Exhibit 4.2
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT, AS AMENDED, OR ANY OTHER APPLICABLE
SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR
OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS
EXEMPT FROM SUCH REGISTRATION.
ISSUANCE DATE: January 15, 2002
No. 1-1 $4,166,666
FIBERCORE, INC.
5% CONVERTIBLE SUBORDINATED DEBENTURE
DUE ON THE SECOND ANNIVERSARY OF THE DATE OF ISSUANCE
THIS DEBENTURE is one of a series of duly authorized and issued debentures
of FiberCore, Inc., a Nevada corporation, having a principal place of business
at 253 Worcester Road, Charlton, Massachusetts 01507 (the "Company"), designated
as its 5% Convertible Subordinated Debentures (the "Debentures" and this
debenture, this "Debenture"), issued pursuant to the Convertible Subordinated
Debentures and Warrants Purchase Agreement, as amended from time to time,
originally dated January 14, 2002 among the Company and the investors signatory
thereto (the "Purchase Agreement"). CAPITALIZED TERMS NOT DEFINED IN SECTION 19
OR ELSEWHERE IN THIS DEBENTURE SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE
PURCHASE AGREEMENT.
FOR VALUE RECEIVED, the Company promises to pay to Riverview Group, LLC,
or its registered assigns (the "Holder"), the principal sum of four million one
hundred sixty six thousand and sixty six Dollars ($4,166,666), or such lesser
amount reflecting the principal balance then-outstanding, on the second
anniversary of the issuance hereof or such earlier date as this Debenture is
required or permitted to be repaid as provided hereunder (the "Maturity Date")
and to pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 5% per annum,
payable semi-annually, in cash or shares of Common Stock as set forth herein. On
each conversion of this Debenture, the Company and the Holder shall agree in
writing as to the unconverted principal amount then-outstanding following each
such conversion. Subject to the terms and conditions herein, the decision
whether to pay interest hereunder in registered shares of Common Stock or cash
shall be at the discretion of the Company. Semi-annual interest payments shall
be due and payable on January 15 and July 15 of each year, commencing with July
15, 2002. Not less than 10 Trading Days preceding the month in which a
semi-annual interest payment is due, the Company shall provide the Holder with
written notice of its election to pay interest payments due hereunder either in
cash or registered shares of Common Stock (the Company may indicate in such
notice that the election contained in such notice shall continue for later
periods until revised). Failure to timely provide such written notice shall be
deemed an election by the Company to pay interest in cash. Payment in shares
shall be based on the average of the VWAPs during the 5 Trading Days immediately
prior to the interest payment date and otherwise subject to conversions pursuant
to Section 4. Failure to timely provide such written notice shall be deemed an
election by the Company to pay interest in cash, except that, if the Company
shall not have delivered any cash due as payment of interest hereon by the third
Trading Day after the date such interest is due, the Holder may, by notice to
the Company, require the Company to issue shares of Common Stock in lieu of such
interest payment, except that for such purpose the conversion price applicable
thereto shall be the lesser of (A) the Mandatory Conversion Price on the
Conversion Date, and (B) the Mandatory Conversion Price on the date of the
Holder's demand. Interest shall be calculated on the basis of a 360-day year and
shall accrue daily commencing on the Original Issue Date until payment in full
of the principal sum, together with all accrued and unpaid interest and other
amounts which may become due hereunder, has been made. Interest hereunder will
be paid to the Person in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of Debentures (the
"Debenture Register"). All overdue accrued and unpaid interest to be paid in
cash hereunder shall entail a late fee at the rate of 18% per annum (or such
lower maximum amount of interest permitted to be charged under applicable law)
(the "Late Fee") (to accrue daily, from the date such interest is due hereunder
through and including the date of payment), payable in cash.
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. 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 and
may be transferred or exchanged only in compliance with the Purchase Agreement
and the legend set forth on the face of this Debenture. 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.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal of, or
interest on, any Debentures, in the case of principal, as and when
the principal shall become due and payable and in the case of
interest, if such default remains uncured for 5 business days; or
(ii) any of the representations or warranties made by the
Company herein, in the Purchase Agreement, the Registration Rights
Agreement, or in any agreement, certificate or financial statements
heretofore or hereafter furnished by the Company in connection with
the execution and delivery of this Debenture or the Purchase
Agreement shall be false or misleading, in light of the
circumstances when made, in any material respect at the time made;
or
(iii) the Company (a) fails to issue Conversion Shares to the
Holder or to cause its Transfer Agent to issue Conversion Shares,
or, if applicable, cash, upon proper exercise by the Holder of the
conversion rights of the Holder in accordance with the terms of this
Debenture, (b) fails to transfer or to cause its Transfer Agent to
transfer any certificate for Conversion Shares issued to the Holder
as and when required by this Debenture or the Registration Rights
Agreement, and such transfer is otherwise lawful, or (c) fails to
remove any restrictive legend or to cause its Transfer Agent to
transfer any certificate or any Conversion Shares issued to the
Holder as and when required by this Debenture, the Purchase
Agreement or the Registration Rights Agreement and such legend
removal is otherwise lawful, and any such failure described in
subclauses (a), (b) or (c) shall continue uncured for 7 business
days; or
(iv) the Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under the Purchase Agreement,
the Registration Rights Agreement or this Debenture including but
not limited to the payments of interest (other than semi-annual
interest payments), liquidated damages and Late Fees, provided the
Holder has provided the Company notice and an opportunity to cure
within 10 Trading Days of any such event of default under this
Section 3(a)(iv); or
(v) any governmental agencies or any court of competent
jurisdiction at the instance of any governmental agency shall assume
custody or control of the whole or any substantial portion of the
properties or assets of the Company and such action shall not be
dismissed within 60 days thereafter; or
(vi) any money judgment, writ or warrant of attachment, or
similar process in excess of $100,000 in the aggregate shall be
entered or filed against the Company or any of its properties or
other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of 60 days or in any event later than 5 days
prior to the date of any proposed sale thereunder; or
(vii) the Registration Statement is not declared effective by
the SEC within 120 days from the Closing at which this Debenture was
issued; or
(viii) the Company or any of its respective subsidiaries shall
commence, a case under any applicable bankruptcy or insolvency laws
as now or hereafter in effect or any successor thereto, or the
Company or any of its respective subsidiaries 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 of its respective subsidiaries or
there is commenced against the Company or any of its respective
subsidiaries any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 60 days; or the Company or
any of its respective subsidiaries 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 of its
respective subsidiaries 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 of its subsidiaries makes a general assignment for
the benefit of creditors; or the Company or any of its subsidiaries
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 of its subsidiaries shall call a meeting of its
creditors with a view to arranging a composition, adjustment or
restructuring of its debts in contemplation of filing a prepackaged
plan of reorganization under Chapter 11 of the United States
Bankruptcy Code; or the Company or any of its subsidiaries shall by
any act or failure to act expressly 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 of its
subsidiaries for the purpose of effecting any of the foregoing; or
(ix) the Company (or any subsidiary thereof if guaranteed by
the Company) shall default (unless such default is the subject of a
bona fide dispute and the Company has set aside adequate reserves)
in any of its obligations under any other Debenture or any mortgage,
credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by
which there may be secured or evidenced any indebtedness for
borrowed money or money due under any long term leasing or factoring
arrangement of the Company in an amount exceeding an aggregate of
$400,000, unless waived, extended or cured within 10 business days,
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; or
(x) the Common Stock shall be delisted from the Principal
Market or suspended from trading on the Principal Market without
resuming trading and/or being relisted or thereon or listed on
another Principal Market or having such suspension lifted, in either
case, for more than either 3 consecutive Trading Days or 5 Trading
Days in the aggregate during any 12 month period (which need not be
consecutive Trading Days); or
(xi) the Company shall have suspended the Holder's conversion
rights for more than four (4) Trading Days in the aggregate during
any 12 month period (provided, however, that this Event of Default
shall not be deemed to grant the Company any right to any such
suspensions); or
(xii) if the effectiveness of the Registration Statement
lapses for any reason or the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights
Agreement) under the Registration Statement, in either case, for
more than 30 Trading Days, in the aggregate, during any 12 month
period.
