proxy, at a meeting of the
stockholders of the Company held in accordance with the Company's Certificate of
Incorporation and by-laws, of the issuance by the Company of shares of the
Common Stock exceeding the Issuable Maximum as a consequence of the conversion
of Debentures into the Common Stock at a price less than the greater of the book
or market value on the Original Issue Date as and to the extent required
pursuant to Rule 4460(i) of the Nasdaq Stock Market or Rule 713 of the American
Stock Exchange (or any successor or replacement provision thereof), as
applicable.
(iii) Provided that either (a) there has been a "Change
of Control" (as defined below) of Tarmachan Capital Management ("Tarmachan") or
(b) Xxxxx Xxxxxxx has left Tarmachan or has suffered a voluntary or involuntary
material lessening of responsibility as Chairman, this Debenture shall be
convertible in whole or in part into a number of shares of Common Stock equal to
the Conversion Price at the option of the Company; provided, however, that the
Company is not permitted to deliver a Company Conversion Notice (as defined
below) at any time when the Underlying Securities Registration Statement is not
then effective or shares of Common Stock are not listed for trading. The Company
shall effect such conversion by delivering to the Holder a written notice in the
form attached hereto as Exhibit B (the "Company Conversion Notice"), which
Company Conversion Notice, once given, shall be irrevocable. Each Company
Conversion Notice shall specify the principal amount of Debentures to be
converted in the case of a conversion at the Maturity Date or the amount of
accrued interest being converted in the case of a conversion of accrued
interest. The Company shall deliver such Company Conversion Notice at least two
(2) Trading Days before the Maturity Date or the date of conversion of the
accrued interest (such date is hereinafter referred to as the "Company
Conversion Date"). Upon its receipt of a Company Conversion Notice, the Holder
shall surrender the principal amount of Debentures subject to such notice at the
office of the Company or of any transfer agent for the Debentures or Common
Stock. If the Company is converting less than the aggregate principal amount of
all Debentures, the Company shall, upon conversion of the principal amount of
Debentures subject to such Company Conversion Notice and receipt of the
Debentures surrendered for conversion, deliver to the Holder, a replacement
Debenture for such principal amount of Debentures as have not been converted.
Each of a Holder Conversion Notice and a Company Conversion Notice is sometimes
referred to herein as a "Conversion Notice," and each of a "Holder Conversion
Date" and a "Company Conversion Date" is sometimes referred to herein as a
"Conversion Date." "Change of Control" means, for purposed of this Section
4(a)(iii), the occurrence of an acquisition, after the Original Issue Date, by
an individual, group, or legal entity of all of the voting securities of
Tarmachan.
(b) Not later than three Trading Days after the Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of the Common Stock being acquired upon the conversion of
Debentures (subject to reduction pursuant to Section 4(a)(ii) hereof and Section
3.1(b) of the Purchase Agreement), (ii) Debentures in a principal amount equal
to the principal amount of Debentures not converted; (iii) a bank check in the
amount of all accrued and unpaid interest (if the Company has elected to pay
accrued interest in cash), together with all other amounts then due and payable
in accordance with the terms hereof, in respect of Debentures tendered for
conversion and (iv) if the Company has elected to pay accrued interest in shares
of the Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of the Common Stock as
equals such interest divided by the Conversion Price calculated on the
Conversion Date; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of the Common Stock issuable upon
conversion of the principal amount of Debentures until Debentures are either
delivered for conversion to the Company or any transfer agent for the Debentures
or the Common Stock, or the Holder notifies the Company that such Debenture has
been mutilated, lost, stolen or destroyed and complies with Section 9 hereof.
The Company shall, upon request of the Holder, use its best efforts to deliver
any certificate or certificates required to be delivered by the Company under
this Section electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions. If in the case of
any Conversion Notice such certificate or certificates, including for purposes
hereof, any shares of the Common Stock to be issued on the Conversion Date on
account of accrued but unpaid interest hereunder, are not delivered to or as
directed by the applicable Holder by the third Trading Day after the Conversion
Date, the Holder shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
Debentures tendered for conversion. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section, including for
purposes hereof, any shares of the Common Stock to be issued on the Conversion
Date on account of accrued but unpaid interest hereunder, prior to the fifth
Trading Day after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, $1,500 for each day thereafter
until the Company delivers such certificates. If the Company fails to deliver to
the Holder such certificate or certificates pursuant to this Section prior to
the 20th day after the Conversion Date, the Company shall, at the Holder's
option (i) prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of the principal amount of Debentures then held by
such Holder, as requested by such Holder, and (ii) pay all accrued but unpaid
interest on account of the Debentures for which the Company shall have failed to
issue the Common Stock certificates hereunder, in cash. The prepayment amount
shall equal the Mandatory Prepayment Amount for the Debentures to be prepaid. If
the Holder has required the Company to prepay Debentures pursuant to this
Section and the Company fails for any reason to pay the prepayment price within
seven
days after such notice is deemed delivered hereunder, the Company will pay
interest on the prepayment price at a rate of 15% per annum, in cash to such
Holder, accruing from such seventh day until the prepayment price and any
accrued interest thereon is paid in full.
(c) (i) The conversion price (the "Conversion Price") in
effect on any Conversion Date shall be the lesser of (a) $1.96 (the "Initial
Conversion Price") and (b) .80 multiplied by the Average Price calculated on the
Conversion Date; provided, that, (a) if an Underlying Securities Registration
Statement is not filed on or prior to the 30th day after the Original Issue Date
provided, that if such day is not a Business Day, such 30th day shall be the
next succeeding Business Day, or (b) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12d1-2 promulgated
under the Securities Exchange Act of 1934, as amended, within five (5) days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that an Underlying Securities Registration Statement
will not be "reviewed" or is not subject to further review or comment by the
Commission, provided, however that such five (5) day period may be extended in
the event that the Company reasonably believes that such Underlying Securities
Registration Statement should be amended to include material non-public
information, or (c) if the Underlying Securities Registration Statement is not
declared effective by the Commission on or prior to the 90th day after the
Original Issue Date provided, that, if such day is not a Business Day, such 90th
day shall be the next succeeding Business Day, or (d) if such Underlying
Securities Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Securities Registration Statement filed with and declared
effective by the Commission within 10 Business Days (as defined in Section 6),
or (e) if trading in the Common Stock shall be suspended for any reason for more
than two Trading Days, or (f) if the conversion rights of the Holders of
Debentures are suspended for any reason or the Holder is not permitted to resell
Registrable Securities under the Underlying Securities Registration Statement
(any such failure being referred to as an "Event," and for purposes of clauses
(a), (c) and (f) the date on which such Event occurs, or for purposes of clause
(b) the date on which such five (5) days period is exceeded, or for purposes of
clause (d) the date which such 10 Business Day-period is exceeded, or for
purposes of clause (e) the date on which such two Trading Day period is
exceeded, being referred to as "Event Date"), the Company shall pay to the
Holders 1.0% of the product of the principal amount of outstanding Debentures
(each Holder being entitled to receive such portion of such amount as equals its
pro rata portion of Debentures then outstanding), in cash on the Event Date and
an additional 1.0% for each applicable 30 day period thereafter, as liquidated
damages. Commencing the 60th day after the Event Date, for each applicable 30
day period thereafter, the Company shall pay to the Holders 3.0% of the product
of the principal amount of outstanding Debentures (each Holder being entitled to
receive such portion of such amount as equals its pro rata portion of Debentures
then outstanding), in cash until such time as the applicable Event is cured
provided, that the total amount of
liquidated damages the Company shall pay to the Holder pursuant to this Section
5(c)(i) shall not exceed $500,000 in aggregate.
(ii) If the Company, at any time while any Debentures
are outstanding, (a) shall pay a stock dividend or otherwise make a distribution
or distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the 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, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures
are outstanding, shall issue rights or warrants to all holders of the Common
Stock (and not to Holders of Debentures) entitling them to subscribe for or
purchase shares of the Common Stock at a price per share less than the Per Share
Market Value of the Common Stock at the record date mentioned below, the Initial
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of the Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Initial
Conversion Price pursuant to this Section, if any such right or warrant shall
expire and shall not have been exercised, the Initial Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Initial Conversion Price made pursuant
to the provisions of this Section 4 after the issuance of such rights or
warrants) had the adjustment of the Initial Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to
Holders of Debentures) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Initial Conversion Price at which Debentures shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of the Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per Share
Market Value of the Common Stock on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest of
Debentures then outstanding; and provided, further, that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the holders
of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of the Common
Stock. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder of this Debenture shall have
the right thereafter to, at its option, (A) convert the then outstanding
principal amount, together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Debenture only into the shares
of stock and other securities, cash and property receivable upon or deemed to be
held by holders of the Common Stock following such reclassification or share
exchange, and the Holders of the Debentures shall be entitled upon such event to
receive such amount of securities, cash or property as the shares of the Common
Stock of the Company into which the then outstanding principal amount, together
with all accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 5(a). The entire repayment price shall be
paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be
made to the nearest cent or the nearest whole share, as the case may be.
(vii) Whenever the Initial Conversion Price is
adjusted pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly
mail to each Holder of Debentures a notice setting forth the Initial Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(viii) If:
A. the Company shall declare a
dividend (or any other
distribution) on its Common Stock;
or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any
shares of capital stock of any
class or of any rights; or
D. the approval of any stockholders of
the Company shall be required in
connection with any
reclassification of the Common
Stock of the Company, any
consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially
all of the assets of the Company,
of any compulsory share of exchange
whereby the Common Stock is
converted into other securities,
cash or property; or
E. the Company shall authorize the
voluntary or involuntary
dissolution, liquidation or winding
up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange;
provided, however, that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. Holders are entitled to convert
Debentures during the 30-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable, upon compliance with prospectus delivery requirements and applicable
state securities laws.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage
prepaid, addressed to the Company, at 0000 Xxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxxx
00000 (facsimile number (000) 000-0000), attention Chief Financial Officer, or
such other address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this Section. Any
and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to each Holder of the Debentures
at the facsimile telephone number or address of such Holder appearing on the
books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Minnetonka time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 4:30 p.m.
(Minnetonka time) on any date and earlier than 11:59 p.m. (Minnetonka time) on
such date, (iii) four days after deposit in the United States mails, (iv) the
Business Day following the date of mailing, if send by nationally recognized
overnight courier service, or (v) upon actual receipt by the party to whom such
notice is required to be given.
Section 5. Repayments.
(a) The Company shall have the right, exercisable at any time
upon 2 Trading Days notice to the Holder of the Debentures given at any time the
Company receives a Conversion Notice and the Conversion Price in effect in
connection with such Conversion Notice is less than $1.25, to repay, from funds
legally available therefor at the time of such repayment, all or any portion of
the outstanding principal amount of the Debentures which have been tendered for
conversion, at a price equal to the sum of 120% of the aggregate principal
amount of Debentures to be repaid. In addition, the Company shall pay the
aggregate of all accrued but unpaid interest and other amounts owing in respect
of the Debentures to be repaid. The entire repayment price shall be paid in
cash.
Notwithstanding anything to the contrary contained herein, the Company shall
not have the right to repay the Debenture pursuant to this Section 5(a) if
repayment of the Debenture is required pursuant to another section of this
Debenture or pursuant to the Purchase Agreement.
