EXECUTION COPY
EXHIBIT A
TO
SECURITIES PURCHASE
AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND ANY SECURITIES ISSUED OR
ISSUABLE IN RESPECT HEREOF, BY CONVERSION OR OTHERWISE) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN
OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR UNLESS THE CORPORATION IS PROVIDED WITH REASONABLE ASSURANCES THAT THE
SECURITIES WERE SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NO.______ $___________
6%, 7% AND 8% CONVERTIBLE DEBENTURE DUE SEPTEMBER 30, 2002
THIS CONVERTIBLE DEBENTURE (this "DEBENTURE") is one of a duly
authorized issue of Debentures of Palomar Medical Technologies, Inc. a
corporation duly organized and existing under the laws of the State of Delaware
and having its principal address at 00 Xxxxxx Xxxx Xxxxx, Xxxxxxx, Xxxxxxxxxxxxx
00000 (the "CORPORATION"), designated as its 6%, 7% and 8% Convertible
Debentures Due September 30, 2002 in an aggregate principal amount not exceeding
Seven Million U.S. Dollars (U.S. $7,000,000) (the "DEBENTURES").
FOR VALUE RECEIVED, the Corporation promises to pay to
______________________, at the address specified in the Debenture Register (as
hereinafter defined), the holder hereof, or its order (the "HOLDER"), the
principal sum of ______________________ United States Dollars (U.S. $_______),
or such lesser principal sum as is then outstanding hereunder, on September 30,
2002 (the "MATURITY DATE") and to pay interest on the principal sum outstanding
under this Debenture (i) at the rate of 6% per annum during the period beginning
on the Closing Date (as hereinafter defined) and ending on the date which is one
hundred seventy nine (179) days after the Closing Date, (ii) at the rate of 7%
per annum during the period beginning on the date which is one hundred eighty
(180) days after the Closing Date and ending on the date which is two hundred
sixty nine (269) days after the Closing Date and (iii) at the rate of 8% per
annum thereafter. Interest shall be due and payable in arrears on the Maturity
Date or, if earlier, on the Conversion Date (as hereinafter defined) and shall
be calculated based on a 360 day year of twelve equal months. Accrual of
interest shall commence on the date hereof and shall continue daily until
payment in full of the principal sum has been made. The interest so payable will
be paid to the person in whose name this Debenture is registered on the records
of the Corporation regarding registration and transfers of the Debentures (the
"DEBENTURE REGISTER"); provided, however, that the Corporation's obligation to a
transferee of this Debenture arises only if the transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Securities Purchase Agreement, dated as of September 30, 1997, between the
Corporation and the original Holder (as amended from time to time and in effect,
the "SECURITIES PURCHASE AGREEMENT"). The Corporation shall be entitled to
withhold from all payments of interest on this Debenture any amounts required to
be withheld under the applicable provisions of the United States income tax laws
as evidenced by an opinion of counsel of the Corporation to the reasonable
satisfaction of the Holder. The principal of and interest on this Debenture are
payable only in United States Dollars at the address last appearing on the
Debenture Register of the Corporation as designated in writing by the Holder
hereof from time to time. Subject to the conversion hereof, in whole or in part,
on or before the Maturity Date pursuant to Article II hereof, the Corporation
will pay the principal of and all accrued and unpaid interest due upon this
Debenture on the Maturity Date, to the Holder of this Debenture as of the tenth
(10th) day prior to the Maturity Date, and addressed to such Holder at the last
address appearing on the Debenture Register.
30
This Debenture is subject to the following additional provisions:
I. CERTAIN DEFINITIONS
For purposes of this Debenture, the following terms shall have the
following meanings:
A. "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding Debentures if Bloomberg Financial Markets is not then
reporting closing bid prices of such security (collectively, "BLOOMBERG"), or if
the foregoing does not apply, the last reported sale price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of any market makers chosen by the
Holder for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Corporation and
reasonably acceptable to holders of a majority of the then outstanding
Debentures, with the costs of such appraisal to be borne by the Corporation.
B. "CLOSING DATE" means the Closing Date under that certain Securities
Purchase Agreement dated September 30, 1997 by and among the Corporation and the
initial purchasers of the Debentures (the "SECURITIES PURCHASE AGREEMENT").
C. "COMMON STOCK" shall mean the Common Stock, par value $.01 per share,
of the Corporation.
D. "CONVERSION DATE" means, for any Optional Conversion, the date
specified in the notice of optional conversion in the form attached hereto (the
"NOTICE OF OPTIONAL CONVERSION"), so long as the copy of the Notice of Optional
Conversion is faxed (or delivered by other means resulting in notice) to the
Corporation before Midnight, New York City time, on the Conversion Date
indicated in the Notice of Optional Conversion. If the Notice of Optional
Conversion is not so delivered before such time, then the Conversion Date shall
be the date the Holder delivers the Notice of Optional Conversion to the
Corporation. In the case of any Mandatory Conversion, the "Conversion Date"
shall mean the date specified in a written notice (the "NOTICE OF MANDATORY
CONVERSION") delivered by the Corporation to the Holder, so long as the Notice
of Mandatory Conversion is faxed (or delivered by other means resulting in
notice) to the Holder before Midnight, New York City time, not later than the
20th trading day preceding such specified date. If the Notice of Mandatory
Conversion is not so delivered before such time, then the Conversion Date shall
be the 20th trading day following the date the Corporation delivers the Notice
of Mandatory Conversion to the Holder. As used herein, a "TRADING DAY" shall
mean any day on which the Nasdaq Stock Market (or the national securities
exchange or automated quotation system on which the Common Stock is then traded)
is open for business, whether or not shares of Common Stock are traded on such
day.
E. "CONVERSION PRICE" means, as of any date of determination, the
average of the Closing Bid Prices for the Common Stock for ten (10) consecutive
trading days ending on the trading day immediately preceding such date of
determination (subject to equitable adjustments for any stock splits, stock
dividends, reclassifications or similar events during such ten (10) trading day
period), and shall be subject to adjustment as provided herein.
F. "OUTSTANDING AMOUNT " means, as of any date, the principal amount
then outstanding under this Debenture and all accrued but unpaid interest
thereon.
II. CONVERSION
A. Conversion at the Option of the Holder; Conversion at the Option of
the Corporation. Subject to the limitations on conversions contained in
Subparagraphs (i) and (ii) of Paragraph C of this Article II and in subparagraph
(i) of Article V.C, all or any portion of the Outstanding Amount may, at any
time and from time to time from and after the Closing Date, be converted at the
option of the Holder (an "OPTIONAL CONVERSION") into a number of fully paid and
nonassessable shares of Common Stock equal to the Outstanding Amount divided by
the Conversion Price then in effect. Subject to the limitations on conversions
contained in Subparagraph (iii) of Paragraph C of this Article II, beginning on
the date which is one (1) year after the Closing Date, all or any portion of the
Outstanding Amount may be converted at the option of the Corporation (a
"MANDATORY CONVERSION") into a number of fully paid and nonassessable shares of
Common Stock equal to the Outstanding Amount divided by the Conversion Price
then in effect, provided that the Closing Bid Price for the Common Stock on each
of the twenty (20) consecutive trading days immediately preceding the date of
the Notice of Mandatory Conversion is equal to or greater than the Closing Bid
Price for the Common Stock on the Closing Date.
31
B. Mechanics of Conversion. In order to convert this Debenture into
shares of Common Stock pursuant to an Optional Conversion, the Holder shall: (x)
deliver (by facsimile or otherwise) a copy of the fully executed Notice of
Optional Conversion to the Corporation and (y) surrender or cause to be
surrendered this Debenture along with a copy of the Notice of Optional
Conversion as soon as practicable thereafter to the Corporation. At the request
of the Holder and upon receipt by the Corporation of a facsimile copy of a
Notice of Optional Conversion from the Holder, the Corporation shall immediately
send, via facsimile, a confirmation to such holder stating that the Notice of
Optional Conversion has been received, the date upon which the Corporation
expects to deliver the Common Stock issuable upon such conversion and the name
and telephone number of a contact person at the Corporation regarding the
conversion. In order to convert this Debenture into shares of Common Stock
pursuant to a Mandatory Conversion, the Corporation shall deliver (by facsimile
or otherwise) a copy of the fully executed Notice of Mandatory Conversion to the
Holder, which notice shall specify the Outstanding Amount to be converted.
Promptly following receipt of a Notice of Mandatory Conversion, the Holder shall
surrender or cause to be surrendered this Debenture as soon as practicable to
the Corporation. The Corporation shall not be obligated to issue shares of
Common Stock issuable upon any Optional Conversion or Mandatory Conversion
unless either this Debenture is delivered to the Corporation as provided above,
or the holder notifies the Corporation that such certificates have been lost,
stolen or destroyed (subject to the requirements of Article IX.A).
(i) Delivery of Common Stock Upon Conversion. The Corporation
shall, within one trading day after the later of (a) the second trading
day following the Conversion Date in the case of DWAC deliveries and the
third trading day following the Conversion Date in all other cases and
(b) the date of surrender of this Debenture (or, in case this Debenture
is lost, stolen or destroyed, the date on which indemnity pursuant to
Article IX.A is provided) (the "DELIVERY PERIOD"), issue and deliver to
or upon the order of the Holder (x) that number of shares of Common
Stock issuable upon conversion of the Outstanding Amount being converted
and (y) a new Debenture representing the Outstanding Amount not being
converted, if any.
(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of this Debenture.
(iii) No Fractional Shares. If any conversion of this Debenture
would result in the issuance of either a fractional share of Common
Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion of this Debenture shall
be the closest whole number of shares.
(iv) Status as Stockholder. Upon the Conversion Date, the
Outstanding Amount being converted shall be deemed converted into shares
of Common Stock as of the Conversion Date and the Holder's rights as a
holder of the Outstanding Amount being converted shall cease and
terminate, excepting only the right to receive certificates for such
shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Debenture (including its
right to regain its status as a Holder pursuant to Article IV.E).
(v) Conversion Disputes. In the case of any dispute with respect
to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with
subparagraph (i) above. If such dispute involves the calculation of the
Conversion Price, the Corporation shall submit, at its sole cost, the
disputed calculations to its outside accountant via facsimile within two
(2) trading days of receipt of the Notice of Optional Conversion. The
accountant shall audit the calculations and notify the Corporation and
the Holder of the results no later than two (2) trading days from the
date it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive, absent manifest error. The Corporation shall
then issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.
32
C. Limitations on Conversions.
(i) In no event shall the Holder be entitled to receive shares
of Common Stock upon an Optional Conversion to the extent that the sum
of (a) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates (exclusive of shares issuable upon conversion
of the unconverted portion of this Debenture or the unexercised or
unconverted portion of any other securities of the Corporation subject
to a limitation on conversion or exercise analogous to the limitations
contained herein) and (b) the number of shares of Common Stock issuable
upon the conversion of this Debenture with respect to which the
determination of this subparagraph is being made, would result in
beneficial ownership by the holder and its affiliates of more than 4.9%
of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended,
and Regulation 13 D-G thereunder, except as otherwise provided in clause
(i) above. The provisions of this subparagraph shall terminate upon
delivery by the Holder of a Mandatory Prepayment Notice. The Corporation
shall be entitled to rely, and shall be fully protected in relying, on
any statement or representation made by the Holder to the Corporation in
connection with a particular conversion without any obligation on the
part of the Corporation to make any inquiry or investigation or to
examine its records or the records of any transfer agent for the Common
Stock.
(ii) During any thirty (30) day period ending prior to the
earlier of (a) that date which is two hundred and nine (209) days after
the Closing Date and (b) that date (if any) that the Corporation
delivers an Optional Prepayment Notice (as defined below) to the Holder
pursuant to clause (b) of subparagraph (i) of Article V.C, the Holder
may not effect an Optional Conversion with respect to more than
thirty-three percent (33%) of the original principal amount of this
Debenture (and the accrued but unpaid interest thereon); provided,
however, if the Holder has already converted sixty-six percent (66%) of
such original principal amount, the Holder may convert the remaining
thirty-four percent (34%) of the original principal amount of this
Debenture (and the accrued but unpaid interest thereon) in the next
succeeding thirty (30) day period or thereafter.
(iii) The Corporation may not effect a Mandatory Conversion
pursuant to this Article II unless, on the date of the Notice of
Mandatory Conversion and on the date of delivery of such Conversion
Shares, (a) a registration statement under the Securities Act of 1933,
as amended, covering the resale of the Common Stock issuable upon
conversion of this Debenture is in effect which names the Holder as a
selling stockholder; (b) the Corporation has reserved the number of
shares of Common Stock required by Article III; (c) the Corporation has
paid in full any liquidated damages hereunder; and (d) the Holder has
not, prior to such date, delivered a Mandatory Prepayment Notice to the
Corporation.
III. RESERVATION OF SHARES OF COMMON STOCK
The Corporation shall at all times have authorized and reserved for the
purpose of issuance a sufficient number of shares of Common Stock to provide for
the full conversion of the outstanding Debentures in accordance with their
terms.
IV. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) the Holder submits
a Notice of Optional Conversion and the Corporation fails for any reason to
deliver, on or prior to the first trading day following the expiration of the
Delivery Period for such conversion, the shares of Common Stock to which the
Holder is entitled upon such conversion in the manner required hereunder and
under the Purchase Agreement, or (y) the Corporation provides notice to any
holder of the Debentures at any time of its intention not to issue shares of
Common Stock upon exercise by any holder of its conversion rights in accordance
with the terms of the Debentures (each of (x) and (y) being a "CONVERSION
DEFAULT"), then the Corporation shall pay to the Holder payments for the first
ten (10) trading days following the expiration of the Delivery Period, in the
case of a Conversion Default described in clause (x), and for the first ten (10)
trading days of any other Conversion Default, an amount equal to $1,000 per day.
In the event any Conversion Default continues beyond such ten (10) trading day
period, the Holder shall be entitled to interest on the Outstanding Amount at a
rate per annum equal to the lower of twenty-four percent (24%) and the highest
rate permitted by applicable law from the expiration of the ten (10) trading day
period described above through and including the Default Cure Date. In addition,
upon the occurrence of any Conversion Default, the Holder may, by written notice
to the Corporation, elect to revoke any Optional Conversion and obtain the
return of the unconverted Debenture. As used herein, the "DEFAULT CURE DATE"
means (i) with respect to a Conversion Default described in clause (x) of its
definition, the date the Corporation effects the conversion of the full
Outstanding Amount requested to be converted and (ii) with respect to a
Conversion Default described in clause (y) of its definition, the date the
Corporation begins to honor conversions of the Debentures in accordance with
their terms.
33
The payments to which the Holder shall be entitled pursuant to this
Paragraph A are referred to herein as "CONVERSION DEFAULT PAYMENTS" and shall be
liquidated damages and not penalties. The Holder may elect to receive accrued
Conversion Default Payments in cash or to convert all or any portion of such
accrued Conversion Default Payments, at any time, into Common Stock at the
Conversion Price in effect at the time of such conversion. In the event the
Holder elects to receive any Conversion Default Payments in cash, it shall so
notify the Corporation in writing. Such payment shall be made in accordance with
and be subject to the provisions of Article IX.D. In the event the Holder elects
to convert all or any portion of the Conversion Default Payments, the Holder
shall indicate on a Notice of Optional Conversion such portion of the Conversion
Default Payments which the Holder elects to so convert and such conversion shall
otherwise be effected in accordance with the provisions of Article II.
B. Adjustment to Conversion Price. If the Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) trading
day after the expiration of the Delivery Period with respect to a conversion of
this Debenture for any reason, then the Conversion Price in respect of this
Debenture shall thereafter be the lesser of (i) the Conversion Price on the
Conversion Date specified in the Notice of Optional Conversion which resulted in
the Conversion Default and (ii) the lowest Conversion Price in effect during the
period beginning on, and including, such Conversion Date through and including
the day such shares of Common Stock are delivered to the Holder. If there shall
occur a Conversion Default of the type described in clause (y) of Article IV.A,
then the Conversion Price with respect to any conversion thereafter shall be the
lower of (x) the lowest Conversion Price in effect at any time during the period
beginning on, and following, the date of the occurrence of such Conversion
Default through and including the Default Cure Date and (y) the Conversion Price
on the Conversion Date specified in the Notice of Optional Conversion for this
Debenture. The Conversion Price shall thereafter be subject to further
adjustment for any events described in Article VI.
C. Buy-In Cure. If (i) the Corporation fails for any reason to deliver
during the Delivery Period shares of Common Stock to the Holder upon a
conversion of this Debenture having a Conversion Date on or prior to a date upon
which the Corporation has notified the Holder in writing that the Corporation is
unable to honor conversions and (ii) after the applicable Delivery Period with
respect to such conversion, the Holder purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such holder of the shares of Common Stock which the Holder anticipated receiving
upon such conversion (a "BUY-IN"), the Corporation shall pay the Holder (in
addition to any other remedies available to the Holder) the amount by which (x)
the Holder's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the portion of the
Outstanding Amount resulting in the Buy-In. For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of a total Outstanding Amount of
$10,000, the Corporation will be required to pay the Holder $1,000. The Holder
shall provide the Corporation written notification indicating any amounts
payable to the Holder pursuant to this Paragraph C. The Corporation shall make
any payments required pursuant to this Paragraph C in accordance with and
subject to the provisions of Article IX.D.
D. Mandatory Prepayment Right. If the Corporation fails, and such
failure continues uncured for five (5) trading days after the Corporation has
been notified thereof in writing by the Holder, for any reason to issue shares
of Common Stock within ten (10) trading days after the expiration of the
Delivery Period with respect to any conversion of this Debenture, then the
Holder may elect at any time and from time to time prior to the Default Cure
Date for such Conversion Default, by delivery of a Mandatory Prepayment Notice
(as defined in Article V.B) to the Corporation, to demand payment by the
Corporation in cash of all or any portion of the Outstanding Amount. If the
Corporation fails to make such payment within five (5) trading days after its
receipt of a Mandatory Prepayment Notice, then the Holder shall be entitled to
the remedies provided in Article V.B.
E. Retention of Rights as Debenture Holder. If the Holder has not
received certificates for all shares of Common Stock prior to the tenth (10th)
trading day after the expiration of the Delivery Period with respect to a
conversion of this Debenture for any reason, then the Corporation shall, as soon
as practicable, return this Debenture to the Holder and (unless the Holder
otherwise elects to retain its status as a holder of Common Stock) the Holder
shall regain the rights of a holder of this Debenture. In all cases, the Holder
shall retain all of its rights and remedies (including, without limitation, (i)
the right to receive Conversion Default Payments pursuant to Paragraph A above
to the extent required thereby for such Conversion Default and any subsequent
Conversion Default and (ii) the right to have the Conversion Price with respect
to subsequent conversions determined in accordance with Paragraph B above) for
the Corporation's failure to convert this Debenture.
34
V. PREPAYMENT DUE TO CERTAIN EVENTS
A. Mandatory Prepayment. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "MANDATORY PREPAYMENT EVENT"):
(i) the Common Stock (including all of the shares of Common
Stock issuable upon conversion of this Debenture) is suspended from
trading on any of, or is not listed or designated for quotation (and
authorized) for trading on at least one of, the New York Stock Exchange,
the American Stock Exchange, the NASDAQ National Market or the NASDAQ
Small Cap Market ("NASDAQ") for an aggregate of five (5) full trading
days in any nine (9) month period,
(ii) the Registration Statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights
Agreement, dated as of September 30, 1997, by and among the Corporation
and the other signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"),
has not been declared effective by the 180th day following the Closing
Date or such Registration Statement, after being declared effective,
cannot be utilized by the Holder for the resale of all of their
Registrable Securities (as defined in the Registration Rights Agreement)
for an aggregate of more than thirty (30) days in any consecutive twelve
month period as a result of (x) the inclusion in the prospectus
contained in such Registration Statement of an untrue statement of
material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
(y) the issuance of any stop order or other suspension of effectiveness
of such Registration Statement.
(iii) the Corporation fails, and any such failure continues
uncured for five (5) trading days after the Corporation has been
notified thereof in writing by the Holder, to remove any restrictive
legend on any certificate or any shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when required by this
Debenture, the Securities Purchase Agreement or the Registration Rights
Agreement,
(iv) the Corporation provides notice to any holder of the
Debentures, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holder of said
Debentures upon conversion in accordance with the terms thereof,
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially all
of its assets;
(b) merge, consolidate or engage in any other business
combination with any other entity (other than a merger,
consolidation or business combination in which the holders of
the Corporation's voting securities immediately preceding such
merger, consolidation or business combination own, on a pro rata
basis, at least 50% of the surviving entity's voting
securities); or
(c) have fifty percent (50%) or more of the voting power
of its capital stock owned beneficially by one person, entity or
"group" (as such term is used under Section 13(d) of the
Securities Exchange Act of 1934, as amended),
(vi) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy law or
any law for the relief of debt shall be instituted by or against the
Company and, if instituted against the Company, shall not be dismissed
within ninety (90) days after such institution, or the Company shall by
any action or answer approve of, consent to, or acquiesce in any such
proceedings or admit to any material allegations of, or default in
answering a petition filed in, any such proceeding,
(vii) the Corporation shall fail to comply in any material
respect with the agreements and covenants contained in the Purchase
Agreement, the Registration Rights Agreement or this Debenture
(including without limitation a failure to comply with its conversion
obligations hereunder), which failure continues uncured for a period of
ten (10) days following delivery of written notice thereof by the Holder
to the Corporation,
35
(viii) the Corporation shall fail to pay when due any amount due
hereunder free of any claim of subordination, or
(ix) the Corporation shall be prohibited from complying with its
conversion obligations hereunder by reason of any stockholder approval
requirements of NASDAQ,
then, upon the occurrence of any such Mandatory Prepayment Event, the Holder
shall thereafter have the option, exercisable in whole or in part at any time
and from time to time by delivery of a Mandatory Prepayment Notice (as defined
in Paragraph B below) to the Corporation while such Mandatory Prepayment Event
continues, to require the Corporation to pay in cash any or all of the
Outstanding Amount. For the avoidance of doubt, the occurrence of any event
described in clauses (i), (ii), (iv), (v), (vii) and (ix) above shall
immediately constitute a Mandatory Prepayment Event and there shall be no cure
period.
B. Mandatory Prepayment Defaults. If, within five (5) trading days of
the Corporation's receipt of a notice from the Holder identifying a Mandatory
Prepayment Event that has occurred and requiring the Corporation to pay any or
all of the Outstanding Amount (a "MANDATORY PREPAYMENT NOTICE"), the Corporation
fails to pay to the Holder the Outstanding Amount specified in the Mandatory
Prepayment Notice, the Holder (i) shall be entitled to interest on such
Outstanding Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest rate permitted by applicable law from the date of the
Mandatory Prepayment Notice until the date of payment hereunder, and (ii) shall
have the right, at any time and from time to time, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article II) all or any portion of such Outstanding Amount into
shares of Common Stock at the lowest Conversion Price in effect during the
period beginning on the date of the Mandatory Prepayment Notice and ending on
the Conversion Date with respect to the conversion of such Outstanding Amount.
In the event the Corporation is not able to pay all of the Debentures subject to
Mandatory Prepayment Notices, the Corporation shall pay the Debentures pro rata,
based on the total Outstanding Amount under the Debentures included by each
holder in the Mandatory Prepayment Notice relative to the total Outstanding
Amount under the Debentures in all of the Mandatory Prepayment Notices.
C. Optional Prepayment.
(i) At any time (a) on or before that date which is six (6)
months after the Closing Date or (b) on or after that date which is one
(1) year after the Closing Date, the Corporation shall have the right to
prepay ("OPTIONAL PREPAYMENT") all or any portion of the Outstanding
Amount, provided, however, that any such prepayment shall be subject to
concurrent payment of a premium (the "OPTIONAL PREPAYMENT PREMIUM") and
all other amounts owing hereunder. An Optional Prepayment shall be made
by the Corporation in its sole discretion by delivery of an Optional
Prepayment Notice (as defined below). In the case of an Optional
Prepayment during the period described in clause (a) of this
subparagraph, the Optional Prepayment Premium shall be in an amount
equal to seven and one half percent (7 1/2%) of the principal amount
being prepaid and the Holder's right to effect an Optional Conversion
shall terminate upon receipt of an Optional Prepayment Notice. In the
case of an Optional Prepayment during the period described in clause (b)
of this subparagraph, the Optional Prepayment Premium shall be in an
amount equal to ten percent (10%) of the principal amount being prepaid
and the Holder may convert all or any part of the Outstanding Amount
into Common Stock by delivering a Notice of Optional Conversion to the
Corporation at any time prior to that date which is ten (10) trading
days after receipt of an Optional Prepayment Notice.
(ii) The Corporation shall effect each prepayment under this
Section VIII.B by giving at least twenty (20) trading days' prior
written notice (the "OPTIONAL PREPAYMENT NOTICE") of the date on which
such prepayment is to be made (the "OPTIONAL PREPAYMENT DATE") and the
Outstanding Amount to be prepaid to the Holder at the address and
facsimile number of the Holder appearing in the Debenture Register,
which Optional Prepayment Notice shall be deemed to have been delivered
on the trading day after the Corporation's fax (with a copy sent by
overnight courier) of such notice to the Holder. The Corporation shall
pay the Outstanding Amount specified in the Optional Prepayment Notice,
together with the applicable Optional Prepayment Premium, to the Holder
on the Optional Prepayment Date. The Corporation may not attempt to
deliver an Optional Prepayment Notice if it has previously received a
Mandatory Prepayment Notice.
36
(iii) If the Corporation fails to pay, when due and owing, any
portion of the Outstanding Amount or the Optional Prepayment Premium in
accordance with an Optional Prepayment Notice, then the Holder shall
have the right, at any time and from time to time, to require the
Corporation, upon written notice, to immediately convert (in accordance
with the terms of paragraph A of Article II) any or all of the
Outstanding Amount which is the subject of such prepayment into shares
of Common Stock at the lowest Conversion Price in effect during the
period beginning on the date of the Optional Prepayment Notice and
ending on the earlier of the date the Corporation effects such
prepayment in full and the date of the Holder's notice of conversion.
VI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Adjustment Due to Major Announcement. In the event the Corporation
(i) makes a public announcement that it intends to consolidate or merge with any
other entity (other than a merger in which the Corporation is the surviving or
continuing entity and its capital stock is unchanged) or to sell or transfer all
or substantially all of the assets of the Corporation or (ii) any person, group
or entity (including the Corporation) publicly announces a tender offer to
purchase 50% or more of the Corporation's Common Stock (the date of the
announcement referred to in clause (i) or (ii) of this Paragraph A is
hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the
Abandonment Date (as defined below), be equal to the lesser of (x) the
Conversion Price which would have been applicable for an Optional Conversion
occurring on the Announcement Date and (y) the Conversion Price which would have
been applicable for an Optional Conversion occurring on the Conversion Date.
From and after the Abandonment Date, the Conversion Price shall be determined as
set forth in Article I.E. "ABANDONMENT DATE" means with respect to any proposed
transaction or tender offer for which a public announcement as contemplated by
this Paragraph A has been made, the date upon which the Corporation (in the case
of clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer which caused this Paragraph A to become operative.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time when
this Debenture is outstanding, there shall be (i) any reclassification or change
of the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, then the
Holder shall thereafter have the right to receive upon conversion, in lieu of
the shares of Common Stock immediately theretofore issuable (without giving
effect to any limitations upon conversion imposed by Article II.C), such shares
of stock, securities and/or other property as may be issued or payable with
respect to or in exchange for the number of shares of Common Stock immediately
theretofore issuable upon conversion (without giving effect to any limitations
upon conversion imposed by Article II.C) had such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event not
taken place, and in any such case, appropriate provisions shall be made with
respect to the rights and interests of the Holder to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares of Common Stock issuable upon
conversion of this Debenture) shall thereafter be applicable, as nearly as may
be practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Corporation shall not effect any
transaction described in this Paragraph B unless (i) the Holder has received
written notice of such transaction at least ten (10) days prior thereto, but in
any event on or before the record date for the determination of shareholders
entitled to vote with respect thereto, and (ii) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this Paragraph B. The above provisions shall apply regardless of
whether or not there would have been a sufficient number of shares of Common
Stock authorized and available for issuance upon conversion of the Debentures
outstanding as of the date of such transaction, and shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
C. Purchase Rights. If at any time when this Debenture is outstanding,
the Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "PURCHASE Rights") pro rata to the
record holders of any class of Common Stock, then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Debenture (without giving effect to any limitations upon conversion imposed by
Article II.C) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
37
D. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to the Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of the Holder, furnish to the Holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at
the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of this Debenture.
VII. NOTICE RIGHTS
The Corporation shall provide the Holder, at its request, with copies of
proxy materials and other information sent to shareholders. If the Corporation
takes a record of its shareholders for the purpose of determining shareholders
entitled to (a) receive payment of any dividend or other distribution, any right
to subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or (b) to vote in
connection with any proposed sale, lease or conveyance of all or substantially
all of the assets of the Corporation, or any proposed merger, consolidation,
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to the Holder, on or before the record date specified therein (or
ten (10) days prior to the consummation of the transaction or event, whichever
is earlier, but in no event earlier than public announcement of such proposed
transaction), of the date on which any such record is to be taken for the
purpose of such vote, dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
VIII. PROTECTION PROVISIONS
So long as this Debenture is outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent) of the holders
of all of the then Outstanding Amount under all Debentures:
(a) adversely alter or change the rights, preferences or privileges
of the Debentures; or
(b) alter or change the rights, preferences or privileges of any
capital stock of the Corporation so as to affect adversely the
Debentures.
IX. MISCELLANEOUS
A. Lost or Stolen Debentures. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of this Debenture and
(ii) (y) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Corporation, or (z) in the case of mutilation, upon
surrender and cancellation of this Debenture, the Corporation shall execute and
deliver a new Debenture of like tenor and date. However, the Corporation shall
not be obligated to reissue this Debenture if the Holder contemporaneously
requests the Corporation to convert this Debenture.
B. [Intentionally omitted.]
C. Statements of Available Shares. So long as this Debenture is
outstanding, the Corporation shall deliver to the Holder a written report
notifying it of any occurrence which prohibits the Corporation from issuing
Common Stock upon any conversion. In addition, the Corporation shall provide,
within ten (10) days after delivery to the Corporation of a written request by
the Holder, any of the following information as of the date of such request: (i)
the total Outstanding Amount under all Debentures, (ii) the total number of
shares of Common Stock issued upon all prior conversions of the Debentures, and
(iii) the total number of shares of Common Stock which are reserved for issuance
upon conversion of the Debentures.
38
D. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to the Holder under this Debenture (as a Conversion
Default Payment, upon Mandatory or Optional Prepayment or otherwise), such cash
payment shall be made within five (5) trading days after delivery by the Holder
of a notice specifying that the Holder elects to receive such payment in cash
and the method (E.G., by check, wire transfer) in which such payment should be
made. If such payment is not delivered within such five (5) trading day period,
the Holder shall thereafter be entitled to interest on the unpaid amount at a
per annum rate equal to the lower of twenty-four percent (24%) and the highest
rate permitted by applicable law until such amount is paid in full to the
Holder. This provision shall not operate to add any additional grace or cure
period to any grace or cure period expressly set for in this Debenture.
E. Remedies Cumulative. The remedies provided in this Debenture shall be
cumulative and in addition to all other remedies available under this Debenture,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the Holder's right to pursue
actual damages for any failure by the Corporation to comply with the terms of
this Debenture. The Corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, the Holder shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
F. Obligations Absolute. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the manner,
herein prescribed.
G. Waivers of Demand, Etc. The Corporation hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of all
sums owing and to be owing hereon, regardless of and without any notice (except
as required by law), diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
H. Savings Clause. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
I. Entire Agreement; Amendments. This Debenture and the agreements
referred to in this Debenture constitute the full and entire understanding and
agreement between the Corporation and the Holder with respect to the subject
hereof and, except as specifically set forth herein or therein, neither the
Corporation nor the Holder makes any representation, warranty, covenant or
undertaking with respect to such matters. Any provision of this Debenture may be
waived or amended only by an instrument in writing signed by the Corporation and
by all holders of the then Outstanding Amount under all of the Debentures.
J. Assignment, Etc. The Holder may, subject to compliance with the
Securities Purchase Agreement and the Registration Rights Agreement, without
prior notice, transfer or assign this Debenture or any interest herein (but in
no event in an amount less than $100,000 in Outstanding Amount or, if less than
$100,000, the total Outstanding Amount hereof) and may mortgage, encumber or
transfer any of its rights or interest in and to this Debenture or any part
hereof, and each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to so transfer or assign its
interest. Each such assignee, transferee and mortgagee shall have all of the
rights and obligations of the Holder under this Debenture. The Corporation
agrees that, subject to compliance with the Securities Purchase Agreement and
the Registration Rights Agreement, after receipt by the Corporation of written
notice of assignment from the Holder or from the Holders' assignee, all
principal, interest, and other amounts which are then due and thereafter become
due under this Debenture shall be paid to such assignee at the place of payment
designated in such notice. This Debenture shall be binding upon the Corporation
and its successors and shall inure to the benefit of the Holder and its
successors and assigns. The Corporation may not transfer or assign its
obligation under this Debenture without the consent of the Holder; provided,
however, that a merger, consolidation or similar business combination of the
Corporation or the sale of all or substantially all of the assets of the
Corporation shall not constitute a transfer or assignment.
39
K. No Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
L. Miscellaneous. Unless otherwise provided herein, any notice or other
communication to a party hereunder shall be deemed to have been duly given if
personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
party by facsimile, Federal Express or other such expedited means to said party
at its address set forth herein or such other address as either may designate
for itself in such notice to the other and communications shall be deemed to
have been received when delivered personally or, if sent by mail, when actually
received by the party to whom it is addressed. Copies of all notices to the
Corporation shall be sent to Xxxx X. Xxxxxx, Director of Finance of the
Corporation, and to the attention of the General Counsel of the Corporation.
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to include
the singular. Paragraph headings are for convenience only and shall not affect
the meaning of this document.
M. Choice of Law and Venue. This Debenture shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Corporation
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of Kent in the State of Delaware in any suit or proceeding
based on or arising under this Debenture and irrevocably agrees that all claims
in respect of such suit or proceeding may be determined in such courts. The
Corporation irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Corporation further agrees that
service of process upon the Corporation mailed by first class mail shall be
deemed in every respect effective service of process upon the Corporation in any
suit or proceeding arising hereunder. Nothing herein shall affect the Holder's
right to serve process in any other manner permitted by law. The Corporation
agrees that a final non-appealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
N. Usury Laws. In no event shall any provision of this Debenture be
deemed to permit the Holder to receive any payment, whether of interest or
otherwise, to the extent that such payment would be prohibited under any
applicable usury law or similar law regarding the rates of interest legally
chargeable or collectible hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, this Debenture is executed on behalf of the
Corporation as of the 30th day of September, 1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
40
NOTICE OF OPTIONAL CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert $____________ in Outstanding Amount
(the "CONVERSION"), under that certain 6%, 7% and 8% Convertible Debenture Due
September 30, 2002 the ("DEBENTURE") into shares of common stock ("COMMON
STOCK") of Palomar Medical Technologies, Inc. (the "CORPORATION") according to
the conditions of the Debenture, as of the date written below. If securities 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. No fee will be charged to the holder for any
conversion, except for transfer taxes, if any. The Debenture (or evidence of
loss, theft or destruction thereof) is attached hereto.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Debenture shall be made pursuant to registration of the Common Stock under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.
Date of Conversion:_________________________________
Applicable Conversion Price:________________________
Amount of Conversion Default
Payments to be Converted, if any:___________________
Number of Shares of
Common Stock to be Issued:__________________________
By:_________________________________________________
Name:_______________________________________________
Title:______________________________________________
(Must be exactly as appears on the Debenture)
Name:_______________________________________________
Address:____________________________________________
Social Security or
Federal Tax I.D. Number:____________________________
41