(b) During the time that any portion of this Debenture remains
outstanding, if any Event of Default occurs and is continuing, unless such
Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder
may consider this Debenture immediately due and payable in cash, without
presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and the Holder may
immediately enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law. The
aggregate amount payable upon an Event of Default shall be equal to the
Event of Default Amount. Interest shall accrue on the amount due hereunder
from the seventh day after such amount is due (being the date of an Event
of Default) through the date of redemption in full thereof at the rate of
18% per annum (or such lesser maximum amount that is permitted to be paid
by applicable law), to accrue daily from the date such payment is due
hereunder through and including the date of payment. All Debentures and
Conversion Shares for which the full redemption price hereunder shall have
been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Such declaration may
be rescinded and annulled by Holder 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) Conversion at Option of Holder.
(i) At the option of the Holder, this Debenture shall be
convertible into Conversion Shares, in whole or in part, at any time
and from time to time, after the Original Issue Date (subject to the
limitations on conversion set forth in Section 4). The number of
Conversion Shares issuable hereunder shall be determined by dividing
(1) the outstanding principal amount of this Debenture to be
converted plus all accrued and unpaid interest on such Debenture by
(2) $2.967 (subject to adjustments herein)(the "Set Price"),
provided that if the Company has not elected to pay the accrued and
unpaid interest on such Debenture in shares of Common Stock within
the prescribed time period, then the number of shares shall be
determined by dividing the outstanding principal amount of this
Debenture to be converted by the Set Price; provided further, that
notwithstanding any provision herein, the Company may elect to pay
interest in cash in the event of a conversion pursuant to this
Section 4.
(ii) Notwithstanding anything to the contrary contained
herein, if on any Conversion Date:
(A) the Common Stock is not listed or quoted on a
Principal Market;
(B) the Company has failed to timely satisfy its
conversion obligations hereunder with respect to Debentures
submitted for conversion on such conversion date; or
(C) the issuance of such shares of Common Stock would
result in a violation of Sections 4(d)(ii) herein.
then, at the option of the Holder, the Company, in lieu of
delivering Conversion Shares, shall deliver, within 4 Trading Days
of each applicable Conversion Date, an amount in cash equal to the
product of the number of Conversion Shares otherwise deliverable to
the Holder in connection with such Conversion Date and the highest
VWAP during the period commencing on the Conversion Date and ending
on the Trading Day prior to the date such payment is made.
(b) [Intentionally left Blank]
(c) Conversion Procedure.
(i) CONVERSION NOTICES. The Holder shall effect conversions by
surrendering, if applicable, this Debenture (but only if the Holder
is converting the entire outstanding principal amount of this
Debenture), together with the form of conversion notice attached
hereto (a "Conversion Notice") to the Company and the Company's
transfer agent. Each Conversion Notice shall specify the principal
amount of this Debenture to be converted, the applicable conversion
price and the date on which such conversion is to be effected, which
date may not be prior to the date such Conversion Notice is deemed
to have been delivered hereunder (a "Conversion Date"). If the
Holder is converting less than all of the principal amount
represented by this Debenture, the Holder shall convert at least
$100,000 in principal amount of this Debenture. The Holder shall not
deliver to the Company more than 4 Conversion Notices per calendar
month, provided, however, in the event that (A) the Holder delivers
a Conversion Notice which is otherwise not permitted hereunder, and
(B) on or prior to 5 pm ET on the Trading Day following the date
such notice is delivered, the Company fails to notify the Holder
that it does not intend to honor such Conversion Notice pursuant to
this provision, the Company shall be required to honor such
Conversion Notice. If no Conversion Date is specified in a
Conversion Notice, the Conversion Date shall be the date that such
Conversion Notice is deemed delivered hereunder. Unless otherwise
provided for by the terms hereunder, each Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than
all of the principal amount represented by this Debenture, it shall
not be required to surrender this Debenture but may exercise its
right to convert solely by the delivery of a Conversion Notice. If a
conversion hereunder cannot be effected in full for any reason, the
Company shall honor such conversion to the extent permissible
hereunder. At anytime the Holder may elect, upon delivery of this
Debenture to the Company, to receive a new Debenture for such
principal amount as has not been converted.
(ii) DELIVERY OF CONVERSION SHARES. Not later than 4 Trading
Days after any Conversion Date, the Company will deliver to the
Holder, at an address in the United States supplied by the Holder,
(A) a certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those permitted by the
Purchase Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of this Debenture (subject
to the limitations set forth in Section 4(d) hereof), (B) if
applicable, a new Debenture in a principal amount equal to the
principal amount of Debentures not converted (if the Holder elects
to surrender this Debenture and a principal amount remains
outstanding after conversion), and (C) a bank wire or a bank or
certified check in the amount of accrued and unpaid interest (if the
Company has timely elected or is required to pay accrued interest in
cash). The Company shall, upon request of the Holder, if available,
use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions.
(iii) FAILURE TO DELIVER CONVERSION SHARES IN A TIMELY MANNER.
If the Company fails for any reason to deliver to the Holder such
certificate or certificates by the 5th Trading Day after the
Conversion Date in accordance with Section 4(c)(ii), including, (in
the event that shares are to be delivered in certificated form) but
not limited to, the obligation of the Company to deliver such shares
without any restrictive legend, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, for
each $5,000 of principal amount being converted, $25 per Trading Day
(increasing to $50 per Trading Day after 3 Trading Days and
increasing to $100 per Trading Day 6 Trading Days after such damages
begin to accrue) after such 5th Trading Day until such certificates
are delivered; provided, however, in the event the Holder elects to
rescind a conversion notice, liquidated damages shall accrue only up
to the date of such rescission notice but not thereafter with
respect to such rescinded conversion. If in the case of any
Conversion Notice such certificate or certificates are not delivered
to or as directed by the applicable Holder by the 5th Trading Day
after a Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion,
in which event the Company shall immediately return the certificates
representing the principal amount of Debentures tendered for
conversion. Nothing herein shall limit a Holder's right to pursue
actual damages or declare an Event of Default pursuant to Section 3
herein for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the
period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any
other Section hereof or under applicable law. Further, if the
Company shall not have delivered any cash due as payment of interest
hereon by the fifth Trading Day after the Conversion Date, the
Holder may, by notice to the Company, require the Company to issue
shares of Common Stock pursuant to Section 4(a), except that for
such purpose the conversion price applicable thereto shall be the
lesser of (A) the lesser of the Set Price and the Mandatory
Conversion Price on the Conversion Date and, (B) the lesser of the
Set Price and the Mandatory Conversion Price on the date of the
Holder's demand. Any such shares will be subject to the provision of
this Section.
(iv) BUY-IN. In addition to any other rights available to the
Holder, (i) if the Holder sells the shares it has converted and the
Holder has provided the Company evidence of such sale reasonably
satisfactory to the Company (the "Sale"), and (ii) if the Company
fails to deliver to the Holder such certificate or certificates by
the 5th Trading Day after the Conversion Date in accordance with
Section 4(c)(ii), and if after such 5th Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock
to deliver in satisfaction of a sale by such Holder of the
Conversion Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall (A) pay in cash to
the Holder (in addition to any remedies available to or elected by
the Holder) the amount by which (x) the Holder's total purchase
price (including brokerage commissions, if any) for the Common Stock
so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder anticipated receiving from
the conversion at issue multiplied by (2) the per share price of the
Common Stock pursuant to the Sale, and (B) at the option of the
Holder, (x) deliver the Conversion Shares not yet delivered under
the Conversion Notice and subject to this provision, or (y)
reinstate the principal and interest of this Debenture subject to
such Conversion Notice. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted conversion of this Debenture with
respect to which the market price of the Conversion Shares on the
date of conversion was a total of $10,000, the Company shall be
required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder
in respect of the Buy-In and the basis for determining such amount.
Notwithstanding anything contained herein to the contrary, if a
Holder requires the Company to make payment in respect of a Buy-In
for the failure to timely deliver certificates hereunder and the
Company timely pays in full such payment, the Company shall not be
required to pay such Holder liquidated damages under Section
4(c)(iii) in respect of the certificates resulting in such Buy-In.
(d) Conversion Restrictions.
(i) BENEFICIAL OWNERSHIP LIMITATION. Notwithstanding anything
herein to the contrary, the Holder may not convert, and the Company
may not cause the Holder to convert, this Debenture or receive
shares of Common Stock as payment of interest hereunder to the
extent such conversion or receipt of such interest payments would
result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules promulgated thereunder) in excess
of 4.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of
interest on, this Debenture or any other debenture of the Company
held by such Holder after application of this Section. Since the
Holder will not be obligated to report to the Company the number of
shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 4.999% of the then
outstanding shares of Common Stock without regard to any other
shares which may be beneficially owned by the Holder or an affiliate
thereof, the Holder shall have the authority and obligation to
determine whether the restriction contained in this Section will
limit any particular conversion hereunder and to the extent that the
Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount
of this Debenture is convertible shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Conversion
Notice for a principal amount of this Debenture that, without regard
to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of
this fact and shall honor the conversion for the maximum principal
amount permitted to be converted on such Conversion Date in
accordance with this Section. If this Debenture was not surrendered
on the Conversion Date, the Company shall provide the Holder written
notice of the amount actually converted. If the Holder surrendered
this Debenture on the Conversion Date, the Company shall, at the
option of the Holder, either retain any principal amount tendered
for conversion in excess of the permitted amount hereunder for
future conversions or return such excess principal amount to the
Holder. The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less
than 61 days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
(ii) LIMITATION ON NUMBER OF SHARES ISSUABLE. Notwithstanding
anything herein to the contrary, the Company shall not be required
to issue to the Holder and any other holders of the Debentures, in
the aggregate, in excess of the greater of (A) as of the date of the
First Closing Date, 18.5% of the issued and outstanding shares of
Common Stock at a price below the market price of the Common Stock
on such date, and (B) the number of shares of Common Stock permitted
to be issued pursuant to Nasdaq Rule 4350(i), as confirmed in
writing by counsel to the Company, upon conversion of the Debentures
(the "Maximum Aggregate Share Amount"), unless the Company first
obtains shareholder approval permitting such issuances in accordance
with Nasdaq rules. If the number of shares of Common Stock which
would, notwithstanding the limitation set forth herein, be issuable
and sold to the Holder equals or exceeds the Maximum Aggregate Share
Amount, then, at any time thereafter, from time to time, at the sole
election of the Holder, in whole or in part, the Company shall
either: (i) honor the conversion of this Debenture by the Holder at
the lowest possible conversion price which would permit such
conversion without violating Nasdaq Rule 4350(i), provided, however,
that such conversion price shall not be lower than the Set Price,
and/or (ii) redeem the portion of this Debenture submitted to the
Company, the conversion of which would exceed the Maximum Aggregate
Share Amount, otherwise in accordance with Section 5(a).
(iii) LIMITATION ON NUMBER OF SHARES ISSUABLE DURING ANY 60
DAY PERIOD. Notwithstanding anything herein to the contrary, during
any rolling 60 consecutive calendar day period, the Company shall
not be required to issue to the Holder a number of Conversion Shares
during such period in the aggregate that exceeds 9.9% of the number
of shares of Common Stock issued and outstanding on the date in
question.
(e) Anti-Dilution Provisions.
(i) DIVIDENDS, STOCK SPLITS, ETC. If the Company, at any time
while this Debenture is outstanding, (A) shall pay a stock dividend
or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock, (B) subdivide outstanding shares
of Common Stock into a larger number of shares, (C) combine
(including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issue by
reclassification of shares of the Common Stock any shares of capital
stock of the Company, then the Set Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of
shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
(ii) RIGHTS, OPTIONS, WARRANTS, ETC. If the Company, at any
time while this Debenture is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to
holders of the Debentures) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
Set Price (the "Lower Price"), then the Set 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 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 the Set Price.
Such adjustment shall be made whenever such rights, options or
warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such rights, options or warrants. However, upon the
expiration of any such right, option or warrant to purchase shares
of the Common Stock the issuance of which resulted in an adjustment
in the Set Price pursuant to this Section, if any such right, option
or warrant shall expire and shall not have been exercised, the Set
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 Set Price made pursuant to the provisions of this Section after
the issuance of such rights or warrants) had the adjustment of the
Set Price made upon the issuance of such rights, options 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, options or warrants actually exercised.
(iii) FUTURE ISSUANCES. If the Company or any subsidiary
thereof, at any time while this Debenture is outstanding, shall
issue Capital Shares, or Capital Share Equivalents entitling any
Person to acquire shares of Common Stock, at a price per share less
than the Set Price (if the holder of the Capital Shares or Capital
Share Equivalent so issued shall at any time, whether by operation
of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights issued in connection with such issuance,
be entitled to receive shares of Common Stock at a price less than
the Set Price, such issuance shall be deemed to have occurred for
less than the Set Price) then, the Set 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 securities plus the number of
Capital Shares or Capital Share Equivalents 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 securities plus the
number of shares which the aggregate offering price of the total
number of shares so offered would purchase at the Set Price,
provided, that for purposes hereof, all shares of Common Stock that
are issuable upon conversion, exercise or exchange of Capital Share
Equivalents shall be deemed outstanding immediately after the
issuance of such Capital Share Equivalents. Such adjustment shall be
made whenever such shares of Capital Shares or Capital Share
Equivalents are issued. However, upon the expiration of any Capital
Share Equivalents, the issuance of which resulted in an adjustment
in the Conversion Price pursuant to this Section, if any such
Capital Share Equivalents shall expire and shall not have been
exercised, the Set 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 Set Price made pursuant to the provisions
of this Section after the issuance of such Capital Share
Equivalents) had the adjustment of the Set Price made upon the
issuance of such Capital Share Equivalents been made on the basis of
offering for subscription or purchase only that number of shares of
Common Stock actually purchased upon the exercise of such Capital
Share Equivalents actually exercised.
(iv) NO ADJUSTMENT. No adjustment to the Set Price pursuant to
Section 4(e)(iii) will be made (A) upon the conversion of this
Debenture or any other Debenture of this series or of any other
series issued by the Company, or upon the issuance, conversion, or
redemption of, or payment of interest under, any Convertible
Securities issued pursuant to the Purchase Agreement; (B) upon the
exercise or conversion of any Convertible Securities, options or
warrants issued and outstanding on the Original Issue Date of this
Debenture; (C) upon the issuance of Common Stock or issuance grant,
exercise or conversion of any Convertible Securities which may
hereafter be issued, granted, exercised or converted (x) as
compensation to employees, consultants, brokers, investment bankers
or members of the Board of Directors of the Company, or (y) under
any employee benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such Common
Stock or Convertible Securities is approved by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose; (D) upon the issuance of Common Stock
or Convertible Securities in any transaction of the nature
contemplated by Rule 145, promulgated under the Securities Act; (E)
in connection with any strategic partnership or joint venture or
acquisition (the primary purpose of which is not to raise equity
capital for the Company) or (F) the issuance of Common Stock or the
issuance, grant, exercise or conversion of Convertible Securities
issued to a bank or equipment lessor (pursuant to transactions the
primary purpose of which is not to raise equity capital for the
Company).
(v) RIGHTS OF SHAREHOLDERS, ETC. If the Company, at any time
while this Debenture is outstanding, shall distribute to all holders
of Common Stock (and not to Holders) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any
security, then in each such case the Set Price at which this
Debenture shall thereafter be convertible shall be determined by
multiplying the Set 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 VWAP determined as of the record date mentioned above, and of
which the numerator shall be such VWAP 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. In either case the adjustments shall be
described in a statement provided to the Holder of the portion of
assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned
above.
(f) Miscellaneous.
(i) All calculations under this Section 4 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
No adjustments in the Set Price shall be required if such adjustment
is less than $0.01, provided, however, that any adjustments which by
reason of this Section are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(ii) Whenever the Set Price is adjusted hereunder, the Company
shall promptly mail to each Holder a notice setting forth the Set
Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(iii) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of
Common Stock solely for the purpose of issuance upon conversion of
this Debenture and payment of interest on this Debenture, each as
herein provided, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder, 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) upon the conversion of the outstanding principal amount
of this Debenture and payment of interest hereunder. The Company
covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued, fully
paid and nonassessable.
(iv) 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 VWAP 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.
(v) The issuance of certificates for shares of the Common
Stock on conversion of this Debenture shall be made without charge
to the Holder 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 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.
Section 5. Redemption.
(a) Optional Redemption by the Company. If the VWAP of the Common
Stock exceeds 150% of the Set Price for a period of 20 consecutive Trading
Days or if the Company consummates a public offering of its Common Stock
at an offering price in excess of 150% of the Set Price, then, at such
time, the Company shall have the right, upon 10 Trading Days' notice to
the Holder (an "Optional Redemption Notice" and the date such notice is
received by the Holder, the "Notice Date"), to redeem the entire principal
amount of this Debenture or any portion thereof not less than $500,000
then held by the Holder, at a cash price equal to the principal amount
outstanding of this Debenture plus any accrued but unpaid interest hereon
(the "Optional Redemption Price"); provided, however, the Company may only
deliver an Optional Redemption Notice to the Holder if, on the Notice
Date, (i) there is an effective Registration Statement pursuant to which
the prospectus thereunder is available for use in the resale of all of the
Conversion Shares issued to the Holder and all of the Conversion Shares as
are issuable to the Holder upon conversion in full of this Debenture (and
the Company believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), and (ii) the Common Stock is
listed for trading on a Principal Market (and the Company believes, in
good faith, that trading of the Common Stock on the Principal Market will
continue uninterrupted for the foreseeable future). If any of the
foregoing conditions shall cease to be in effect during the period between
the Notice Date and the date the Optional Redemption Price is paid in
full, then the Holders subject to such redemption may elect, by written
notice to the Company given at any time after any of the foregoing
conditions shall cease to be in effect, to invalidate ab initio such
redemption, notwithstanding anything herein contained to the contrary. The
Holders may convert any portion of the outstanding principal amount of the
Debentures subject to an Optional Redemption Notice at the Set Price prior
to the date that the Optional Redemption Price is due and paid in full.
(b) Mandatory Redemption. On each Mandatory Redemption Date, the
Company shall redeem a portion of this Debenture equal to the Holder's
Pro-Rata share of the Mandatory Redemption Amount (except that, if the
Holder elects to exercise any other Debenture(s) on such Mandatory
Redemption Date, the amount so redeemed pursuant to such other Debentures
shall reduce the principal amount that may be redeemed hereunder on such
Mandatory Redemption Date by such amount) at a cash price equal to 100% of
the principal amount of this Debenture being redeemed. In lieu of a cash
redemption payment, the Company may elect to pay, in whole or in part (and
if in part, in multiples of $100,000), such amount to be redeemed on the
applicable Mandatory Redemption Date in Conversion Shares based on a
conversion price equal to the lesser of (i) 90% OF THE ADJUSTED VWAP
DURING THE 22 TRADING DAYS IMMEDIATELY PRIOR TO THE APPLICABLE MANDATORY
REDEMPTION DATE, and (ii) the Set Price (the "Mandatory Conversion
Price"); provided, however, that the Mandatory Redemption shall only occur
if, on the Mandatory Redemption Date and during the 30 calendar days prior
thereto, (i) there is an effective Registration Statement pursuant to
which the Holder is permitted to utilize the prospectus thereunder to
resell all of the Conversion Shares issued to the Holder and all of the
Conversion Shares as are issuable to the Holder upon conversion in full of
the Debentures subject to such Mandatory Redemption are registered for
resale by the Holder thereunder (and the Company believes, in good faith,
that such effectiveness will continue uninterrupted for the foreseeable
future), and (ii) the Common Stock is listed for trading on a Principal
Market (and the Company believes, in good faith, that trading of the
Common Stock on the Principal Market will continue uninterrupted for the
foreseeable future); provided, further, that, on or prior to the first
Trading Day of the 30 calendar day period prior to such Mandatory
Redemption Date, the Company irrevocably notifies the Holder that it will
issue Conversion Shares in lieu of cash and the Company includes in such
notification the amount to be converted (the "Conversion Amount").
Notwithstanding anything herein to the contrary, the Holder may elect,
upon written notice to the Company not less than 2 Trading Days prior to a
Mandatory Redemption Date, to waive any of the aforementioned conditions
to the applicable Mandatory Redemption. In the event the Company elects to
redeem this Debenture by the issuance of Conversion Shares, the Holder
shall have the right, in its sole discretion, by notice to the Company
prior to the applicable Mandatory Redemption Date, to increase the
Conversion Amount by up to 100% or to decrease the Conversion Amount by up
to 50% (except that, in the event one or more of the conditions to a
Mandatory Redemption is not met and such condition(s) is waived by the
Holder, the Holder may elect to decrease the applicable Conversion Amount
by up to 100%). In the event the Conversion Amount is reduced by the
Holder, such principal amount not converted but subject to the Mandatory
Redemption, if not for the preceding sentence, shall be deferred to the
end of this redemption schedule and cumulated with any other amounts so
deferred. The Mandatory Conversion Price for any deferred Conversion
Amount, shall be calculated at the date when actually converted, not at
the time of deferral. By way of example, assume that this is the only
Debenture issued under the Purchase Agreement, the Original Issue Date is
December 5, 2001, the Effective Date is March 5, 2002 and there remains
$5,000,000 in principal outstanding on this Debenture. Assume further that
on March 5, 2002 the Company provided the Holder notice that it will
redeem $400,000 of the principal amount of this Debenture by the issuance
of Conversion Shares rather than cash (i.e. that the Conversion Amount
shall be $400,000). On April 5, 2002, the Registration Statement is
maintained effective and the Common Stock trades uninterrupted on the
Principal Market during the 30 days prior to April 5. Finally, assume that
on April 4, 2002, the Holder notifies the Company that it elects to reduce
the Conversion Amount to $250,000. Under these circumstances, on April 5,
2002, the Company shall redeem $350,000 principal amount of this
Debenture, $250,000 of which shall be paid by the issuance of Conversion
Shares based on the Mandatory Conversion Price on the Mandatory Redemption
Date and the balance of $100,000, shall be paid in cash. The Mandatory
Redemption of $150,000 of the principal amount of this Debenture shall be
deferred until after the remaining principal amount outstanding of this
Debenture has been subject to this Mandatory Redemption provision.
Notwithstanding anything herein to the contrary, conversions hereunder
shall be made as if pursuant to Section 4, including but not limited to,
liquidated damages and fees for late delivery of Conversion Shares, and
the Conversion Date for such purposes shall be the Mandatory Redemption
Date. The Holder may convert any portion of the outstanding principal
amount of the Debentures subject to a Mandatory Redemption prior to the
date that the Mandatory Redemption is due and paid in full at the Set
Price. Nothing herein shall preclude the Holder from converting this
Debenture to the extent this Debenture remains unpaid and unconverted
after the Mandatory Redemption Date.
(c) Redemption Procedure. The Optional Redemption Price is due on
the 10th Trading Day following the Notice Date and payment of cash and/or
issuance of Conversion Shares pursuant to the Mandatory Redemption shall
be made on the Mandatory Redemption Date. If any portion of the Optional
Redemption Price or cash payment for the Mandatory Redemption shall not be
paid by the Company by expiration of such 10th Trading Day or Mandatory
Redemption Date, as the case may be, interest shall accrue thereon at the
rate of 18% per annum (or the maximum rate permitted by applicable law,
whichever is less) until the Optional Redemption Price or cash payment of
the Mandatory Redemption plus all such interest is paid in full. In
addition, if any portion of the Optional Redemption Price or payment for
the Mandatory Redemption remains unpaid after such date, the Holders
subject to such redemption may elect, by written notice to the Company
given at any time thereafter, to invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary. If a Holder
elects to invalidate such redemption the Company shall promptly, and, in
any event, not later than 3 Trading Days from receipt of such Holder's
notice of such election, return to such Holder all of the Debentures for
which the Optional Redemption Price shall not have been paid in full. With
respect to the principal amount of any Debentures to be converted pursuant
to a Mandatory Redemption and subject to such invalidation, the conversion
price as to any conversions pursuant to Section 4(a)(i) thereafter shall
equal the Mandatory Conversion Price on the date such demand is made
(notwithstanding the fact that such a date may not be a Mandatory
Conversion Date).
Section 6. Dividends, Mergers, Consolidations, Reclassifications, Etc.
(a) Notice of Certain Events. If (i) the Company shall declare a
dividend (or any other distribution) on the Common Stock; (ii) the Company
shall declare a special nonrecurring cash dividend on or a redemption of
the Common Stock; (iii) 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; (iv)
the approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (v) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company; then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of
the Debentures, and shall cause to be mailed to the Holder at its last
addresses as they shall appear upon the stock books of the Company, at
least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (i) 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 (ii) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange, provided, that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
The Holder is entitled to convert this Debenture during the 20-day period
commencing the date of such notice to the effective date of the event
triggering such notice.
(b) Change of Control. In case of any Change of Control or sale or
disposition by the Company of all or in excess of 50% of its assets in one
or more transactions (whether or not such sale would constitute a Change
of Control Transaction) or redemption or repurchase of more than a de
minimis number of shares of Common Stock or other equity securities of the
Company, the Holder shall have the right to either (i) avail itself of any
of the rights, remedies and procedures otherwise available to the Holder
pursuant to Section 3(b) as if an Event of Default had occurred, (ii)
convert its aggregate principal amount of Debentures then outstanding into
the shares of stock and other securities, cash and property receivable
upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and such Holder shall be entitled upon such
event or series of related events to receive such amount of securities,
cash and property as the shares of Common Stock into which such aggregate
principal amount of Debentures could have been converted immediately prior
to such merger, consolidation or sale would have been entitled, or (iii)
in the case of Change of Control involving a merger in which the Company
is not the surviving corporation or a consolidation, (A) require the
surviving entity to issue convertible subordinated debentures in such face
amount equal to the aggregate principal amount of Debentures then held by
the Holder, plus all accrued and unpaid interest and other amounts owing
thereon, which newly issued debentures shall have terms identical
(including with respect to conversion) to the terms of this Debenture and
shall be entitled to all of the rights and privileges of a Holder of this
Debenture and the agreements pursuant to which this Debenture was issued
(including, without limitation, as such rights relate to the acquisition,
transferability, registration and listing of such shares of stock or other
securities issuable upon conversion thereof), and (B) simultaneously with
the issuance of such convertible subordinated debentures, shall have the
right to convert such instrument only into shares of stock and other
securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger or consolidation. In the
case of clause (iii), the conversion price applicable for the newly issued
convertible subordinated debentures shall be based upon the amount of
securities, cash and property that each share of Common Stock would
receive in such transaction and the Set Price in effect immediately prior
to the effectiveness or closing date for such transaction. The terms of
any such merger, sale or consolidation shall include such terms so as to
continue to give the Holders the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption
following such event. This provision shall similarly apply to such
successive events. The terms of any agreement to be executed in connection
with any Change of Control transaction shall include terms requiring any
successor or surviving entity to comply with the provisions of this
Section.
(c) Reclassification. In case of any reclassification of the Common
Stock (other than a change in par value or a change from par value to no
par value) or any compulsory share exchange pursuant to which the Common
Stock is converted into other securities, cash or property, the Holder
shall have the right thereafter to, at its option, (i) to convert, at any
time, in whole or in part, 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 Holder of this Debenture 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 (ii) to cause the Company to
exercise its right to redeem the aggregate outstanding principal amount of
this Debenture, plus all interest and other amounts due and payable
thereon, pursuant to Section 5. The entire redemption price due hereunder
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
Section 7. Subordination
(a) Agreement To Subordinate. The Company agrees, and the Holder, by
accepting this Debenture agrees, that the indebtedness evidenced by this
Debenture is subordinated in right of payment, to the extent and in the
manner provided in this Section 7, to the prior payment and/or
cancellation in full of all Senior Indebtedness of the Company and that
such subordination is for the benefit of, and enforceable by, the holders
of such Senior Indebtedness.
(b) Liquidation, Dissolution, Bankruptcy. Upon any payment or
distribution of the assets of the Company to creditors upon a total or
partial liquidation or a total or partial dissolution of the Company or in
a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(i) holders of Senior Indebtedness of the Company shall be
entitled to receive payment in full of such Senior Indebtedness
before the Holder shall be entitled to receive any payment of
principal of or interest on the Debentures; and
(ii) until the Senior Indebtedness of the Company is paid in
full, any payment or distribution to which the Holder would be
entitled but for this Section 7 shall be made by the liquidating
trustee or agent or other person making such payment or distribution
(whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise) directly to holders of such Senior Indebtedness as
their interests may appear to the extent necessary to pay in full
all Senior Indebtedness remaining unpaid after giving effect to any
prior or concurrent payment or distribution, or provision therefor,
to holders of such Senior Indebtedness.
(iii) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than
securities issued to the Holder upon conversion under or redemption
of this Debenture, cash paid for liquidated damages pursuant to
Section 7(c) or shares of common stock of the Company as reorganized
or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the
payment of which is subordinated to the payment of all Senior
Indebtedness which may at the time be outstanding on terms not less
favorable than those of this Section 7) shall be received by the
Holder before all Senior Indebtedness is paid in full, such payment
or distribution shall be paid over to the Senior Creditor, for
application to the payment of all Senior Indebtedness remaining
unpaid until all such Senior Indebtedness shall have been paid in
full, or provision made for its payment, after giving effect to any
prior or concurrent payment or distribution on the Senior
Indebtedness.
(c) Event of Default and Notice. The Holder covenants and agrees
that: (a) if an Event of Default shall occur under this Debenture, other
than by conversion of this Debenture into Conversion Shares or the
issuance of shares of Common Stock in lieu of liquidated damages, the
Holder will not demand payment of any principal of or interest on this
Debenture or demand, during any consecutive 120 day period, in excess of
such Holder's Pro-Rata share of $200,000 in cash for the payment of
liquidated damages pursuant to this Debenture, until one hundred and
twenty (120) days after the Holder has provided the Senior Creditor the
written notice of the Event of Default at the addresses of the Senior
Creditor set forth in this Section 7; (b) the Holder agrees not to oppose,
interfere with or otherwise attempt to prevent the Senior Creditor from
enforcing its security interests in and/or liens on any of collateral held
by the Senior Creditor or otherwise realizing upon any of such collateral;
(c) the Holder shall not attempt to take possession of and/or to attempt
to foreclose on any lien, security interest or other encumbrance on or in
any of the collateral held by the Senior Creditor prior to the time all of
the Senior Indebtedness held by the Senior Creditor shall have been fully,
finally and indefeasibly paid in cash and all financing arrangements and
commitments between the Company and Senior Creditor shall have been
terminated; and (d) the Holder shall not, directly or indirectly, take any
action to contest or challenge the validity, legality, enforceability,
perfection, priority or avoidability of any of the Senior Indebtedness
held by the Senior Creditor, any documents evidencing the Senior
Indebtedness or any of the security interests and/or liens held by Senior
Creditor in or on any of the collateral. Upon notification to the Company
of an Event of Default, the Holder shall concurrently notify the Senior
Creditor in writing of such Event of Default. In the event that the Holder
is precluded under this Subsection 7(c) from demanding a cash payment for
accrued liquidated damages, the Holder may elect to demand shares of
Common Stock in lieu of cash based on a conversion rate equal to the
Mandatory Conversion Price (notwithstanding the fact that such date may
not be a Mandatory Conversion Date).
(d) Default on Senior Indebtedness. The Company may not pay the
principal of, premium (if any) or interest on this Debenture in cash and
may not repurchase, redeem or otherwise retire this Debenture (other than
securities issued to the Holder upon conversion under or redemption of,
this Debenture) if (i) any Senior Indebtedness of the Company is not paid
when due or (ii) any other default on such Senior Indebtedness occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with
its terms unless, in either case, (x) the default has been cured or waived
and any such acceleration has been rescinded or (y) such Senior
Indebtedness has been paid in full.
(e) When Distribution Must Be Paid Over. If a distribution
prohibited by this Section 7 is made to Holders, the Holders who receive
such distribution shall hold such distribution in trust for holders of
Senior Indebtedness of the Company and pay such distribution over to them
as their interests may appear.
(f) Waiver of Certain Rights. The Holder hereby waives any and all
rights to (a) require Senior Creditor to marshall any property or assets
of the Company or to resort to any of the property or assets of the
Company in any particular order or manner, (b) require Senior Creditor to
enforce any guaranty or any security interest or lien given by any person
or entity other than the Company to secure the payment of any or all of
the Senior Indebtedness held by the Senior Creditor as a condition
precedent or concurrent to taking any action against or with respect to
any collateral securing such Senior Indebtedness and/or (c) bring any
action to contest the validity, legality, enforceability, perfection,
priority or avoidability of any of the Senior Indebtedness held by the
Senior Creditor, any of the documents evidencing the Senior Indebtedness
held by the Senior Creditor or any of the security interests and/or liens
of Senior Creditor in or on any of the collateral securing its Senior
Indebtedness.
(g) Priority of Security Interests. Any and all security interests,
liens, rights and interests of the Holder, whether now or hereafter
arising and howsoever existing, in or on any or all of the collateral now
or hereafter securing the Senior Indebtedness held by the Senior Creditor
shall be and hereby are subordinated to any and all security interests,
liens, rights and interests of Senior Creditor in and to any collateral
now or hereafter securing such Senior Indebtedness, irrespective of (a)
the time, order, manner or method of creation, attachment or perfection of
the respective security interests and/or liens granted to the Holder or
the Senior Creditor in or on any or all of the property or assets of the
Company, (b) the time or manner of the filing of their respective
financing statements, (c) whether the Holder or the Senior Creditor or any
bailee or agent thereof holds possession of any or all of the property or
assets of the Company, (d) the dating, execution or delivery of any
agreement, document or instrument granting the Holder or the Senior
Creditor security interests and/or liens in or on any or all of the
property or assets of the Company, (e) the giving or failure to give
notice of the acquisition or expected acquisition of any purchase money or
other security interests and (f) any provision of the Uniform Commercial
Code or any other applicable law to the contrary. For purposes of the
foregoing allocation of priorities, any claim of a right of setoff shall
be treated in all respects as a security interest and no claimed right of
setoff shall be asserted to defeat or diminish the rights or priorities
provided for herein.
(h) Bankruptcy. The provisions of this Section 7 shall continue in
full force and effect after the filing of any petition for relief by or
against the Company under the United States Bankruptcy Code (the "Code")
and all converted or succeeding cases in respect thereof (all references
herein to the Company being deemed to apply to the Company as a
debtor-in-possession and to a trustee for the Company), and shall apply
with full force and effect with respect to all collateral held by the
Senior Creditor, and to all Senior Indebtedness incurred by the Company
from the Senior Creditor, subsequent to such filing.
(i) Relative Rights. This Section 7 defines the relative rights of
Holders and holders of Senior Indebtedness of the Company. Nothing in
this Indenture shall:
(i) impair, as between the Company and Holders, the obligation
of the Company, which is absolute and unconditional, to pay
principal of and interest on and liquidated damages in respect of,
the Debentures in accordance with their terms; or
(ii) prevent any Holder from exercising its available remedies
upon an Event of Default, subject to the rights of holders of Senior
Indebtedness of the Company to receive distributions otherwise
payable to Holders.
(j) Payment in Stock. Notwithstanding any provision in this Section
7, the Company may at any time pay or redeem this Debenture in shares of
Common Stock pursuant to the terms and conditions set forth herein and the
Holder may receive such shares of Common Stock free and clear of any
claims of the holders of Senior Indebtedness. Nothing herein shall
restrict delay or otherwise affect the Holder's right to receive
securities upon any conversion or issuance under this Debenture.
(k) Reliance by Holders of Senior Indebtedness on Subordination
Provisions. The Holder by accepting a Debenture acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be,
an inducement and a consideration to each holder of any Senior
Indebtedness of the Company, whether such Senior Indebtedness was created
or acquired before or after the issuance of the Debentures, to acquire and
continue to hold, or to continue to hold, such Senior Indebtedness and
such holder of such Senior Indebtedness shall be deemed conclusively to
have relied on such subordination provisions in acquiring and continuing
to hold, or in continuing to hold, such Senior Indebtedness.
(l) Definitions.
"Senior Indebtedness" of the Company means the principal of, premium (if
any) and accrued and unpaid interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization of
the Company, regardless of whether or not a claim for post-filing interest
is allowed in such proceedings) on, and fees and other amounts owing in
respect of any indebtedness of the Company for money borrowed, including
but not limited to indebtedness now or hereafter borrowed from or
otherwise due to the Senior Creditor unless in the instrument creating or
evidencing the same or pursuant to which the same is outstanding it is
expressly provided that such obligations are not superior in right of
payment to the Debentures whether outstanding on the date of this
Debenture is issued or thereafter incurred; provided, however, that Senior
Indebtedness shall not include:
(1) any obligation of the Company to any Subsidiary of the Company;
(2) any liability for federal, state, local or other taxes owed or
owing by the Company;
(3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees
thereof or instruments evidencing such liabilities); or any
obligations with respect to the Common Stock.
"Senior Creditor" means Fleet National Bank, N.A. and its successors and
assigns, with notice addresses at both 100 Federal Street, Boston, MA
02110 Attention: Senior Commercial Loan Officer - Massachusetts, and 100
Front Street, Worcester, MA 01608 Attention: Senior Commercial Loan
Officer, provided, however, that in the event that all of the Senior
Indebtedness to Fleet National Bank is no longer outstanding, Senior
Creditor shall mean the creditor or creditors of the Company which shall
have substantially refinanced the Senior Indebtedness to Fleet National
Bank, N.A., and such creditors' successors and assigns.
Section 8. Notices. Any and all notices or other communications or
deliveries to be provided by the Holders 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, as
set forth in the Purchase Agreement, 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 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. (New York City 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. (New York City time) on any date and earlier than 11:59 p.m. (New York
City time) on such date, (iii) the Trading Day following the date of dispatch,
if sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given.
Section 9. Company's Obligations. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, interest and
liquidated damages (if any) on, this Debenture at the time, place, and rate, and
in the coin or currency, herein prescribed. This Debenture is a direct
obligation of the Company. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth herein. As long as
this Debenture is outstanding, the Company shall not and shall cause it
subsidiaries not to, without the consent of the Holder, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder; (ii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Conversion Shares to the extent permitted
or required under the Purchase Agreement or this Debenture; or (iii) enter into
any agreement with respect to any of the foregoing. The Company may only
voluntarily prepay the outstanding principal amount of this Debenture in
accordance with Section 5(a) hereof or on the Maturity Date.
Section 10. Force Majeure. Notwithstanding any provision herein, the
Company shall not be subject to liquidated damages or other penalties arising
from the Company's failure to timely deliver certificates pursuant to this
Debenture, or for failure to deliver an opinion of counsel, if such failure
results from Force Majeure.
Section 11. Rights as Holder. 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 12. Replacement Debentures. 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 13. Governing Law. This Debenture shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to conflicts of laws thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, Borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this Debenture
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
Section 14. Waivers. 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 15. Severability. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder
shall violate applicable laws governing usury, the applicable rate of interest
due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest. The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Debentures as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.
Section 16. Non Trading Days. Whenever any payment or other obligation
hereunder shall be due on a day other than a Trading Day, such payment shall be
made on the next succeeding Trading Day.
Section 17. Headings. The headings used in this Debenture are used for
convenience only and are not to be considered in construing or interpreting
this Debenture.
Section 18. Assignment. Notwithstanding any provision herein, the Holder
shall not sell, assign, pledge, encumber, or otherwise transfer this Debenture
or any rights hereunder to any person or entity without the consent of the
Company, which consent shall not be unreasonably withheld; provided, however, in
no event shall the Holder assign this Debenture to any person, entity or company
that, in the reasonable judgment of the Company, are in direct competition with
the Company, including but not limited to, persons, entities or companies in the
telecommunications industry, data communications industry or the business of
manufacturing optical fiber or preform.
Section 19. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
(a) "Adjusted VWAP" with respect to a period means the result
obtained by selecting the 12 lowest VWAPs during such period, ignoring the
highest and lowest such VWAPs, and averaging the remaining 10 VWAPs.
(b) "Buy In" shall have the meaning assigned to such term in Section
4(c)(iv).
(c) "Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity
or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 50% of the voting securities of the Company in a transaction or
series of transactions not approved by the board of directors of the
Company, (ii) a replacement at one time or over time of more than one-half
of the members of the Company's board of directors which is not approved
by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the
board of directors was approved by a majority of the members of the board
of directors who are members on the date hereof), (iii) the consolidation
or merger of the Company with or into another entity (other than a merger
or consolidation of a subsidiary of the Company into the Company or the
Company into a wholly-owned subsidiary of the Company) where (A) the
shareholders of the Company immediately prior to such transaction do not
collectively own at least 51% of the outstanding voting securities of the
surviving corporation of such consolidation or merger immediately
following such transaction or (B) the common stock of such surviving
corporation is not listed for trading on a Principal Market immediately
after the completion of such transaction, or (iv) the sale of all or
substantially all of the assets of the Company in one or a series of
related transactions.
(d) "Conversion Amount" shall have the meaning ascribed to such term
in Section 5(b).
(e) "Conversion Date" shall have the meaning ascribed to such term
in Section 4(c).
(f) "Conversion Notice" shall have the meaning ascribed to such term
in Section 4(c).
(g) "Conversion Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with
the terms hereof.
(h) "Convertible Securities" means warrants, rights, or options,
whether or not immediately exercisable, to subscribe for or to purchase
Common Stock or other securities exercisable, convertible into or
exchangeable for Common Stock.
(i) "Debenture(s)" shall have the meanings ascribed to such terms in
the opening paragraph of this Debenture.
(j) "Debenture Register" shall have the meaning ascribed to such
term in the second opening paragraph of this Debenture.
(k) "Event of Default" shall have the meaning ascribed to such term
in Section 3(a).
(l) "Event of Default Amount" for any Debentures shall equal the sum
of (i) the greater of (A) 115% (except 100% in the event that the Company
is required to pay the Event of Default Amount as a result of an election
by the Holder pursuant to Section 6(b)) of the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon,
and (B) the principal amount of Debentures to be prepaid, divided by the
Set Price multiplied by the VWAP on (x) the date the Event of Default
Amount is demanded or otherwise due, or (y) the date immediately prior to
the date the Event of Default Amount is paid in full, whichever is
greater, and (ii) all other amounts, costs, expenses and liquidated
damages, if any, due in respect of such Debentures, plus all accrued and
unpaid interest hereon.
(m) "Holder" shall have the meaning ascribed to such term in the
second opening paragraph of this Debenture.
(n) "Late Fee" shall have the meaning ascribed to such term in the
second opening paragraph of this Debenture.
(o) "Mandatory Conversion Price" shall have the meaning ascribed to
such term in Section 5(b).
(p) "Mandatory Payment" shall have the meaning ascribed to such term
in Section 4(b).
(q) "Maturity Date" shall have the meaning ascribed to such term in
the second opening paragraph of this Debenture.
(r) "Maximum Aggregate Share Amount" shall have the meaning ascribed
to such term in Section 4(d)(ii).
(s) "Notice Date" shall have the meaning ascribed to such term in
Section 5(a).
(t) "Optional Redemption Notice" shall have the meaning ascribed to
such term in Section 5(a).
(u) "Optional Redemption Price" shall have the meaning ascribed to
such term in Section 5(a).
(v) "Original Issue Date" shall mean the date of the first issuance
of this Debenture regardless of the number of transfers of any Debenture
and regardless of the number of instruments which may be issued to
evidence such Debenture.
(w) "Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
(x) "Purchase Agreement" shall have the meaning ascribed to such
term in the first paragraph of this Debenture.
***********************************
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.
FIBERCORE, INC.
By:
---------------------------------------
Name:
Title:
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $.001 par value per share (the "Common Stock"), of FiberCore, 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
__________________________________________________
Conversion Price
__________________________________________________
Signature
__________________________________________________
Name
__________________________________________________
Address