(b) If any portion of the applicable repayment price under
Sections 6(a) shall not be paid by the Company within thirty (30) calendar days
after the original Conversion Date as set forth in such Conversion Notice,
interest shall accrue thereon at the rate of 15% per annum until the repayment
price plus all such interest is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). In addition, if any portion of such
repayment price remains unpaid for more than seven (7) calendar days after the
date due, the Holder of the Debentures subject to such repayment may elect, by
written notice to the Company given within seven (7) calendar days after the
date due, to either (i) demand
conversion in accordance with the formula and the time frame therefor set forth
in Section 4 of all Debentures for which such repayment price, plus accrued
liquidated damages thereof, has not been paid in full (the "Unpaid Repayment
Shares"), in which event the Per Share Market Price for such shares shall be the
lower of the Per Share Market Price calculated on the date such repayment price
was originally due and the Per Share Market Price as of the Holder's written
demand for conversion, or (ii) invalidate ab initio such repayment,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (i) above, the Company shall within three (3) Trading Days of its receipt
of such election deliver to the Holder the shares of the Common Stock issuable
upon conversion of the Unpaid Repayment Shares subject to such Holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of Xxxxxx's notice of
such election, return to the Holder all of the Debentures. Notwithstanding
anything to the contrary contained herein, the Company may not, without the
written consent of the holder, repay Debentures unless both the payment thereof
and the retention of such paid cash by the holder is consented to in writing
free of any subordination prior thereto by all lenders or holders of any
indebtedness or class of securities of the Company who have the right to consent
to or force the subordination of such payment.
Section 6. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Adjustment Amount" is equal to (i) the aggregate principal
amount of Debentures then outstanding multiplied by (A) the average Per Share
Market Value for the five Trading Days immediately preceding (1) the applicable
Trigger Date or (2) the date of payment of all amounts due as a result of such
Event of Default, whichever is greater, divided by (B) the Conversion Price with
respect to the aggregate principal amount of Debentures then outstanding
calculated on the applicable Trigger Date, minus (ii) the aggregate principal
amount of Debentures then outstanding, plus all accrued and unpaid interest
thereon and all other amounts due, except for those referred to in (i) above
pursuant to the terms hereof.
"Average Price" on any date means the average Per Share Market
Value for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of Minnesota are authorized or required by law or other government action
to close.
"Common Stock" means the Company's common stock, $.01 par
value per share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
date the Mandatory Prepayment Amount is demanded or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is demanded
or (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.
"Original Issue Date" shall mean December 1, 1997 regardless
of the number of transfers of any Debenture and regardless of the number of
instruments which may be issued to evidence such Debenture.
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange or quotation system on which the Common
Stock is listed for trading, or (b) if the Common Stock is not listed on the
Nasdaq National Market or any other stock exchange or market, the closing bid
price per share of the Common Stock on such date on the over-the-counter market,
as reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted
on the OTC Bulletin Board, the closing bid price per share of Common Stock on
such date on the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices), or (d) if the Common Stock is no longer traded
on the over-the-counter market and reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices), such closing bid price shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
"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 Convertible Subordinated
Debenture Purchase Agreement, dated as of the Original Issue Date, between the
Company and the original Holder of Debentures, as amended, modified or
supplemented from time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of
Debentures, as amended, modified or supplemented from time to time in accordance
with its terms.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq National Market or other stock exchange or market on which
the Common Stock is listed for trading, or (b) if the Common Stock is not listed
on the Nasdaq National Market or any stock exchange or market, a day on which
the Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
or on the pink sheets as reported by the National Quotation Bureau Incorporated
or Bloomberg Information Services, Inc., as the case may be (or any similar
organization or agency succeeding their respective functions of reporting
prices).
"Trigger Date" shall mean, (i) with respect to an Event of
Default caused by an event described in Section 3(a), the date the payment of
principal or interest at issue was due, (ii) with respect to an Event of Default
caused by an event described in Section 3(b), the date specified in any other
provision of this Debenture, the Purchase Agreement or the Registration Rights
Agreement that require prepayment of the outstanding principal amount of this
Debenture as a result of an event so contemplated, if not, the date such event
becomes an Event of Default pursuant to Section 3(b), and (iii) with respect to
an Event of Default caused by an event described in Section 3(c), (d), (e) and
(f), the date such event becomes an Event of Default pursuant to such Sections.
"Underlying Shares" means the shares of Common Stock into
which the Debentures are convertible in accordance with the terms hereof and the
Purchase Agreement, in such number as required hereunder.
"Underlying Securities Registration Statement" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
Section 7. 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, and interest on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company. This Debenture
ranks pari passu with all other Debentures now or hereafter issued under the
terms set forth herein. The Company may only voluntarily prepay the outstanding
principal amount on the Debentures in accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive
dividends and other distributions, or to receive any notice of, or to attend,
meetings of stockholders or any other proceedings of the Company, unless and to
the extent converted into shares of Common Stock in accordance with the terms
hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. (a) This Debenture is subordinated to Senior Debt,
which is any Debt of the Company (including, principal, interest or premium)
outstanding on the date hereof, or hereafter created, incurred, assumed or
guaranteed by the Company and all renewals, amendments, extensions and
refundings thereof, except Debt that expressly provides that it is not senior or
superior in right of payment to this Debenture. Debt is any indebtedness,
contingent or otherwise, in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of the Company or any
subsidiary or only to a portion thereof), or evidenced by bonds, notes,
debentures or similar instruments or letters of credit, or representing the
balance deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable if, and only
to the extent such indebtedness would appear as a liability on the balance sheet
of the Company or any subsidiary prepared on a consolidated basis in accordance
with generally accepted accounting principles, or any debt owed to any affiliate
(including any officer, director or employees thereof) of the Company. The
Company agrees, and each holder of this Debenture by accepting this Xxxxxxxxx
agrees, to the foregoing subordination. Until Senior Debt is satisfied, the
Company shall not, directly or indirectly, make any payment under this Debenture
(except for cash payments contemplated by Sections 4(a)(ii), 4(b), 4(c) or 5
hereof; provided, however, that at the time such payments are made there has not
been declared an event of default under any instrument representing Senior Debt
that has not been cured and provided, further, that such payments under Sections
4(a)(ii), 4(b) 4(c) or 5 hereof will not cause an event of default under any
such instruments), or grant any collateral for any of the Debentures or make any
distribution of any assets other than shares of Common Stock to the Holder. The
Holder shall take no action to enforce payment of the Debenture without the
consent of the holders of Senior Debt, provided, however, that the subordination
provided hereunder shall in no way limit the Holder's ability to convert
Debentures into shares of Common Stock, including after such time as any Event
of Default shall be declared hereunder.
(b) Should any payment, other than payments
contemplated in Section 10(a) above, be received by the Holder, such payment
shall be held in trust by the Holder for the benefit of the holders of Senior
Debt, and shall be delivered forthwith to the
holders of Senior Debt for application to the Senior Debt, in the form received
with any necessary endorsement or assignment.
Section 11. This Debenture shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
conflicts of laws thereof.
Section 12. Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 13. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 14. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next calendar month, the preceding Business Day in the appropriate
calendar month).
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
DIGITAL BIOMETRICS, INC.
By:________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
EXHIBIT A
NOTICE OF CONVERSION
AT THE OPTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. A-1 into shares of Common
Stock, par value $.01 per share (the "Common Stock"), of Digital Biometrics,
Inc. (the "Company") according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
----------------------------------------------
Date to Effect Conversion
----------------------------------------------
Principal Amount of Debentures to be Converted
----------------------------------------------
Number of shares of Common Stock to be Issued
----------------------------------------------
Applicable Conversion Price
----------------------------------------------
Signature
----------------------------------------------
Name
----------------------------------------------
Address
EXHIBIT B
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of DIGITAL BIOMETRICS, INC. (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to convert Debenture No. A-1 into shares of Common Stock,
par value $.01 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations:
----------------------------------------------
Date to Effect Conversion
----------------------------------------------
Principal Amount of Debentures to be Converted
----------------------------------------------
Applicable Conversion Price
----------------------------------------------
Signature
----------------------------------------------
Name:
----------------------------------------------
Address:
