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EXHIBIT 10.b
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
CONVERSION SET FORTH IN A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS OF
APRIL 23, 1998, EXECUTED BY THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF PLC SYSTEMS INC.
No. [ ] U.S. $500,000
PLC SYSTEMS INC.
CONVERTIBLE DEBENTURE DUE APRIL 23, 2003
THIS DEBENTURE is one of a duly authorized issue of debentures of PLC
Systems Inc. a corporation organized and existing under the laws of British
Columbia, Canada, having a principal place of business at 10 Forge Park,
Franklin, MA 02038 (the "Company"), designated as its Convertible Debentures,
due April 22, 2003, in an aggregate principal amount of up to $10,000,000 (the
"Debentures").
FOR VALUE RECEIVED, the Company promises to pay to [ ], or registered
assigns (the "Holder"), the principal sum of Five Hundred Thousand dollars
($500,000), on or prior to April 23, 2003 or such earlier date as the Debentures
are required to be repaid as provided hereunder (the "Maturity Date"). The
principal of this Debenture is payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
records of the Company regarding registration and transfer of Debentures (the
"Debenture Register"), except that principal paid on April 23, 2003 may, at the
Company's option, be paid in shares of the Common Stock (as defined in Section
6) calculated based upon the average Per Share Market Value for the five (5)
Trading Days immediately preceding the Conversion Date or Maturity
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Date, as provided below, as the case may be. All amounts due hereunder shall be
paid in cash or in Common Stock as provided herein. A transfer of the right to
receive principal under this Debenture shall be transferable only through an
appropriate entry in the Debenture Register as provided herein.
This Debenture is subject to the following additional provisions:
Section 1. The Debentures are issuable in denominations of Two
Hundred Fifty Thousand Dollars ($250,000) and integral multiples of Fifty
Thousand Dollars ($50,000) in excess thereof. 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 Holders set forth in the Convertible
Debenture Purchase Agreement, dated as of April 23, 1998, as amended from time
to time (the "Purchase Agreement"), and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any Federal, state,
local or foreign administrative or governmental body):
(a) any default in the payment of the principal of, or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable on the
Conversion Date or the Maturity Date or by acceleration or otherwise;
(b) the Company shall fail to observe or perform any warranty
contained in, or any representation of the Company shall prove to have
been incorrect when given under, or the Company shall fail to observe
or perform in any material respect any covenant or agreement under, or
otherwise commit any breach of, this Debenture, the Purchase Agreement,
any Warrant (as defined in the Purchase Agreement) or the Registration
Rights Agreement (as defined in Section 6), and such failure or breach
shall not have been remedied within 30 days after the date on which
notice of such failure or breach shall have been given;
(c) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or
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the Company commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or any subsidiary
thereof or there is commenced against the Company or any subsidiary
thereof any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part
of its property which continues undischarged or unstayed for a period
of 60 days; or the Company or any subsidiary thereof makes a general
assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be unable to
pay, its debts generally as they become due; or the Company or any
subsidiary thereof shall call a meeting of its creditors with a view to
arranging a composition or adjustment of its debts; or the Company or
any subsidiary thereof shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Company or any subsidiary
thereof for the purpose of effecting any of the foregoing;
(d) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there is indebtedness of the Company
exceeding Four Hundred Thousand dollars ($400,000) secured by assets of
the Company (or any Subsidiary thereon), whether such indebtedness now
exists or shall hereafter be created and such default shall result in
such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;
(e) the Common Stock shall be delisted from the American Stock
Exchange or any other national securities exchange or market on which
such Common Stock is listed for trading or suspended from trading
thereon without being relisted or having such suspension lifted, as the
case may be, within three Trading Days;
(f) the Company shall be a party to any merger or
consolidation pursuant to which the Company shall not be the surviving
entity or shall dispose of all or substantially all of its assets in
one or more transactions, or shall redeem more than a de minimis number
of shares of Common Stock (other than an aggregate of $1,000,000 of
shares of Common Stock which may be repurchased from employees upon
their termination of employment with the Company, calculated by
reference to the market price of the Common Stock at such time, and
other than redemptions of Underlying Shares (as defined in Section 6));
or
(g) the Company shall fail to deliver certificates to holders
prior to the 15th day after a Conversion Date pursuant to Section 4(b).
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If during the time that any portion of this Debenture remains outstanding, any
Event of Default occurs and is continuing, and in every such case, then the
Holders may, by notice to the Company, declare the full principal amount of this
Debenture, together with all other amounts owing hereunder, to the date of
acceleration, to be, plus the "Adjustment Amount" (as defined in Section 6)
whereupon the same shall become, immediately due and payable in cash
(notwithstanding anything herein contained to the contrary) without presentment,
demand, protest or other notice of any kind, all of which are waived by the
Company, notwithstanding anything herein contained to the contrary, and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
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) (i) This Debenture shall be convertible into shares of the
Common Stock (subject to reduction pursuant to Section 4(a)(ii) below and
Section 3.7 of the Purchase Agreement) at the option of the Holder in whole or
in part at any time and from time to time after the ninetieth (90th) day
following the Original Issue Date and prior to the close of business on the
Maturity Date unless such conversion occurs at the Initial Conversion Price (as
defined below), in which event this Debenture shall be convertible at the option
of the Holder immediately after the Original Issue Date. The Holder shall effect
conversions by surrendering the Debentures (or such portions thereof) to be
converted, together with the form of conversion notice attached hereto as
Exhibit A (the "Conversion Notice") to the Company. Each Conversion Notice shall
specify the principal amount of Debentures to be converted (which may not be
less than $100,000 or such less principal amount of Debentures than held by such
Holder) 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
pursuant to Section 4(h) (the "Conversion Date"). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date that the
Conversion Notice is deemed delivered pursuant to Section 4(h). Subject to
Sections 4(a)(ii) and 4(b) hereof and Section 3.7 of the Purchase Agreement,
each Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by the Debenture(s)
tendered by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 5(b)) a new
Debenture for such principal amount as has not been converted.
(ii) Certain Regulatory Approval. If on the
Conversion Date applicable to any conversion, (A) the Common Stock is then
listed for trading on the American Stock Exchange , (B) the Conversion Price
then in effect is such that the aggregate number of shares of the Common Stock
that would then be issuable upon conversion of the entire outstanding principal
amount of Debentures, together with any shares of the Common Stock previously
issued upon conversion of Debentures would equal or exceed 20% of the number of
shares of the
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Common Stock outstanding on the Original Issue Date (the "Issuable Maximum"),
and (C) the Company has not previously obtained the Stockholder Approval (as
defined below), then the Company shall issue to the Holder requesting such
conversion the Issuable Maximum and, with respect to any shares of the Common
Stock that otherwise would have been issuable to such holder in respect of the
Conversion Notice at issue or in respect of payment of interest hereunder in
excess of the Issuable Maximum, the Holder shall have the option to require the
Company to either (1) as promptly as possible, but in no event later than 90
days after such Conversion Date, convene a meeting of the holders of the Common
Stock and use its reasonable efforts to obtain the Stockholder Approval or (2)
prepay, from funds legally available therefor at the time of such prepayment,
the balance of the principal amount of the Debentures subject to such Conversion
Notice and the remaining aggregate principal amount of Debentures then
outstanding and held by such Holder at a price equal to the sum of (A) the
principal amount of Debentures then outstanding and held by such Holder
multiplied by the product of (i) the average Per Share Market Value for the five
(5) Trading Days immediately preceding (1) the Conversion Date or (2) the date
of payment in full by the Company of such prepayment price, whichever is
greater, divided by (ii) the Conversion Price calculated on the Conversion Date
plus (B) all other amounts then due in respect of such Debentures; provided,
however, that if the Holder has requested that the Company obtain Stockholder
Approval under paragraph (1) above and the Company fails for any reason to
obtain such Stockholder Approval within the time period set forth in (1) above,
the Company shall be obligated to prepay Debentures in accordance with the
provisions of paragraph (2) above, and in such case the interest contemplated by
the immediately succeeding sentence shall be deemed to accrue from the
Conversion Date. If the Holder has requested that the Company prepay Debentures
pursuant to this Section and the Company fails for any reason to pay the
prepayment price under (2) above within seven days after the Conversion Date,
the Company will pay interest on such prepayment price at a rate of 15% per
annum to the converting Holder, accruing from the Conversion Date until the
prepayment price plus any accrued interest thereon is paid in full. The entire
prepayment price, including interest thereon, shall be paid in cash.
"Stockholder Approval" means the approval by a majority of the total votes cast
on the proposal, in person or by proxy, at a meeting of the stockholders of the
Company held in accordance with the Company's Certificate of Incorporation and
by-laws, of the issuance by the Company of shares of the Common Stock exceeding
the Issuable Maximum as a consequence of the conversion of Debentures into the
Common Stock at a price less than the greater of the book or market value on the
Original Issue Date as and to the extent required pursuant to Rule 713 of the
American Stock Exchange (or any successor or replacement provision thereof).
(iii) Maximum Conversion Shares. Notwithstanding
anything to the contrary set forth herein, the Company shall not be obligated to
issue in excess of 816,326 shares of Common Stock upon conversion of Debentures,
which shares shall constitute payment in full of the principal hereunder on
April 23, 2003, which number shall be subject to adjustment pursuant to Section
4 (other than the first sentence of Section 4(c)(i). In accordance with the
Purchase Agreement such number of shares shall be available on a pro rata basis
based upon the pro rata purchase price for the Debentures paid by the original
Holders of Debentures. Shares of Common Stock issued in respect of penalties and
liquidated damages hereunder shall not count
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towards the 816,326 share limit referenced in this paragraph and shall be paid
in cash unless otherwise agreed to by the Holders.
(b) Not later than three Trading Days after the Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1 of the Purchase Agreement) representing the number
of shares of the Common Stock being acquired upon the conversion of Debentures
(subject to reduction pursuant to Section 4(a)(ii) hereof and Section 3.7 of the
Purchase Agreement) and (ii) Debentures in a principal amount equal to the
principal amount of Debentures not converted; provided, however, that the
Company shall not be obligated to issue certificates evidencing the shares of
the Common Stock issuable upon conversion of the principal amount of Debentures
until Debentures are either delivered for conversion to the Company or any
transfer agent for the Debentures or the Common Stock, or the Holder notifies
the Company that such Debenture has been lost, stolen or destroyed and provides
a bond (or other adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith (in
which case the Company shall issue a replacement Debenture in like principal
amount). The Company shall, upon request of the Holder, use its best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If in the
case of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of the Common Stock to be issued on the Conversion
Date on account of accrued but unpaid interest hereunder, are not delivered to
or as directed by the applicable Holder by the third Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the Debentures tendered for conversion. If the Company fails
to deliver to the Holder such certificate or certificates pursuant to this
Section, including for purposes hereof, any shares of the Common Stock to be
issued on the Conversion Date on account of accrued but unpaid interest
hereunder, prior to the fifth Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
$1,500 for each day after such fifth Trading Day until such certificates are
delivered.
(c) (i) The conversion price (the "Conversion Price") in
effect on any Conversion Date shall be the lesser of (a) 125% of the average Per
Share Market Value of the Common Stock for the five (5) Trading Days immediately
preceding the Original Issue Date (the "Initial Conversion Price") and (b) the
average of the five (5) consecutive lowest Per Share Market Values for the
thirty (30) Trading Days immediately preceding the Conversion Date (which Per
Share Market Value will not include days on which the converting Holder
established a short position in the Common Stock; provided that, if the average
Per Share Market Value for five (5) consecutive Trading Days is equal to or
greater than the Initial Conversion Price, then the Conversion Price may not,
subject to the operation of the immediately succeeding sentence, be less than
85% of the average Per Share Market Value of the Common Stock for the five (5)
Trading Days immediately preceding the Original Issue Date. If a registration
statement
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registering the resale of the shares of Common Stock issuable upon conversion of
the Debentures and naming the Holder as a Selling Stockholder thereunder (the
"Underlying Shares Registration Statement") is not filed on or prior to the 30th
day after the Original Issue Date, or (b) the Company fails to file with the
Securities and Exchange Commission (the "Commission") a request for acceleration
in accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Shares Registration Statement will not be "reviewed" or is not
subject to further review or comment by the Commission, or (c) the Underlying
Shares Registration Statement is not declared effective by the Commission on or
prior to the 90th day after the Original Issue Date, or (d) such Underlying
Shares Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Shares Registration Statement filed with and declared
effective by the Commission within 10 Business Days (as defined in Section 6),
or (e) trading in the Common Stock shall be suspended for any reason for more
than three Trading Days, or (f) if the conversion rights of the Holders of
Debentures hereunder are suspended for any reason (any such failure being
referred to as an "Event," and for purposes of clauses (a), (c) and (f) the date
on which such Event occurs, or for purposes of clause (b) the date on which such
five (5) days period is exceeded, or for purposes of clause (d) the date which
such 10 Business Day-period is exceeded, or for purposes of clause (e) the date
on which such three Trading Day period is exceeded, being referred to as "Event
Date"), the Conversion Price shall be decreased by 2.5% on the Event Date and
each monthly anniversary thereof until the earlier to occur of the second month
anniversary after the Event Date and such time as the applicable Event is cured
(i.e., the Conversion Price would decrease by 2.5% as of the Event Date and an
additional 2.5% as of the one month anniversary of such Event Date). Commencing
the second month anniversary after the Event Date, at the option of each Holder
for each applicable monthly period either (a) the Company shall pay to the
Holders 2.5% of the product of the principal amount of outstanding Debentures
(each Holder being entitled to receive such portion of such amount as equals its
pro rata portion of Debentures then outstanding), in cash or (b) the Conversion
Price shall be decreased by 2.5% for each additional such month (to be effective
in full on the monthly applicable Event Date) as liquidated damages, and not as
a penalty on the first day of each monthly anniversary of the Event Date in
either case until such time as the applicable Event is cured. Any decrease in
the Conversion Price pursuant to this Section shall not be subject to a
Conversion Price floor and shall remain in effect notwithstanding the fact that
the Event causing such decrease has been subsequently cured and further monthly
decreases have ceased. The provisions of this Section are not exclusive and
shall in no way limit the Company's obligations under the Registration Rights
Agreement.
(ii) If the Company, at any time while any
Debentures are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of the Common Stock, (b)
subdivide outstanding shares of the Common Stock into a larger number of
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shares, (c) combine outstanding shares of the Common Stock into a smaller number
of shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, the Initial Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
the Common Stock (excluding treasury shares, if any) outstanding before such
event and of which the denominator shall be the number of shares of the Common
Stock outstanding after such event. Any adjustment made pursuant to this Section
4(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Company, at any time while any
Debentures are outstanding, shall issue rights or warrants to all holders of the
Common Stock (and not to Holders of Debentures) entitling them to subscribe for
or purchase shares of the Common Stock at a price per share less than the Per
Share Market Value of the Common Stock at the record date mentioned below, the
Initial Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of the Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section 4(c)(iii),
if any such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be recomputed
and effective immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the Initial
Conversion Price made pursuant to the provisions of this Section 4 after the
issuance of such rights or warrants) had the adjustment of the Initial
Conversion Price made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that number of shares of
the Common Stock actually purchased upon the exercise of such rights or warrants
actually exercised.
(iv) If the Company, at any time while
Debentures are outstanding, shall distribute to all holders of the Common Stock
(and not to Holders of Debentures) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 4(c)(ii) and (iii) above), then in each such case the
Initial Conversion Price at which Debentures shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of the Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per Share
Market Value
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of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) 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.
(vi Whenever the Initial Conversion Price is
adjusted pursuant to Section 4(c)(ii),(iii) or (iv), the Company shall promptly
mail to each Holder of Debentures in accordance with Section 5(h), a notice
setting forth the Initial Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(vii) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holder of this Debenture
shall have the right thereafter to, at its option, (A) convert the then
outstanding principal amount, together with any other amounts then owing
hereunder in respect of this Debenture only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
the Common Stock following such reclassification or share exchange, and the
Holders of the Debentures shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount, together with any
other amounts then owing hereunder in respect of this Debenture could have been
converted immediately prior to such reclassification or share exchange would
have been entitled or (B) require the Company to prepay, from funds legally
available therefor at the time of such prepayment, all of its Debentures at a
price equal to the sum of (i) the aggregate of the principal amount of
Debentures then held by the Holder multiplied by (a) the average Per Share
Market Value for the five (5) Trading Days immediately preceding (1) the
effective date of the reclassification or share exchange triggering such
prepayment right or (2) the date of payment in full by the Company of the
prepayment price hereunder, whichever is greater, divided by (b) the Conversion
Price calculated on such effective date, plus (ii) the aggregate of all other
amounts then payable in respect of all Debentures to be repaid hereunder. The
entire redemption price
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shall be paid in cash, and the terms of payment of such redemption price shall
be subject to the provisions set forth in Section 5(b). The terms of any such
reclassification or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities, cash or property set
forth in this Section 4(c)(vii) upon any conversion following such event. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(viii) If:
A. the Company shall declare a
dividend (or any other
distribution) on its Common Stock;
or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption (other than redemptions of
the stock of employees upon their
termination of employment with the
Company in an aggregate amount not to
exceed $1,000,000, calculated by
reference to the market price of the
Common Stock at such time) of its
Common Stock; or
C. the Company shall authorize the
granting to all holders of the Common
Stock rights or warrants to subscribe
for or purchase any shares of capital
stock of any class or of any rights;
or
D. the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company,
any consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially all
of the assets of the Company, of any
compulsory share of exchange whereby
the Common Stock is converted into
other securities, cash or property;
or
E. the Company shall authorize the
voluntary or involuntary
dissolution, liquidation or winding
up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as
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of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to mail
such notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
Holders are entitled to convert Debentures during the 30-day period commencing
the date of such notice to the effective date of the event triggering such
notice.
(d) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially and
adversely affect the rights of the Holders (different than or distinguished from
the effect generally on rights of holders of any class of the Company's capital
stock) or if at any time any such conditions are expected to arise by reason of
any action contemplated by the Company, the Company shall mail a written notice
briefly describing the action contemplated and the material adverse effects of
such action on the rights of the Holders at least 30 calendar days prior to the
effective date of such action, and an Appraiser mutually acceptable to the
Holders of majority in interest of the Debentures and the Company shall give its
opinion as to the adjustment, if any (not inconsistent with the standards
established in this Section 4), of the Conversion Price (including, if
necessary, any adjustment as to the securities into which Debentures may
thereafter be convertible) and any distribution which is or would be required to
preserve without diluting the rights of the Holders. The determination of the
Appraiser shall be final.
(e) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures, as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, the sum of 1,311,422 shares of Common
Stock for issuance (on a pro rata basis as described in Section 4(a)(iii) upon
conversion of Debentures (taking into account the adjustments and restrictions
of Section 4(c)). The Company covenants that all shares of the Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and, if the Underlying Shares Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(f) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(g) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate,
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provided that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the Holder of such
Debentures so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(h) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
10 Forge Park, Franklin, MA 02038 (facsimile number (508) 581-7990, attention
Chief Executive Officer with copy to Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., attention Neil H. Aronson (facsimile number (617) 542-2241), or
such other address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this Section. Any
and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to each Holder of the Debentures
at the facsimile telephone number or address of such Holder appearing on the
books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 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 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) four days after deposit in the United States mails, (iv) the
Business Day following the date of mailing, if send by nationally recognized
overnight courier service, or (v) upon actual receipt by the party to whom such
notice is required to be given.
Section 5. Company Conversion: Company Prepayment.
(a) Provided that the average Per Share Market Value for any
consecutive 30 Trading Day period commencing on the Original Issue Date exceeds
the Initial Conversion Price by more than 50%, this Debenture shall be
convertible in whole or in part into a number of shares of Common Stock at the
Conversion Price at the option of the Company; provided, however, that the
Company is not permitted to deliver a Company Conversion Notice (as defined
below) within 10 days after issuing any press release or other public statement
relating to such conversion or at any time when the Underlying Securities
Registration Statement is not then effective or shares of Common Stock are not
listed for trading. In addition, provided there is an effective Underlying
Securities Registration Statement at such time or the Holders are eligible to
resell Common Stock without volume restrictions, pursuant to Rule 144(k)
promulgated under the Securities Act, the Company shall have the right to
convert any outstanding principal amount
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of Debentures on April 23, 2003. The Company shall effect any such conversion by
delivering to the Holder a written notice in the form attached hereto as Exhibit
B (the "Company Conversion Notice"), which Company Conversion Notice, once
given, shall be irrevocable. Each Company Conversion Notice shall specify the
principal amount of Debentures to be converted. The Company shall deliver such
Company Conversion Notice at least two (2) Trading Days before the Maturity Date
or the date of conversion (such date is hereinafter referred to as the "Company
Conversion Date"). Upon its receipt of a Company Conversion Notice, the Holder
shall surrender the principal amount of Debentures subject to such notice at the
office of the Company or of any transfer agent for the Debentures or Common
Stock. If the Company is converting less than the aggregate principal amount of
all Debentures, the Company shall, upon conversion of the principal amount of
Debentures subject to such Company Conversion Notice and receipt of the
Debentures surrendered for conversion, deliver to the Holder, a replacement
Debenture for such principal amount of Debentures as have not been converted.
Each of a Holder Conversion Notice and a Company Conversion Notice is sometimes
referred to herein as a "Conversion Notice," and each of a "Holder Conversion
Date" and a "Company Conversion Date" is sometimes referred to herein as a
"Conversion Date."
(b)(i) Provided that the average Per Share Market Value for
any consecutive 30 Trading Day period exceeds the Initial Conversion Price by
more than 50%, the Company shall have the right, exercisable at any time upon 30
Trading Days notice (an "Optional Prepayment Notice") to the Holders to prepay
all or any portion of the principal amount of Debentures then outstanding, at a
price equal to the Optional Prepayment Price (as defined below). The entire
Optional Prepayment Price shall be paid in cash. Holders of Debentures may
convert (and the Company shall honor such conversions in accordance with the
terms hereof) of Debentures, including the portion thereof subject to an
Optional Prepayment Notice, during the period from the date thereof through the
29th Trading Day after the receipt of an Optional Prepayment Notice.
(ii) If any portion of the Optional Prepayment Price shall not
be paid by the Company by the 30th Trading Day after the delivery of an Optional
Prepayment Notice, interest shall accrue thereon at the rate of 15% per annum
until the Optional Prepayment Price plus all such interest is paid in full (any
such amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of the Optional Prepayment Price remains unpaid for
more than seven (7) calendar days after the date due, the Holder of Debentures
subject to such prepayment may elect, by written notice to the Company given at
any time thereafter, to either (a) demand conversion in accordance with the
formula and the time frame therefor set forth herein of all or any portion of
the principal amount of Debentures for which such Optional Prepayment Price,
plus accrued liquidated damages thereof, has not been paid in full (the "Unpaid
Prepayment Amount"), in which event the Per Share Market Value for such Unpaid
Prepayment Amounts shall be the lower of the Per Share Market Value calculated
on the date the Optional Prepayment Price was originally due and the Per Share
Market Value as of the Holder's written demand for conversion, or (b) invalidate
ab initio such prepayment, notwithstanding anything herein contained to the
contrary. If the Holder elects option (a) above, the Company shall within three
(3) Trading Days of its receipt of such election deliver to the Holder the
shares
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of Common Stock issuable upon conversion of the Unpaid Prepayment Amount subject
to such Holder conversion demand and otherwise perform its obligations hereunder
with respect thereto; or, if the Holder elects option (b) above, the Company
shall promptly, and in any event not later than three (3) Trading Days from
receipt of Holder's notice of such election, return to the Holder all of the
Unpaid Prepayment Amount.
(iii) The "Optional Prepayment Price" shall equal the full
principal amount of the Debenture, together with all other amounts owing
thereunder, plus the Adjustment Amount (as defined in Section 6).
Section 6. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Adjustment Amount" is equal to (i) the aggregate principal
amount of Debentures then outstanding multiplied by (A) the average Per Share
Market Value for the five Trading Days immediately preceding (1) the applicable
Trigger Date or (2) the date of payment of all amounts due as a result of such
Event of Default, whichever is greater, divided by (B) the Conversion Price with
respect to the aggregate principal amount of Debentures then outstanding
calculated on the applicable Trigger Date, minus (ii) the aggregate principal
amount of Debentures then outstanding, plus all other amounts due, except for
those referred to in (i) above pursuant to the terms hereof.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in New
York City or in the Province of British Columbia, Canada are authorized or
required by law or other government action to close.
"Common Stock" means the Company's common stock, without par
value, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Original Issue Date" shall mean the date of the first
issuance of any Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the American
Stock Exchange or other stock exchange or quotation system on which the Common
Stock is then listed or if there is no such price on such date, then the closing
bid price on such exchange or quotation system on the date nearest preceding
such date, or (b) if the Common Stock is not listed then on the American Stock
Exchange or any stock exchange or quotation system, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by the Nasdaq
Stock Market or in the National Quotation Bureau Incorporated or similar
organization or
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agency succeeding to its functions of reporting prices) at the close of business
on such date, or (c) if the Common Stock is not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an appraiser selected in good faith by
the Holders of a majority in interest of the Debentures; provided, however, that
the Company, after receipt of the determination by such appraiser, shall have
the right to select an additional appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated April 23, 1998, among the Company and the original holders of
Debentures.
"Trading Day" means (a) a day on which the Common Stock is
traded on the American Stock Exchange or other stock exchange or market on which
the Common Stock has been listed, or (b) if the Common Stock is not listed on
the Nasdaq SmallCap Market or any stock exchange or market, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices).
"Trigger Date" shall mean, (i) with respect to an Event of
Default caused by an event described in Section 3(a), the date the payment of
principal at issue was due, (ii) with respect to an Event of Default caused by
an event described in Section 3(b), the date specified in any other provision of
this Debenture, the Purchase Agreement or the Registration Rights Agreement that
require prepayment of the outstanding principal amount of this Debenture as a
result of an event so contemplated, if not, the date such event becomes an Event
of Default pursuant to Section 3(b), and (iii) with respect to an Event of
Default caused by an event described in Section 3(c), (d), (e) and (f), the date
such event becomes an Event of Default pursuant to such Sections.
"Underlying Shares" means the number of shares of Common Stock
into which the Debentures are convertible in accordance with the terms hereof
and the Purchase Agreement.
Section 7. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed. This Debenture
is a direct obligation of the Company. This Debenture ranks pari passu with all
other Debentures now or hereafter issued under the terms set forth herein. The
Company may only voluntarily prepay the outstanding principal amount on the
Debentures in accordance with Section 5 hereof.
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Section 8. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. 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.
Section 11. 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 12. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next calendar month, the preceding Business Day in the appropriate
calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the Company has caused this Convertible
Debenture to be duly executed by an officer thereunto duly authorized as of the
date first above indicated.
PLC SYSTEMS INC.
By:/s/ Patricia L. Murphy
-------------------------
Name: Patricia L. Murphy
Title: Chief Financial Officer
Attest:
By:/s/ Robert J. Rudko
----------------------
Name: Robert J. Rudko
Title: Chairman
18
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. [ ] into shares of Common
Stock, no par value per share (the "Common Stock"), of PLC Systems Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Common
Stock outstanding on such date and the number of shares of Common Stock which
would be issuable to the holder if the conversion requested in this conversion
notice were effected in full, whereupon, if the Company determines that such
conversion would result in it owning in excess of 4.999% of the outstanding
shares of Common Stock on such date, the Company shall convert up to an amount
equal to 4.999% of the outstanding shares of Common Stock and issue to the
holder one or more certificates representing Debentures which have not been
converted as a result of this provision.
19
EXHIBIT B
PLC SYSTEMS INC.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of PLC SYSTEMS INC. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture No. [ ] into shares of Common Stock, no
par value per share (the ACommon Stock@), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name:
Address: