SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: August 3, 1998
Eurotech, Ltd.
(Exact name of registrant as specified in its charter)
District of Columbia 000-22129 59-2855398
(State or other jurisdiction of (Commission (I.R.S.Employer
incorporation or organization) File Number) Identification No.)
1101 30th Street, N.W., Suite 500, Washington, D.C. 20007
(Address of principal executive offices)
(202) 625-4382
Registrant's telephone number, including area code
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Item 5. Other Events.
A. Private Placement.
On July 20, 1998, Eurotech, Ltd. (the ACompany@) completed a private
placement (the AJuly 1998 Debenture Offering@) of $1,000,000 principal amount of
its 8% Convertible Debentures due July 20, 2001 (the "Debentures") to JNC
Strategic Fund Ltd. (AJNC@). In addition, the Company issued to JNC warrants
(the "Warrants") to purchase up to 125,000 shares of Common Stock (the
Debentures and the Warrants are herein collectively referred to as the
"Securities," and the offering of the Securities being herein referred to as the
"July 1998 Debenture Offering"). The Securities were offered and sold only to an
accredited investor as defined by Rule 501 of Regulation D under the Act, in
reliance on an exemption from registration under Rule 506 of Regulation D.
The Debentures may be converted by the holder thereof (the "Debenture
Holder"), in whole or in part, at any time and from time to time after the date
of issuance (July 20, 1998 and herein referred to as the AOriginal Issuance
Date@). The Debentures may be converted into a number of shares of Common Stock
equal to the quotient of (i) the outstanding principal amount of Debentures to
be converted (plus all accrued but unpaid interest thereon), divided by (ii) the
"Conversion Price" (determined as set forth below). The Debentures may also be
converted at the option of the Company, in whole or in part, at any time and
from time to time on or after July 20, 2000 into a number of shares of Common
Stock (the AUnderlying Shares@) determined in accordance with the foregoing
calculation, subject to certain restrictions relating to the registration of the
Underlying Shares and the trading of the Company's Common Stock. The "Conversion
Price" in relation to conversion of the Debentures by either the Debenture
Holders or the Company is the lesser of (a) $1.06 or (b) the average closing bid
price per share of Common Stock for the five trading days immediately preceding
the conversion date, multiplied by (x) 75% in the case of conversions effected
prior to November 7 1998, (y) 70% in the case of conversions effected on or
after November 7, 1998.
In connection with the sale of the Debentures, the Company agreed to amend
the terms upon which $6 million of Debentures issued during November 1997 and
February 1998 (the APrior Debentures@) are convertible into Common Stock. The
Prior Debentures are convertible into shares of Common Stock by dividing the
principal amount of the Debentures by the per share price of the Common Stock
(which such price is determined by calculating the average price per share over
the five day period immediately preceding the conversion of the Prior Debentures
(the AAverage Price@)) and multiplying the Average Price by a certain percentage
[(i) 80% of the Average Price for any conversion honored prior to the 180th day
after the original issue date of the particular Prior Debentures, (ii) 75% for
any conversion honored on or after the 180th day and prior to the 360th after
the original issue date, and (iii) 70% for any conversion honored after the
360th day after the original issue date], provided, however, that the price per
share to be used in such calculation could not fall below a certain floor price
as enumerated in the documents (which such floor price was $2.00 in the case of
the Prior Debentures issued during November 1997 and $1.62 in the case of the
Prior Debentures issued during February 1998, each of which floor prices were
subject to downward adjustment in the event that the price per share of Common
Stock fell below such prices for thirty (30) consecutive days and which such
floor prices are herein referred to as the "Floor"). The
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amendment to the Prior Debentures (i) removes the Floor from the Prior
Debentures and (ii) reduces the percentages by which the average price of the
Common Stock for the five day period preceding the conversion is multiplied to
determine the number of shares of Common Stock into which the Prior Debentures
are convertible, so that said Prior Debentures are convertible at Conversion
Prices identical to those governing the Debentures issued pursuant to the July
1998 Debenture Offering, as described above.
The Warrants may be exercised by the holder thereof (the "Warrant Holder")
at any time and from time to time during the period beginning on July 20, 1998
and ending at 5:30 p.m. New York time on July 20, 2001 at a per share exercise
price of $1.06 (subject to adjustment as provided in the Warrant). The Warrant
Holder has "piggy-back" registration rights with respect to all or any portion
of the Warrant Shares, pursuant to which the Company, upon the request of the
Warrant Holder, is obligated to include the Warrant Holder=s Warrant Shares (or
any portion thereof as the Warrant Holder may elect) in any Registration
Statement under the Act that the Company files with the SEC (other than
Registration Statements on Form S-8 or Form S-4 covering securities issued by
the Company pursuant to an employee benefit plan or in connection with a merger,
acquisition or similar transaction, respectively), and naming the Warrant Holder
as a selling shareholder therein.
Pursuant to the Debenture Offerings, the Company agreed that if a
Registration Statement under the Act covering the Underlying Shares were either
not filed with the SEC on or prior to August 10, 1998 or not declared effective
by the SEC on or prior to October 2, 1998, the Company will be obligated to pay
to the Debenture Holders liquidated damages equal to 1% of the aggregate
principle amount of the then outstanding Debentures, on the first day of each
month until such filing or effectiveness deficiency is cured.
B. Change in Executive Officers.
At a meeting held on July 21, 1998, the Board of Directors of the Company
replaced Peter Gulko as the President of the Company. Mr. Gulko has indicated to
the Company that he would serve as a consultant to the Company under certain
conditions to be discussed in the next several weeks. Mr. John McNeil Wilkie was
appointed by the Board to serve as the President of the Company. Prior to these
changes in management, Mr. Wilkie had served as the Company=s Senior Vice
President and Chief Financial Officer. Mr. Wilkie will continue to serve as the
Company=s Chief Financial Officer.
Item 7(c). Exhibits.
A. Debenture Purchase Agreement between the registrant and JNC Strategy
Fund Ltd. dated July 20, 1998.
B. 8% Convertible Debenture #1 dated July 20, 1998.
C. 8% Convertible Debenture #2 dated July 20, 1998.
D. Warrant dated July 20, 1998.
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E. Registration Rights Agreement between the registrant and JNC Strategy
Fund Ltd. dated July 20, 1998.
F. Amended and revised Debenture #1 dated February 23, 1998.
G. Amended and revised Debenture #2 dated February 23, 1998.
H. Amended and revised Debenture #13 dated November 27, 1997.
I. Amended and revised Debenture #14 dated November 27, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EUROTECH, LTD.
Dated: August 3, 1998 By: /s/ J. McNeil Wilkie
----------------------
J. McNeil Wilkie
President and CFO
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
between
EUROTECH, LTD.
and
JNC STRATEGIC FUND LTD.
-----------------------------
July 20, 1998
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of July 20, 1998 (this
"Agreement"), between Eurotech, Ltd., a corporation organized under the laws of
the District of Columbia (the "Company"), and JNC Strategic Fund Ltd., a
corporation organized under the laws of the Cayman Islands (the "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser desires
to purchase an aggregate principal amount of $1,000,000 of the Company's 8%
Convertible Debentures, due July 20, 2001 (the "Debentures"), which are
convertible into shares of the Company's common stock, par value $.00025 per
share (the "Common Stock").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF DEBENTURES; CLOSING
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchaser and the
Purchaser shall purchase the Debentures for an aggregate purchase price of
$1,000,000. The closing of the purchase and sale of the Debentures (the
"Closing") shall take place at the offices of Robinson Silverman Pearce Aronsohn
& Berman LLP (the "Escrow Agent"), 1290 Avenue of the Americas, New York, New
York 10104, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Closing is hereinafter referred to as the
"Closing Date."
(ii) Prior to the Closing, the parties shall deliver or shall
cause to be delivered to the Escrow Agent such items as are required to be
delivered by them in accordance with and subject to the terms and conditions of
the Escrow Agreement, dated as of the date hereof, by and among the Company, the
Purchaser and the Escrow Agent (the "Escrow Agreement"), including the
following: (A) the Company shall deliver (1) Debentures, registered in the name
of the Purchaser, with an aggregate principal amount of $1,000,000, (2) the
Warrant (as defined in Section 3.16), and (3) the legal opinions of Ruffa &
Ruffa, P.C. and Phillips Nizer Benjamin Krim & Ballon LLP, substantially in the
form of Exhibit C ("Legal Opinions"); (B) the Purchaser shall deliver
$1,000,000; and (C) each party hereto shall deliver all other executed
instruments, agreements and certificates as are required to be delivered
hereunder by or on their behalf at the Closing.
1.2 Form of Debentures. The Debentures shall be in the form of
Exhibit A.
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For purposes of this Agreement, "Average Price," "Business Day,"
"Conversion Price," "Original Issue Date," "Conversion Date" and "Trading Day"
shall have the meanings set forth in the Debentures.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
District of Columbia, with the requisite corporate power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in Schedule
2.1(a) attached hereto (collectively, the "Subsidiaries"). Each of the
Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of this Agreement, the Escrow Agreement, the
Debentures, the Warrant or the Registration Rights Agreement, dated the date
hereof, between the Company and the Purchaser (the "Registration Rights
Agreement" and, together with this Agreement, the Escrow Agreement, the
Debentures and the Warrant, the "Transaction Documents"), (y) have a material
adverse effect on the results of operations, assets, prospects, or financial
condition of the Company and the Subsidiaries, taken as a whole, or (z)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any Transaction Document (any of the foregoing, a "Material
Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company. Each of the Transaction Documents has been duly executed by
the Company and when delivered in accordance with the terms hereof shall
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in
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violation of any of the provisions of its respective certificate of
incorporation, by-laws or other charter documents.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company is set forth in Schedule 2.1(c). No shares of Common Stock
are entitled to preemptive or similar rights, nor is any holder of the Common
Stock entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as disclosed in Schedule 2.1(c), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Debentures and Warrant hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Documents (as defined below) or
Schedule 2.1(c), no Person (as defined below) beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or has the right to acquire by agreement with or
by obligation binding upon the Company, beneficial ownership of in excess of 5%
of the Common Stock. Except as specified in Schedule 6(b) to the Registration
Rights Agreement, there are no agreements or arrangements under which the
Company or any Subsidiary is obligated to register the sale of any of their
securities under the Securities Act of 1933, as amended (the "Securities Act").
A "Person" means an individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
(d) Issuance of Debentures and Warrant. The Debentures and the
Warrant are duly authorized, and, when issued in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of first refusals of any kind (collectively,
"Liens"). The Company has and at all times while the Debentures and the Warrant
are outstanding will maintain an adequate reserve of duly authorized shares of
Common Stock to enable it to perform its conversion, exercise and other
obligations under this Agreement, the Warrant and the Debentures and in no
circumstances shall such reserved and available shares of Common Stock be less
than the sum of (i) two times the number of shares of Common Stock as would be
issuable upon conversion in full of the Debentures, assuming such conversion
were effected on the Original Issue Date or the Filing Date (as defined in the
Registration Rights Agreement), whichever yields a lower Conversion Price, (ii)
the number of shares of Common Stock as are issuable as payment of interest on
the Debentures, and (iii) the number of shares of Common Stock as are issuable
upon exercise in full of the Warrant. The shares of Common Stock issuable upon
conversion of the Debentures, as payment of interest in respect thereof and upon
exercise of the Warrant are sometimes referred to herein as the "Underlying
Shares," and the Debentures, Warrant and Underlying Shares are, collectively,
the "Securities." When issued in accordance with the terms of the Debentures and
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the Warrant, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof) or (ii) subject to
obtaining the Required Approvals, conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument (evidencing a Company
debt or otherwise) to which the Company is a party or by which any property or
asset of the Company is bound or affected, or (iii) result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company is subject
(including Federal and state securities laws and regulations), or by which any
property or asset of the Company is bound or affected, except in the case of
each of clauses (ii) and (iii), as could not, individually or in the aggregate,
have or result in a Material Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, do not have a Material Adverse Effect.
(f) Consents and Approvals. Neither the Company nor any Subsidiary
is required to obtain any consent, waiver, authorization or order of, or make
any filing or registration with, any court or other Federal, state, local or
other governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents other than
(i) the filing of a registration statement with the Securities and Exchange
Commission (the "Commission") that meets the requirements of the Registration
Rights Agreement, covering the resale of the Underlying Shares and naming the
Purchaser as a "selling stockholder" thereunder (the "Underlying Securities
Registration Statement"), (ii) the application for the listing of the Underlying
Shares on any national securities exchange or market on which the Common Stock
is then listed and (iii) in all other cases, where the failure to obtain such
consent, waiver, authorization or order, or to give or make such notice or
filing, could not have or result in, individually or in the aggregate, a
Material Adverse Effect (the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed in the
Disclosure Materials (as hereinafter defined), there is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
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(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred which has
not been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in, individually or in the aggregate, a Material
Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations
and warranties of the Purchaser set forth in Section 2.2(b)-(f), the offer,
issuance and sale of the Securities to the Purchaser as contemplated hereby are
exempt from the registration requirements of the Securities Act. Neither the
Company nor any Person acting on its behalf has taken or will take any action
which might subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act.
(j) SEC Documents. The Company has filed all reports required to be
filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof for the two year period preceding the date hereof (such reports, the
"SEC Documents" and, together with the Schedules to this Agreement and other
documents and information furnished by or on behalf of the Company at any time
prior to the Closing, the "Disclosure Materials") on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end audit
adjustments. Since December 31, 1997, (a) there has been no event, occurrence or
development that has had or that could have or result in a Material Adverse
Effect, (b) the Company has not incurred any liabilities (contingent or
otherwise) other than (x) liabilities incurred in the ordinary course of
business consistent with past practice and (y) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP, and (c) the
Company has not altered its method of accounting or the identity of its
auditors.
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(k) Investment Company. The Company is not, and is not an Affiliate
of an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(l) Certain Fees. Except for fees payable to CDC Consulting, Inc.,
no fees or commissions will be payable by the Company to any broker, financial
advisor, finder, investment banker, or bank with respect to the transactions
contemplated hereby. The Purchaser shall have no obligation with respect to such
fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in connection with
the transactions contemplated hereby. The Company shall indemnify and hold
harmless the Purchaser, its respective employees, officers, directors, agents,
and partners, and its respective Affiliates (as such term is defined under Rule
405 promulgated under the Securities Act), from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees.
(m) Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Securities
other than the Disclosure Materials and any amendments and supplements thereto
or (ii) solicited any offer to buy or sell the Securities by means of any form
of general solicitation or advertising.
(n) Exclusivity. The Company shall not issue and sell Debentures to
any Person other than the Purchaser.
(o) Listing and Maintenance Requirements Compliance. The Company has
not in the two years preceding the date hereof received written notice from any
stock exchange, market or trading facility on which the Common Stock is or has
been listed or quoted to the effect that the Company is not in compliance with
the listing, maintenance or other requirements of such exchange, market, trading
or quotation facility. The Company has no reason to believe that it does not now
or will not in the future meet any such requirements.
(p) Patents and Trademarks. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights which are necessary for use
in connection with its business and which the failure to so have would have a
Material Adverse Effect (collectively, the "Intellectual Property Rights"). To
the best knowledge of the Company, there is no existing infringement of any of
the Intellectual Property Rights.
(r) Disclosure. All information relating to or concerning the
Company set forth in the Transaction Documents or provided to the Purchaser or
its respective representatives and counsel in connection with the transactions
contemplated hereby (including, without limitation, the letter, dated February
18, 1998, of Ruffa & Ruffa to the Purchaser regarding the use of the proceeds
from the issuance and sale of the Company's 8% Convertible Debentures due
November 27, 2000) is true and correct in all material respects and does not
fail to state any material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were
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made, not misleading. The Company confirms that it has not provided to the
Purchaser or any of its representatives, agents or counsel any information that
constitutes or might constitute material nonpublic information. The Company
understands and confirms that the Purchaser shall be relying on the foregoing
representation in effecting transactions in securities of the Company.
2.2 Representations and Warranties of the Purchaser. The Purchaser hereby
makes the following representations and warranties to the Company.
(a) Organization; Authority. The Purchaser is an entity organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and to
carry out its obligations thereunder. The acquisition of the Securities to be
acquired hereunder by the Purchaser has been duly authorized by all necessary
action on the part of the Purchaser. Each of this Agreement, the Registration
Rights Agreement and the Escrow Agreement has been duly executed and delivered
by the Purchaser and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the Securities for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration.
(c) Purchaser Status. At the time the Purchaser was offered the
Securities, it was, at the date hereof, it is, and at the Closing Date, it will
be, an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. The Purchaser either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The Purchaser
acknowledges that the Securities are speculative investments and involve a high
degree of risk and the Purchaser is able to bear the economic risk of an
investment in the Securities to be acquired hereunder by the Purchaser, and, at
the present time, is able to afford a complete loss of such investment.
(f) Access to Information. The Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has been afforded (i) the
opportunity to ask such questions
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as it has deemed necessary of, and to receive answers from, representatives of
the Company concerning the terms and conditions of the offering of the
Securities, and the merits and risks of investing in the Securities, (ii) access
to information about the Company and the Company's financial condition, results
of operations, business, properties, management and prospects sufficient to
enable it to evaluate its investment, and (iii) the opportunity to obtain such
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the information contained in the Disclosure Materials. Neither
such inquiries nor any other investigation conducted by or on behalf of the
Purchaser or its representatives or counsel shall modify, amend or affect the
Purchaser's right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company's representations and warranties contained
in the Transaction Documents.
(g) Reliance. The Purchaser understands and acknowledges that (i)
the Securities to be acquired by it hereunder are being offered and sold to it
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and the
Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements thereof. In connection with any transfer of any
Securities other than pursuant to an effective registration statement or to the
Company, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register any transfer by the Purchaser to an Affiliate of the Purchaser, or any
transfers among any such Affiliates provided in such case the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act and that it is acquiring any such Securities in
accordance with the representation provided by the original Purchaser in Section
2.2(b). Each such transferee shall have the rights of the Purchaser under this
Agreement and the Registration Rights Agreement.
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(b) The Purchaser agrees to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain any legend if conversion of
Debentures, exercise of Warrant or other issuances of Underlying Shares in as
contemplated hereby, as the case may be, occurs at any time while an Underlying
Securities Registration Statement is effective under the Securities Act or, in
the event there is not an effective Underlying Securities Registration Statement
at such time, if in the opinion of counsel to the Company such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company agrees that it will provide each Purchaser, upon request, with a
certificate or certificates representing Underlying Shares, free from such
legend at such time as such legend is no longer required hereunder. The Company
may not make any notation on its records or give instructions to any transfer
agent of the Company which enlarge the restrictions of transfer set forth in
this Section 3.1(b).
3.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of Underlying Shares upon (i) conversion of the Debentures and as payment of
interest thereon and (ii) exercise of the Warrant may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Underlying Shares in accordance with the terms of the Debentures and
the Warrant is unconditional and absolute regardless of the effect of any such
dilution.
3.3 Furnishing of Information. As long as the Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which the Purchaser may resell
all of their Underlying Shares without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act (as determined by counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent for the benefit of and enforceable by
the Purchaser) the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Purchaser
and make publicly available
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in accordance with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section 13(a)
or 15(d) of the Exchange Act in the time period that such filings would have
been required to have been made under the Exchange Act. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including the legal opinion referenced above in this Section.
Upon the request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements. In connection with any future access or diligence of the
Company by the Purchaser, the Company agrees that its will not furnish to the
Purchaser any non-public information unless it first discloses in writing that
such information is of such character and the Purchaser thereafter agrees to
receive such information.
3.4 Use of Disclosure Materials. The Company consents to the use of the
Disclosure Materials (which for purposes of the non-SEC Document Disclosure
Materials shall take into account any amendments and supplements thereto) and
any information provided by or on behalf of the Company pursuant to Section 3.3
by the Purchaser in connection with resales of the Securities other than
pursuant to an effective registration statement.
3.5 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify and obtain exemptions for the Underlying Shares under
the securities or Blue Sky laws of such jurisdictions as the Purchaser may
request and shall continue such qualification or exemption at all times until
the Purchaser notify the Company in writing that it no longer owns Securities;
provided, however, that neither the Company nor its Subsidiaries shall be
required in connection therewith to qualify as a foreign corporation where they
are not now so qualified or to take any action that would subject the Company to
general service of process in any such jurisdiction where it is not then so
subject.
3.6 Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue or sale of the Securities to the Purchaser.
3.7 Increase in Authorized Shares. At such time as the Company would be,
if a notice of conversion or exercise (as the case may be) were to be delivered
on such date, precluded from (a) converting the full outstanding principal
amount of Debentures (and paying any accrued but unpaid interest in respect
thereof in shares of Common Stock) that remain unconverted at such date or (b)
honoring the exercise in full of the Warrant due to the unavailability of a
sufficient number of shares of authorized but unissued or re-acquired Common
Stock, the Board of Directors of the Company shall promptly (and in any case
within 30 Business Days from such date) prepare and mail to the
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shareholders of the Company proxy materials requesting authorization to amend
the Company's certificate of incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least such number of
shares as reasonably requested by the Purchaser in order to provide for such
number of authorized and unissued shares of Common Stock to enable the Company
to comply with its conversion, exercise and reservation of shares obligations as
set forth in this Agreement, the Debentures and the Warrant. In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the shareholders no later than the 60th day after delivery of
the proxy materials relating to such meeting) and (c) within 5 Business Days of
obtaining such shareholder authorization, file an appropriate amendment to the
Company's certificate of incorporation to evidence such increase.
3.8 Listing of Underlying Shares. The Company will use its best efforts to
list the Common Stock for trading on the Nasdaq SmallCap Market or Nasdaq
National Market as soon as possible after the Closing Date. If the Common Stock
hereafter is listed for trading on the Nasdaq National Market, Nasdaq SmallCap
Market (or on the American Stock Exchange or New York Stock Exchange, or any
other national securities market or exchange), then the Company shall (1) take
all necessary steps to list the Underlying Shares thereon, including the
preparation of any required additional listing application therefor covering at
least the sum of (i) two times the number of Underlying Shares as would be
issuable upon a conversion in full of the then outstanding principal amount of
Debentures (plus all Underlying Shares are issuable as payment of interest
thereon, assuming all such interest were paid in shares of Common Stock) and
upon exercise in full of the then unexercised portion of the Warrants and (2)
provide to the Purchaser evidence of such listing, and the Company shall
thereafter maintain the listing of its Common Stock on such exchange or market
as long as Underlying Shares are issuable and/or outstanding.
3.9 Conversion Procedures. Exhibit E sets forth the procedures with
respect to the conversion of the Debentures, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchaser to exercise its right of conversion smoothly and
expeditiously which are not set forth in the Debentures.
3.10 Purchaser's Rights if Trading in Common Stock is Suspended or
Delisted. If at any time while the Purchaser (or any assignee thereof) owns any
Securities, less than $400,000 of the Common Stock trades on the OTC Bulletin
Board in any one week or there are fewer than six (6) market makers actively
making a market in the Common Stock (or, if after the Closing Date the Common
Stock is listed on any of the exchange, markets or trading facilities
contemplated in Section 3.8, if the Common Stock is delisted or suspended from
trading on such exchange, market or trading facility, other than as a result of
the suspension of trading in securities on such market or exchange generally, or
temporary suspensions pending the release of material information) for more than
three (3) Trading Days, then, notwithstanding anything to the contrary contained
in any Transaction Document, at the Purchaser's option exercisable by five (5)
Business Days prior written notice to the
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Company, the Company shall repay the entire principal amount of then outstanding
Debentures (and all accrued and unpaid interest thereon) and redeem all then
outstanding Underlying Shares then held by the Purchaser, at an aggregate
purchase price equal to the sum of (I) the aggregate outstanding principal
amount of Debentures then held by the Purchaser divided by the Conversion Price
on (a) the day prior to the date of such suspension or delisting, (b) the day of
such notice or (c) the date of payment in full of the repurchase price
calculated under this Section, whichever is less, and multiplied by the Average
Price preceding (x) the day prior to the date of such suspension or delisting,
(y) the day of such notice and (z) the date of payment in full of the repurchase
price calculated under this Section, whichever is greater, (II) the aggregate of
all accrued but unpaid interest and other non-principal amounts (including
liquidated damages, if any) then payable in respect of all Debentures to be
repaid, (III) the number of Underlying Shares then held by the Purchaser
multiplied by the Average Price immediately preceding (x) the day prior to the
date of such suspension or delisting, (y) the date of the notice or (z) the date
of payment in full by the Company of the repurchase price calculated under this
Section, whichever is greater, and (IV) interest on the amounts set forth in I -
III above accruing from the 5th day after such notice until the repurchase price
under this Section is paid in full at the rate of 15% per annum. If after the
Original Issue Date the Common Stock shall be listed for trading or quoted on
the Nasdaq SmallCap Market, Nasdaq National Market or any other national
securities exchange or market, this provision shall similarly apply to any
delistings or suspensions therefrom.
3.11 Use of Proceeds. The Company shall use all of the net proceeds from
the sale of the Securities for efforts directly relating to technology
developments with the focus on near term marketing, and not for the satisfaction
of Company debt or to redeem any equity or equity-equivalent securities of the
Company. Pending application of the proceeds of this placement in the manner
permitted hereby, the Company will invest such proceeds in interest bearing
accounts and/or short-term, investment grade interest bearing securities.
3.12 Notice of Breaches. The Company and the Purchaser shall give prompt
written notice to the other of any breach by it of any representation, warranty
or other agreement contained in any Transaction Document, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation or warranty or other agreement of such party, as the
case may be, contained in the Transaction Document to be incorrect or breached
as of such Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained in any Transaction Document.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the holders of
the Debentures a copy of any written statement in support of or relating to such
claim or notice.
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3.13 Conversion Obligations of the Company. The Company shall honor
conversions of the Debentures and exercises of the Warrant and shall deliver
Underlying Shares in accordance with the respective terms and conditions and
time periods set forth in the Debentures and the Warrant.
3.14 Right of First Refusal; Subsequent Registrations; Certain Corporate
Actions. (a) The Company shall not, directly or indirectly, without the prior
written consent of Encore Capital Management, L.L.C. ("Encore"), offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its
Affiliates' equity or equity-equivalent securities in a transaction intended to
be exempt from the registration requirements of the Securities Act (a
"Subsequent Financing") for a period of 180 days after the Closing Date, except
(i) the granting of options or warrants to employees, officers and directors,
and the issuance of shares upon exercise of options granted, under any stock
option plan heretofore or hereinafter duly adopted by the Company, (ii) shares
issued upon exercise of any currently outstanding warrants and upon conversion
of any currently outstanding convertible preferred stock in each case disclosed
in Schedule 2.1(c), (iii) shares of Common Stock issued upon conversion of
Debentures, as payment of interest thereon, or upon exercise of the Warrant in
accordance with their respective terms, unless (A) the Company delivers to
Encore a written notice (the "Subsequent Financing Notice") of its intention to
effect such Subsequent Financing, which Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing shall be affected, and attached to which shall be a
term sheet or similar document relating thereto and (B) Encore shall not have
notified the Company by 5:00 p.m. (New York City time) on the tenth (10th)
Trading Day after its receipt of the Subsequent Financing Notice of its
willingness to cause the Purchaser to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent Financing
Notice. If Encore shall fail to notify the Company of its intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Financing substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide Encore with a second Subsequent
Financing Notice, and Encore shall again have the right of first refusal set
forth above in this paragraph (a), if the Subsequent Financing subject to the
initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice with
the Person (or an Affiliate of such Person) identified in the Subsequent
Financing Notice.
(b) Except for Underlying Shares and other "Registrable Securities"
(as such term is defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, the Company shall not,
without the prior written consent of the Purchaser, (i) issue or sell any of its
or any of its Affiliates' equity or equity-equivalent securities pursuant to
Regulation S promulgated under the Securities Act, or (ii) register for resale
any securities of the Company for a period of not less than 90 Trading Days
after the date that the Underlying Securities Registration Statement is declared
effective by the Commission. Any days that the Purchaser is
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unable to sell Underlying Shares under the Underlying Securities Registration
Statement shall be added to such 90 Trading Day period for the purposes of (i)
and (ii) above.
(c) As long as there are Debentures outstanding, the Company
shall not and shall cause the Subsidiaries not to, without the consent of the
holders of the Debentures, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of the holders of
Debentures; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock other than as to the Underlying Shares; or
(iii) enter into any agreement with respect to any of the foregoing.
3.15 The Warrant. At the Closing, the Company shall issue to the
Purchaser, a Common Stock purchase warrant, in the form of Exhibit D (the
"Warrant"), pursuant to which the Purchaser shall have the right at any time and
from time to time thereafter through the second anniversary of the date of
issuance thereof, to acquire 125,000 shares of Common Stock at an exercise price
per share equal to 105% of the Average Price on the Closing Date.
3.16 Certain Securities Laws Disclosures; Publicity. (a) The Company shall
timely file with the Commission a Form D promulgated under the Securities Act as
required under Regulation D promulgated under the Securities Act and provide a
copy thereof to each Purchaser promptly after the filing thereof. The Company
shall file with the Commission (i) a press release acceptable to the Purchaser
disclosing the transactions contemplated hereby within three (3) Business Days
after the Closing Date and (ii) a Report on Form 8-K disclosing this Agreement
and the transactions contemplated hereby within ten (10) Business Days after the
Closing Date.
(b) In furtherance and in addition to the obligation of the Company
set forth in Section 3.16(a) above, the Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
3.17 Amendments to Certain Prior Financings. Pursuant to financings
completed November 27, 1998 among the Company, JNC Opportunity Fund Ltd. ("JNC")
and Diversified Strategies Fund, L.P. ("DSF"), and February 23, 1998 between the
Company and JNC, the Company issued (a) to JNC, $2,500,000 aggregate principal
amount of its 8% Debentures Due November 27, 1998, (b) to JNC, $3,000,000
aggregate principal amount of its 8% Debentures Due February 23, 2001, and (c)
to DSF, $500,000 aggregate principal amount of its 8% Debentures Due November
27, 1998 ("Prior Financings"). The Company shall amend and restate the
aforementioned convertible debentures in order to eliminate all references to
the "Floor" (as defined in such Convertible Debentures), and, at the Closing,
the Company shall deliver such amended and restated convertible debentures to
JNC and DSF, as appropriate, against delivery on behalf of JNC and DSF of the
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originally issued convertible debentures described in clauses (a) through (c) in
this Section. The Company shall make all filings with the Commission and any
other regulatory or trading facility as may be required as a result of the
issuance of the amended and restated convertible debentures as contemplated in
this Section, including preparing and filing with the Commission and delivering
to JNC and DSF, not later than August 3, 1997, a supplement to the Registration
Statement filed in connection with the Prior Financing (Registration Statement
No. 333-26673). A failure to file or deliver such supplement by August 3, 1997
shall be deemed an "Event" under the debentures issued in connection with the
Prior Financings.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall (i) pay
$15,000 to the Escrow Agent for the legal fees and disbursements incurred by the
Purchaser in connection with the preparation and negotiation of the Transaction
Documents and (ii) pay to $10,000 to Encore for its due diligence expenses and
disbursements in connection with the transactions contemplated hereby. Other
than the amounts contemplated by the immediately preceding sentence, and except
as set forth in the Registration Rights Agreement, each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all stamp and other taxes and duties levied in connection with the
issuance of the Debentures pursuant hereto. The Purchaser shall be responsible
for its own tax liability that may arise as a result of the investment hereunder
or the transactions contemplated by this Agreement.
4.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Debentures, the Registration Rights Agreement
and the Warrant contain the entire understanding of the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters.
4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and 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) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement 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 Business Day following the date of mailing, 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. The address
for such notices and communications shall be as follows:
If to the Company: Eurotech, Ltd.
1101 30th Street, NW, Suite 500
Washington DC 20007
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Facsimile No.: (202) 625-4369
Attn: Chief Financial Officer
With copies to: Ruffa & Ruffa, P.C.
150 East 58th Street
New York, NY 10155
Facsimile No.: (212) 759-7696
Attn: William P. Ruffa
If to the Purchaser: JNC Strategic Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive, Suite 460
the Purchaser): Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Managing Member
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
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4.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. Except as set forth in
Section 3.1(a), neither Purchaser may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Company. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect Encore, who is an intended beneficiary of
the provisions of Section 3.14, entitled to enforce such provisions against the
parties hereto and permitted assignees under Section 4.6, is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
4.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits 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 (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court or that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement 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.
4.9 Survival. The representations, warranties, agreements and
covenants contained in this Agreement shall survive the Closing and the and
conversion of the Debentures and exercise of the Warrant.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and
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provisions of this Agreement shall not in any way be affected or impaired
thereby and the parties will attempt to agree upon a valid and enforceable
provision which shall be a reasonable substitute therefor, and upon so agreeing,
shall incorporate such substitute provision in this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective authorized
persons as of the date first indicated above.
EUROTECH, LTD.
By:
---------------------------
Name:
Title:
JNC STRATEGIC FUND LTD.
By:
---------------------------
Name:
Title:
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 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.
No. 1 U.S. $500,000
EUROTECH, LTD.
8% CONVERTIBLE DEBENTURE DUE JULY 20, 2001
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Eurotech, Ltd., a corporation organized under the laws of the District of
Columbia and having a principal place of business at 1130 30th Street NW, Suite
500, Washington, DC 20007 (the "Company"), designated as its 8% Convertible
Debentures, due July 20, 2001 (the "Debentures"), in an aggregate principal
amount of $1,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC STRATEGIC FUND
LTD., or registered assigns (the "Holder"), the principal sum of Five Hundred
Thousand Dollars ($500,000), on or prior to July 20, 2001 or such earlier date
as the Debentures are required to be repaid as provided hereunder (the "Maturity
Date") and to pay interest to the Holder on the principal sum at the rate of 8%
per annum, payable quarterly in arrears commencing September 30, 1998, but in no
event later than the earlier to occur of a Conversion Date (as defined in
Section 4(a)(ii)) for such principal amount or the Maturity Date. Interest shall
accrue daily commencing on the Original Issue Date (as defined in Section 6)
until payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest shall be calculated on the basis of a 360-day year and for the actual
number of days elapsed. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of the Debentures (the "Debenture Register"). All overdue, accrued
and unpaid interest and other amounts due hereunder shall bear interest at the
rate of 15% per annum (to accrue daily) from the date such interest is due
hereunder through and including the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
overdue interest) may, at the Company's option, be paid in shares of Common
Stock (as defined in Section 6) calculated based upon the Conversion Price (as
defined
<PAGE>
below) on the date such interest was due. All amounts due hereunder other than
such interest shall be paid in cash. Notwithstanding anything to the contrary
contained herein, the Company may not issue shares of Common Stock in payment of
interest on the principal amount if: (i) the number of shares of Common Stock at
the time authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay interest hereunder in shares of Common
Stock; (ii) such shares are not either registered for resale pursuant to an
Underlying Securities Registration Statement (as defined in Section 6) or freely
transferable without volume restrictions pursuant to Rule 144(k) promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), as
determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; or (iii) such shares are not actively traded on the OTC
Bulletin Board (or listed or quoted for trading on the American Stock Exchange,
Nasdaq National Market, Nasdaq SmallCap Market or The New York Stock Exchange,
and any other exchange on which the Common Stock is then listed for trading
(each, a "Subsequent Market")). The Common Stock shall be deemed to be "actively
traded" on the OTC Bulletin Board under this Debenture if (a) no less than
$400,000 of the Common Stock trades on the OTC Bulletin Board in any one week
and (b) there are no fewer than six (6) market makers actively making a market
in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
(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, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the
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same shall become due and payable (whether on the applicable quarterly
interest payment date, the Conversion Date or the Maturity Date or by
acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement (as defined in Section 6), and such failure or breach
shall not have been remedied within 10 days after the date on which notice
of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property which continues undischarged or unstayed for a period of 60
days; or the Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be actively traded on the OTC
Bulletin Board or fail to be listed or quoted for trading on any
Subsequent Market if after the Original Issue Date the Common Stock shall
be listed or quoted for trading on any such Subsequent Market, or if the
Common Stock shall be suspended from trading thereon without being
actively traded, relisted or having such suspension lifted, as the case
may be, within three (3) Trading Days;
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<PAGE>
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the Common Stock) or
shall dispose of all or substantially all of its assets in one or more
transactions, or shall redeem more than a de minimis number of shares of
Common Stock (other than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the 90th day after the Original Issue Date;
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto (other
than an Event resulting from a failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or
prior to the Effectiveness Date (as defined in the Registration Rights
Agreement); or
(ix) the Company shall fail to deliver certificates to a Holder
prior to the Twentieth (20th) day after the Conversion Date pursuant to
Section 5(b).
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by the Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions or as
payment of interest hereunder and then held by the Holder and (B) the Per Share
Market Value (as defined in Section 6) on the date prepayment is demanded or the
date the full prepayment price is paid, whichever is greater. 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 the 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 Common
Stock at the option of the Holder in whole or in part at any time and from time
to time after the Original Issue. The number of shares of Common Stock as shall
be issuable upon a conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be converted, plus all accrued
but unpaid interest thereon, by the Conversion Price (as defined below), each as
subject to adjustment as provided hereunder. The Holder shall effect conversions
by surrendering the Debentures (or such portions thereof) to be converted,
together with the form of conversion notice attached hereto as Exhibit A (a
"Holder Conversion Notice") to the Company. Each Holder
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<PAGE>
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Conversion Notice is deemed to have been
delivered hereunder (a "Holder Conversion Date"). If no Holder Conversion Date
is specified in a Holder Conversion Notice, the Holder Conversion Date shall be
the date that such Holder Conversion Notice is deemed delivered hereunder.
Subject to Section 4(b) hereof, each Holder Conversion Notice, once given, shall
be irrevocable. If the Holder is converting less than all of the principal
amount represented by the Debenture(s) tendered by the Holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) At any time from and after the second anniversary of the
Original Issue Date, all or any portion of the then outstanding principal amount
under this Debenture (plus accrued and unpaid interest thereon) shall be
convertible into Common Stock at the Conversion Price at the option of the
Company; provided, that the Company is not permitted to deliver a Company
Conversion Notice (as defined below) within ten (10) days of 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 actively traded on the OTC Bulletin Board or
listed or quoted for trading on a Subsequent Market. The Company shall effect
such conversion by delivering to the Holder a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the principal amount of Debentures (and accrued but unpaid
interest thereon) to be converted. The Company shall deliver such Company
Conversion Notice at least two (2) Trading Days, but not more than five (5)
Trading Days before the Maturity Date or earlier date of intended conversion
(the date that the Company intends to effect such conversion 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 thereto to the office of the Company or of any transfer agent of the
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 in
the manner and within the time period set forth in Section 4(b). 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) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures,
(ii) Debentures in a principal amount equal to the principal amount of
Debentures not converted; (iii) a bank check in the amount of all accrued and
unpaid interest (if the Company has elected to pay accrued interest in cash),
together with all other amounts then due and payable in
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<PAGE>
accordance with the terms hereof, in respect of Debentures tendered for
conversion and (iv) if the Company has elected and is permitted hereunder to pay
accrued interest in shares of the Common Stock, certificates, which shall be
free of restrictive legends and trading restrictions (other than those required
by Section 3.1(b) of the Purchase Agreement), representing such number of shares
of the Common Stock as equals such interest divided by the Conversion Price
calculated on the Conversion Date; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of the Common Stock
issuable upon conversion of the principal amount of Debentures until Debentures
are delivered for conversion to the Company or the Holder notifies the Company
that such Debenture has been mutilated, lost, stolen or destroyed and complies
with Section 9 hereof. 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 Holder by the third
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 (whether subject to a
Holder or a Company Conversion Notice), 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 fourth Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, $1,500 for each day thereafter until the Company delivers such
certificates (such amount shall also be due for each Trading Day after the date
that the Holder may rescind such conversion until such date as the Holder shall
have received the return of the principal amount of Debentures relating to such
rescission).
(c) (i) The conversion price (the "Conversion Price") in
effect on any Conversion Date shall be the lesser of (A) $1.06 (the "Initial
Conversion Price") and (B) the Applicable Percentage (as defined in Section 6)
multiplied by the Average Price calculated on the Conversion Date. If (a) an
Underlying Securities Registration Statement is not filed on or prior to the
Filing Date (as defined in the Registration Rights Agreement) (if the Company
files such Underlying Securities Registration Statement without affording the
Holder the opportunity to review and comment on the same as required by Section
3(a) of the Registration Rights Agreement, the Company shall not be deemed to
have satisfied this clause (a)) or (b) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12d1-2 promulgated
under the Securities Exchange Act of 1934, as amended, within five (5) Business
Days of the date that the Company is notified (orally or in writing, whichever
is earlier) by the Commission that an Underlying Securities Registration
Statement will not be "reviewed" or is not subject to further review or comment
by the Commission, or (c) the Underlying Securities Registration Statement is
not declared effective by the Commission on or prior to the Effectiveness Date,
or (d) such Underlying Securities Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be effective as to
all Registrable Securities (as such term is defined in the Registration Rights
Agreement) at any time prior to the expiration of the "Effectiveness Period" (as
such term as defined in the Registration Rights Agreement), without being
succeeded by a subsequent Underlying Securities Registration Statement filed
with and declared effective by the Commission within ten (10) days, or (e)
trading in the Common Stock shall fail to be actively traded on the OTC Bulletin
Board or if the Common Stock shall be suspended or delisted from trading on any
Subsequent Market for
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<PAGE>
any reason for more than three (3) Trading Days, or (f) the conversion rights of
the Holder are suspended for any reason or if the Holder is not permitted to
resell Registrable Securities under the Underlying Securities Registration
Statement, or (g) an amendment to the Underlying Securities Registration
Statement is not filed by the Company with the Commission within ten (10) days
of the Commission's notifying the Company that such amendment is required in
order for the Underlying Securities Registration Statement to be declared
effective (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 clauses (d) and (g) the date which such ten (10) day period is
exceeded, or for purposes of clause (e) the date on which such three (3) Trading
Day period is exceeded, being referred to as "Event Date"), the Company shall
pay, in cash, as liquidated damages and not as a penalty, on the Event Date and
on the first day of each month thereafter until the triggering Event is cured,
1.0% of the aggregate principal amount of Debentures then outstanding.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to the Holder) entitling them to subscribe for or purchase shares of
the Common Stock at a price per share less than the Per Share Market Value of
the Common Stock at the record date mentioned below, the Initial Conversion
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of the Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at such Per Share Market
Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Initial
Conversion Price pursuant to this Section, if any such right or warrant shall
expire and shall not have been exercised, the Initial Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would
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<PAGE>
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 the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holder shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require the Company to prepay,
from funds legally available therefor at the time of such prepayment, the
aggregate of its outstanding principal amount of Debentures, plus all interest
and other amounts due and payable thereon, at a price determined in accordance
with Section 3(b). The
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<PAGE>
entire prepayment price shall be paid in cash. This provision shall similarly
apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holder at its last addresses as it shall appear upon the stock books of the
Company, at least 30 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
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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. The
Holder is entitled to convert the Debentures during the 30-day period commencing
the date of such notice to the effective date of the event triggering such
notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the 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(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holder, 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 1130 30th Street NW, Suite 500,
Washington, DC 20007 (facsimile number (202) 625-4369), attention Chief
Financial Officer, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holder 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
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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 7:00 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
7:00 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
mail, (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. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holder (the "Optional
Prepayment Notice"), to prepay, from funds legally available therefor at the
time of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to the
Optional Prepayment Price (as defined below). Any such prepayment by the Company
shall be in cash and shall be free of any claim of subordination. The Holder
shall have the right to tender, and the Company shall honor, Conversion Notices
delivered prior to the expiration of the twentieth (20th) Trading Day after
receipt by the Holder of an Optional Prepayment Notice for such Debentures (such
date, the "Optional Prepayment Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Optional Prepayment Price (including interest therefor), plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Prepayment Principal
Amount"), in which event the applicable Per Share Market Value shall be the
lower of the Per Share Market Value calculated on the Optional Prepayment Date
and the Per Share Market Value as of the Holder's written demand for conversion,
or (ii) invalidate ab initio such optional redemption, notwithstanding anything
herein contained to the contrary. If the Holder elects option (i) above, the
Company shall, within three (3) Trading Days of the date such election is deemed
delivered hereunder, deliver to the Holder the shares of Common Stock issuable
upon conversion of the Unpaid Prepayment Amount subject to such conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of notice of such
election, return to the Holder new Debentures for the full Unpaid Prepayment
Principal Amount. If, upon an election under option (i) above, the Company fails
to deliver the shares of Common Stock issuable upon conversion of the Unpaid
Prepayment Principal Amount within four (4) Trading Days of the date that such
election is
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<PAGE>
deemed delivered hereunder, the Company shall pay to the Holder in cash, as
liquidated damages and not as a penalty, $1,500 per day until the Company
delivers such Common Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Applicable Percentage" means (i) 75% for any conversion honored
prior to the 180th day after the Original Issue Date and (ii) 70% for any
conversion honored thereafter. For purposes hereof, a conversion is deemed to
have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder.
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the common stock, $.00025 par value per share,
of the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price on
(x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"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" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices,
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<PAGE>
or (b) if the Common Stock is no longer reported by Bloomberg, or such similar
organizations or agencies, such closing bid price per share shall be determined
by reference to "Pink Sheet" quotes for the relevant conversion period as
determined in good faith by the Holder or (c) if the Common Stock is not then
publicly traded, the fair market value of a share of Common Stock as determined
by an appraiser selected in good faith by the Holders of a majority in interest
of the Debentures (the Company, after receipt of the determination by such
appraiser, shall have the right to select an additional appraiser, in which
case, the fair market value shall be equal to the average of the determinations
by each such appraiser).
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market 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
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Securities Registration Statement" means an amended
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering, among other things, the resale of the Initial
Registrable Securities (as defined in the Registration Rights Agreement ) and
the Underlying Shares and naming the Holder as a "selling stockholder"
thereunder, provided, however, that in the event that the Initial Registration
Statement (as defined in the Registration Rights Agreement) is declared
effective by the Commission on or prior to the Filing Date (as defined in the
Registration Rights Agreement), the term "Underlying Securities Registration
Statement" shall mean a registration statement meeting the requirements set
forth in the Registration Rights Agreement, covering the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
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<PAGE>
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, 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. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. 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 hereby irrevocably submits 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. The Company 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 instrument 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 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.
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<PAGE>
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 FOLLOWS]
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<PAGE>
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.
EUROTECH, LTD.
By:
---------------------------
Name:
Title:
Attest:
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT A
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the above Debenture into shares of
Common Stock, $.00025 par value per share (the "Common Stock"), of EUROTECH,
LTD. (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
<PAGE>
EXHIBIT B
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of EUROTECH, LTD. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture into shares of Common Stock, par value
$.00025 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations: __________________________________________________
Date to Effect Conversion
__________________________________________________
Principal Amount of Debentures to be Converted
__________________________________________________
Applicable Conversion Price
__________________________________________________
Amount of Interest due on the Principal Amount of
Debentures to be Converted
__________________________________________________
Number of Shares of Common Stock
outstanding at close of trading
on Conversion Date
__________________________________________________
Signature
__________________________________________________
Name:
__________________________________________________
Address:
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 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.
No. 2 U.S. $1,500,000
EUROTECH, LTD.
8% CONVERTIBLE DEBENTURE DUE FEBRUARY 23, 2001
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Eurotech, Ltd., a corporation organized under the laws of the District of
Columbia and having a principal place of business at 1130 30th Street NW, Suite
500, Washington, DC 20007 (the "Company"), designated as its 8% Convertible
Debentures, due February 23, 2001 (the "Debentures"), in an aggregate principal
amount of $3,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC OPPORTUNITY FUND
LTD., or registered assigns (the "Holder"), the principal sum of One Million
Five Hundred Thousand Dollars ($1,500,000), on or prior to February 23, 2001 or
such earlier date as the Debentures are required to be repaid as provided
hereunder (the "Maturity Date") and to pay interest to the Holder on the
principal sum at the rate of 8% per annum, payable quarterly in arrears
commencing March 31, 1998, but in no event later than the earlier to occur of a
Conversion Date (as defined in Section 4(a)(ii)) for such principal amount or
the Maturity Date. Interest shall accrue daily commencing on the Original Issue
Date (as defined in Section 6) until payment in full of the principal sum,
together with all accrued and unpaid interest and other amounts which may become
due hereunder, has been made. Interest shall be calculated on the basis of a
360-day year and for the actual number of days elapsed. Interest hereunder will
be paid to the Person (as defined in Section 6) in whose name this Debenture (or
one or more predecessor Debentures) is registered on the records of the Company
regarding registration and transfers of the Debentures (the "Debenture
Register"). All overdue, accrued and unpaid interest and other amounts due
hereunder shall bear interest at the rate of 15% per annum (to accrue daily)
from the date such interest is due hereunder through and including the date of
payment. The principal of, and interest on, this Debenture are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the address of the
Holder last appearing on the Debenture Register, except that interest due on the
principal amount (but not overdue interest) may, at the Company's option, be
paid in shares of Common Stock (as defined in Section 6) calculated based upon
the Conversion Price (as defined below) on the date such interest was due. All
amounts due hereunder other than such interest shall be paid in cash.
Notwithstanding anything to the contrary contained
<PAGE>
herein, the Company may not issue shares of Common Stock in payment of interest
on the principal amount if: (i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay interest hereunder in shares of Common Stock; (ii) such
shares are not either registered for resale pursuant to an Underlying Securities
Registration Statement (as defined in Section 6) or freely transferable without
volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), as determined by counsel to the
Company pursuant to a written opinion letter addressed and in form and substance
acceptable to the Holder and the transfer agent for such shares; or (iii) such
shares are not actively traded on the OTC Bulletin Board (or listed or quoted
for trading on the American Stock Exchange, Nasdaq National Market, Nasdaq
SmallCap Market or The New York Stock Exchange, and any other exchange on which
the Common Stock is then listed for trading (each, a "Subsequent Market")). The
Common Stock shall be deemed to be "actively traded" on the OTC Bulletin Board
under this Debenture if (a) no less than $400,000 of the Common Stock trades on
the OTC Bulletin Board in any one week and (b) there are no fewer than six (6)
market makers actively making a market in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
(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, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, the Conversion Date or
the Maturity Date or by acceleration or otherwise);
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<PAGE>
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement (as defined in Section 6), and such failure or breach
shall not have been remedied within 10 days after the date on which notice
of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property which continues undischarged or unstayed for a period of 60
days; or the Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be actively traded on the OTC
Bulletin Board or fail to be listed or quoted for trading on any
Subsequent Market if after the Original Issue Date the Common Stock shall
be listed or quoted for trading on any such Subsequent Market, or if the
Common Stock shall be suspended from trading thereon without being
actively traded, relisted or having such suspension lifted, as the case
may be, within three (3) Trading Days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the
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<PAGE>
Common Stock) or shall dispose of all or substantially all of its assets
in one or more transactions, or shall redeem more than a de minimis number
of shares of Common Stock (other than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the 90th day after the Original Issue Date;
or
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto (other
than an Event resulting from a failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or
prior to the Effectiveness Date (as defined in the Registration Rights
Agreement).
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by the Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions or as
payment of interest hereunder and then held by the Holder and (B) the Per Share
Market Value (as defined in Section 6) on the date prepayment is demanded or the
date the full prepayment price is paid, whichever is greater. 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 the 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 Common
Stock at the option of the Holder in whole or in part at any time and from time
to time upon the earlier to occur of (1) the date an Underlying Securities
Registration Statement is declared effective by the Commission and (2) the 90th
day after the Original Issue Date, and prior to the close of business on the
Maturity Date. The number of shares of Common Stock as shall be issuable upon a
conversion hereunder shall be determined by dividing the outstanding principal
amount of this Debenture to be converted, plus all accrued but unpaid interest
thereon, by the Conversion Price (as defined below), each as subject to
adjustment as provided hereunder. The Holder shall effect conversions by
surrendering the Debentures (or such portions thereof) to be converted, together
with the form of conversion notice attached hereto as Exhibit A (a "Holder
Conversion Notice") to the Company. Each Holder Conversion Notice shall specify
the principal amount of Debentures to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a "Holder
Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the
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<PAGE>
date that such Holder Conversion Notice is deemed delivered hereunder. Subject
to Section 4(b) hereof, each Holder Conversion Notice, once given, shall be
irrevocable. If the Holder is converting less than all of the principal amount
represented by the Debenture(s) tendered by the Holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) At any time from and after the second anniversary of the
Original Issue Date, all or any portion of the then outstanding principal amount
under this Debenture (plus accrued and unpaid interest thereon) shall be
convertible into Common Stock at the Conversion Price at the option of the
Company; provided, that the Company is not permitted to deliver a Company
Conversion Notice (as defined below) within ten (10) days of 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 actively traded on the OTC Bulletin Board or
listed or quoted for trading on a Subsequent Market. The Company shall effect
such conversion by delivering to the Holder a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the principal amount of Debentures (and accrued but unpaid
interest thereon) to be converted. The Company shall deliver such Company
Conversion Notice at least two (2) Trading Days, but not more than five (5)
Trading Days before the Maturity Date or earlier date of intended conversion
(the date that the Company intends to effect such conversion 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 thereto to the office of the Company or of any transfer agent of the
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 in
the manner and within the time period set forth in Section 4(b). 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) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures,
(ii) Debentures in a principal amount equal to the principal amount of
Debentures not converted; (iii) a bank check in the amount of all accrued and
unpaid interest (if the Company has elected to pay accrued interest in cash),
together with all other amounts then due and payable in accordance with the
terms hereof, in respect of Debentures tendered for conversion and (iv) if the
Company has elected and is permitted hereunder to pay accrued interest in shares
of the Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of the
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Common Stock as equals such interest divided by the Conversion Price calculated
on the Conversion Date; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of the Common Stock
issuable upon conversion of the principal amount of Debentures until Debentures
are delivered for conversion to the Company or the Holder notifies the Company
that such Debenture has been mutilated, lost, stolen or destroyed and complies
with Section 9 hereof. 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 Holder by the third
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 (whether subject to a
Holder or a Company Conversion Notice), 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 fourth Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, $1,500 for each day thereafter until the Company delivers such
certificates (such amount shall also be due for each Trading Day after the date
that the Holder may rescind such conversion until such date as the Holder shall
have received the return of the principal amount of Debentures relating to such
rescission). If the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section prior to the 20th day after the Conversion
Date, the Company shall, upon notice from the Holder, prepay such portion of the
aggregate of the principal amount of Debentures then held by such Holder, as
requested by such Holder, for the Mandatory Prepayment Amount, in cash. If any
portion of the Mandatory Prepayment Amount pursuant to this Section is not paid
within seven days after notice therefor is deemed delivered hereunder, the
Company will pay interest on the Mandatory Prepayment Amount at a rate of 15%
per annum (to accrue daily), in cash to such Holder, accruing from such seventh
day until the Mandatory Prepayment Amount, plus all accrued interest thereon, is
paid in full.
(c) (i) The conversion price (the "Conversion Price") in effect on
any Conversion Date shall be the lesser of (A) $2.62 (the "Initial Conversion
Price") and (B) the Applicable Percentage (as defined in Section 6) multiplied
by the Average Price calculated on the Conversion Date. If (a) an Underlying
Securities Registration Statement is not filed on or prior to the Filing Date
(as defined in the Registration Rights Agreement) (if the Company files such
Underlying Securities Registration Statement without affording the Holder the
opportunity to review and comment on the same as required by Section 3(a) of the
Registration Rights Agreement, the Company shall not be deemed to have satisfied
this clause (a)) or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the Securities
Exchange Act of 1934, as amended, within five (5) Business Days of the date that
the Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Securities Registration Statement will not be
"reviewed" or is not subject to further review or comment by the Commission, or
(c) the Underlying Securities Registration Statement is not declared effective
by the Commission on or prior to the Effectiveness Date, or (d) such Underlying
Securities Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined
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in the Registration Rights Agreement), without being succeeded by a subsequent
Underlying Securities Registration Statement filed with and declared effective
by the Commission within ten (10) days, or (e) trading in the Common Stock shall
fail to be actively traded on the OTC Bulletin Board or if the Common Stock
shall be suspended or delisted from trading on any Subsequent Market for any
reason for more than three (3) Trading Days, or (f) the conversion rights of the
Holder are suspended for any reason or if the Holder is not permitted to resell
Registrable Securities under the Underlying Securities Registration Statement,
or (g) an amendment to the Underlying Securities Registration Statement is not
filed by the Company with the Commission within ten (10) days of the
Commission's notifying the Company that such amendment is required in order for
the Underlying Securities Registration Statement to be declared effective (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
clauses (d) and (g) the date which such ten (10) day period is exceeded, or for
purposes of clause (e) the date on which such three (3) Trading Day period is
exceeded, being referred to as "Event Date"), the Company shall pay, in cash, as
liquidated damages and not as a penalty, on the Event Date and on the first day
of each month thereafter until the triggering Event is cured, 1.0% of the
aggregate principal amount of Debentures then outstanding.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to the Holder) 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
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or warrant to purchase shares of the Common Stock the issuance of which resulted
in an adjustment in the Initial Conversion Price pursuant to this Section, if
any such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be recomputed
and effective immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the Initial
Conversion Price made pursuant to the provisions of this Section 4 after the
issuance of such rights or warrants) had the adjustment of the Initial
Conversion Price made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that number of shares of
the Common Stock actually purchased upon the exercise of such rights or warrants
actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holder 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
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<PAGE>
(B) require the Company to prepay, from funds legally available therefor at the
time of such prepayment, the aggregate of its outstanding principal amount of
Debentures, plus all interest and other amounts due and payable thereon, at a
price determined in accordance with Section 3(b). The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holder at its last addresses as it 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
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which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. The Holder is entitled
to convert the Debentures during the 30-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the 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(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holder, 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 1130 30th Street NW, Suite 500,
Washington, DC 20007 (facsimile number (202) 625-4369), attention Chief
Financial Officer, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holder 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
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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 7:00 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 7:00 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 mail, (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. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holder (the "Optional
Prepayment Notice"), to prepay, from funds legally available therefor at the
time of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to the
Optional Prepayment Price (as defined below). Any such prepayment by the Company
shall be in cash and shall be free of any claim of subordination. The Holder
shall have the right to tender, and the Company shall honor, Conversion Notices
delivered prior to the expiration of the twentieth (20th) Trading Day after
receipt by the Holder of an Optional Prepayment Notice for such Debentures (such
date, the "Optional Prepayment Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Optional Prepayment Price (including interest therefor), plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Prepayment Principal
Amount"), in which event the applicable Per Share Market Value shall be the
lower of the Per Share Market Value calculated on the Optional Prepayment Date
and the Per Share Market Value as of the Holder's written demand for conversion,
or (ii) invalidate ab initio such optional redemption, notwithstanding anything
herein contained to the contrary. If the Holder elects option (i) above, the
Company shall, within three (3) Trading Days of the date such election is deemed
delivered hereunder, deliver to the Holder the shares of Common Stock issuable
upon conversion of the Unpaid Prepayment Amount subject to such conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of notice of such
election, return to the Holder new
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Debentures for the full Unpaid Prepayment Principal Amount. If, upon an election
under option (i) above, the Company fails to deliver the shares of Common Stock
issuable upon conversion of the Unpaid Prepayment Principal Amount within four
(4) Trading Days of the date that such election is deemed delivered hereunder,
the Company shall pay to the Holder in cash, as liquidated damages and not as a
penalty, $1,500 per day until the Company delivers such Common Stock to the
Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored
prior to the 180th day after the Original Issue Date, (ii) 75% for any
conversion honored on or after the 180th day and prior to the 360th after the
original Issue Date, and (iii) 70% for any conversion honored after the 360th
day after the Original Issue Date. For purposes hereof, a conversion is deemed
to have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder.
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the common stock, $.00025 par value per share,
of the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price on
(x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
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<PAGE>
"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" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices, or (b) if the Common
Stock is no longer reported by Bloomberg, or such similar organizations or
agencies, such closing bid price per share shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market 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
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Securities Registration Statement" means an amended
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering, among other things, the resale of the Initial
Registrable Securities (as defined in the Registration Rights
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Agreement) and the Underlying Shares and naming the Holder as a "selling
stockholder" thereunder, provided, however, that in the event that the Initial
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by the Commission on or prior to the Filing Date (as defined
in the Registration Rights Agreement), the term "Underlying Securities
Registration Statement" shall mean a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering the
Underlying Shares and naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, 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. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. 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 hereby irrevocably submits 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. The Company 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 instrument 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 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
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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).
<PAGE>
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.
EUROTECH, LTD.
By:
--------------------------
Name:
Title:
Attest:
By:
--------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the above Debenture into shares of
Common Stock, $.00025 par value per share (the "Common Stock"), of EUROTECH,
LTD. (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
<PAGE>
EXHIBIT B
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of EUROTECH, LTD. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture into shares of Common Stock, par value
$.00025 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations: _______________________________________________
Date to Effect Conversion
_______________________________________________
Principal Amount of Debentures to be Converted
_______________________________________________
Applicable Conversion Price
_______________________________________________
Amount of Interest due on the Principal Amount
of Debentures to be Converted
_______________________________________________
Number of Shares of Common Stock
outstanding at close of trading
on Conversion Date
_______________________________________________
Signature
_______________________________________________
Name:
_______________________________________________
Address:
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
EUROTECH, LTD.
WARRANT
Warrant No. 4 Dated July 20, 1998
EUROTECH, LTD., a corporation organized and existing under the laws of the
District of Columbia (the "Company"), hereby certifies that, for value received,
JNC Strategic Fund Ltd., or its registered assigns ("Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company up to a total
of 125,000 shares of Common Stock, $.00025 par value per share (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such shares,
the "Warrant Shares") at an exercise price equal to $1.06 per share (as adjusted
from time to time as provided in Section 8, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
July 20, 2001 (the "Expiration Date"), and subject to the following terms and
conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified in or pursuant to Section 3(b). Upon any such registration
or transfer, a new warrant to purchase Common Stock, in substantially the form
of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion
of this Warrant so transferred shall be issued to the transferee and a New
Warrant evidencing
<PAGE>
the remaining portion of this Warrant not so transferred, if any, shall be
issued to the transferring Holder. The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance of such transferee of all of
the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 5:30 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 5:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
This Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 11 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company. Any
person so designated by the Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
-2-
<PAGE>
4. Piggyback Registration Rights. During the term of this Warrant,
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to which the Company is registering
securities pursuant to a Company employee benefit plan or pursuant to a merger,
acquisition or similar transaction including supplements thereto, but not
additionally filed registration statements in respect of such securities) at any
time when there is not an effective registration statement covering the resale
of the Warrant Shares and naming the Holder as a selling stockholder thereunder,
unless the Company provides the Holder with not less than 20 days notice to each
of the Holder and Robinson Silverman Pearce Aronsohn & Berman LLP, attention
Eric L. Cohen, notice of its intention to file such registration statement and
provides the Holder the option to include any or all of the applicable Warrant
Shares therein. The piggyback registration rights granted to the Holder pursuant
to this Section shall continue until all of the Holder's Warrant Shares have
been sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
5. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares 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. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of this
entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holder (taking into account the
adjustments and restrictions of Section 8). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
-3-
<PAGE>
8. Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of the
Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any other
class of capital stock (and not the Common Stock) payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock into a larger number of
shares, or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, the Exercise 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 (excluding treasury shares, if any)
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 or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the Company's business combination partner
equal to the amount of Warrant Shares such Holder would have been entitled to
had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise 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
-4-
<PAGE>
the Exercise Price determined as of the record date mentioned above, and of
which the numerator shall be such Exercise Price on such record date less the
then fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of
Common Stock as 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") mutually selected in good faith by
the holders of a majority in interest of the Warrants then outstanding and the
Company. Any determination made by the Appraiser shall be final.
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per share less than the Exercise Price then in effect,
then, forthwith upon such issue or sale, the Exercise Price shall be reduced to
the price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
-5-
<PAGE>
(ii) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
(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; or
(iv) 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, 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
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, 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 Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; 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.
9. Payment of Exercise Price. The Holder may pay the Exercise Price
in one of the following manners:
(a) Cash Exercise. The Holder shall deliver immediately
available funds; or
(b) Cashless Exercise. The Holder shall surrender this Warrant
to the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
-6-
<PAGE>
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the closing sale prices of the Common Stock for the
Trading Day immediately prior to the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and 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, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to 1130 30th Street NW, Suite
500, Washington, DC 20007, or to Facsimile No.: (202) 625-4369 Attention: Chief
Financial Officer, or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 11.
12. Warrant Agent.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent.
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any
-7-
<PAGE>
new warrant agent shall be a party or any corporation to which the Company or
any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this
Warrant without any further act. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder's last address as shown on
the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
EUROTECH, LTD.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To EUROTECH, LTD.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.00025 par value per share, of
Eurotech, Ltd. and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
--------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated:_____________,___ Name of Holder:
(Print)
-------------------------------
(By:)
---------------------------------
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Eurotech, Ltd. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Eurotech, Ltd. with full power of
substitution in the premises.
Dated:
_____________,___
------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
------------------------------------------
Address of Transferee
------------------------------------------
------------------------------------------
In the presence of:
- -----------------------------
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of July 20, 1998, between Eurotech, Ltd., a company organized
under the laws of the District of Columbia (the "Company"), and JNC Strategic
Fund Ltd., a Cayman Islands corporation (the "Purchaser").
WHEREAS, the Company filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 promulgated
under the Securities Act (as defined below) (Registration Statement No.
333-26673), registering the resale of certain shares of Common Stock (as defined
below) by the selling shareholders named therein, which registration statement
has not as of the date of this Agreement been declared effective by the
Commission (the "Initial Registration Statement"); and
WHEREAS, concurrently herewith, the Company and the Purchaser are
entering into a Convertible Debenture Purchase Agreement ("Purchase Agreement"),
pursuant to which, among other things, the Company is issuing Debentures and a
Warrant (each as defined below) to the Purchaser.
NOW, THEREFORE, the Company and the Purchaser hereby agree as
follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
<PAGE>
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.00025
per share.
"Debentures" means Company's 8% Convertible Debentures due July 20,
2001 issued to the Purchaser pursuant to the Purchase Agreement.
"Effectiveness Date" means October 2, 1998.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means August 3, 1998.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Initial Registration Statement" shall have the meaning set forth in
the recitals to this Agreement.
"Initial Warrants" shall have the meaning set forth in the recitals
to this Agreement.
"Losses" shall have the meaning set forth in Section 5(a).
"New York Courts" shall have the meaning set forth in Section 7(j).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus
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<PAGE>
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by the Registration Statement, and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Purchase Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"Registrable Securities" means the shares of Common Stock issuable
upon (a) conversion in full of the Debentures, (b) exercise of the Warrant and
(c) payment of interest in respect of the Debentures; provided, however that in
order to account for the fact that the number of shares of Common Stock that are
issuable upon conversion of Debentures is determined in part upon the market
price of the Common Stock at the time of conversion, Registrable Securities
contemplated by clause (a) of this definition shall be deemed to include not
less than 200% of the number of shares of Common Stock into which the Debentures
are convertible, assuming such conversion occurred on the Closing Date or the
Filing Date (whichever date yields a lower Conversion Price, as such term is
defined in the Debentures). The initial Registration Statement shall cover at
least such number of shares of Common Stock as equals the sum of (x) 200% of the
number of shares of Common Stock into which the Debentures are convertible,
assuming such conversion occurred on the Closing Date or the Filing Date
(whichever date yields a lower Conversion Price), (y) interest thereon and (z)
125,000 shares of Common Stock in respect of the Warrant. The Company shall be
required to file additional Registration Statements to the extent the actual
number of shares of Common Stock into which Debentures are convertible (together
with interest thereon) and the Warrant are exercisable exceeds the number of
shares of Common Stock initially registered in accordance with the immediately
prior sentence. The Company shall have 10 Business Days to file such additional
Registration Statement after notice of the requirement thereof, which the
Holders may give at such time when the number of shares of Common Stock as are
issuable upon conversion of Debentures, as payment of interest therein and upon
exercise of the Warrants listed above exceed 80% of the number of shares of
Common Stock initially registered in accordance with this definition. In the
event that the filing of any such additional registration statements requires
the preparation of updated financial statements, (1) the Company shall use its
best efforts to cause such financial statements to be prepared as soon as
possible and (2) the 10 Business Day period specified in the immediately prior
sentence shall be extended to up to 30 Business Days or such lesser number of
days as the Company shall, using its best efforts, require for such preparation
and filing.
"Registration Statement" means the amendment to the Initial
Registration Statement contemplated by Section 2(a) (covering the Initial
Registrable Securities and such number of Registrable Securities and any
additional Registration Statements contemplated in the definition of Registrable
Securities), including (in each case) the Prospectus, amendments and supplements
to such registration statement or Prospectus, including pre-and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement, provided,
however, that in the event the Initial Registration Statement has been
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declared effective by the Commission on or prior to the Filing Date, the term
"Registration Statement" shall mean the registration statement contemplated by
Section 2(a) (covering such number of Registrable Securities and any additional
Registration Statements contemplated in the definition of Registrable
Securities), including (in each case) the Prospectus, amendments and supplements
to such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" shall have the meaning set forth in the recitals to
this Agreement.
"Special Counsel" means one law firm acting as counsel to the
Holders, for which the Holders will be reimbursed by the Company pursuant to
Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrant" means the Common Stock purchase warrant issued to the
Purchaser pursuant to the Purchase Agreement on the Closing Date.
2. Amendment to Shelf Registration/New Registration Statement
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a pre-effective amendment to the Initial Registration
Statement registering the resale by the holders of Registrable Securities all of
the Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415, provided, however, that in the event the Initial
Registration Statement has been declared effective by the Commission on or prior
to the Filing Date, the Company shall prepare and file with the Commission a
Registration Statement registering the resale by the holders of Registrable
Securities all of the Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-1 (or, if the Company is not permitted to register the resale of the
Registrable Securities on Form S-1, the Registration Statement shall be on such
other appropriate form in accordance herewith as the Holders of a majority in
interest of the Registrable Securities may consent). The Company shall use its
best efforts to cause the Registration Statement to be declared effective under
the Securities Act as promptly as possible after the filing thereof, but in any
event prior to the Effectiveness Date, and shall
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use its best efforts to keep such Registration Statement continuously effective
under the Securities Act until the date which is three years after the date that
such Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) promulgated under the Securities Act, as determined by the counsel
to the Company pursuant to a written opinion letter to such effect, addressed
and acceptable to the Company's transfer agent (the "Effectiveness Period");
provided, however, that the Company shall not be deemed to have used its best
efforts to keep the Registration Statement effective during the Effectiveness
Period if it voluntarily takes any action that would result in the Holders not
being able to sell the Registrable Securities covered by such Registration
Statement during the Effectiveness Period, unless such action is required under
applicable law or the Company has filed a post-effective amendment to the
Registration Statement and the Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Person
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement (and any additional Registration Statements as
may be required) in accordance with Section 2(a), and cause the Registration
Statement to become effective and remain effective as provided herein; provided,
however, that not less than two (2) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by
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reference), the Company shall (i) furnish to the Holders, their Special Counsel
and any managing underwriters, copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders, their
Special Counsel and such managing underwriters, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the opinion of respective counsel to
such Holders and such underwriters, to conduct a reasonable investigation within
the meaning of the Securities Act (subject to customary confidentiality
arrangements in the event that any such investigation requests the release of
material non-public information concerning the Company, its business or
operations). The Company shall not file the Registration Statement or any such
Prospectus or any amendments or supplements thereto to which the Holders of a
majority of the Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and promptly provide the Holders true and complete copies of
all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders) and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and war-
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ranties of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) of the occurrence of
any event that makes any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent reasonably requested by such Person
(including those previously furnished or incorporated by reference) promptly
after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
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(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions as any Holder or underwriter requests in writing, to keep
each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least three Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq SmallCap
Market and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) In the case of an Underwritten Offering, enter into such
customary agreements on terms which are customary in connection with such
transactions (including an underwriting agreement in form, scope and substance
as is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered into, (i)
make such representations and warranties to such Holders and such underwriters
as are customarily made by issuers to underwriters in underwritten public
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offerings, and confirm the same if and when requested; (ii) obtain and deliver
copies thereof to each Holder and the managing underwriters, if any, of opinions
of counsel to the Company and updates thereof addressed to each selling Holder
and each such underwriter, in form, scope and substance reasonably satisfactory
to any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in Underwritten
Offerings and such other matters as may be reasonably requested by such Special
Counsel and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement or at the time of delivery of any Registrable Securities
sold pursuant thereto (at the option of the underwriters), obtain and deliver
copies to the Holders and the managing underwriters, if any, of "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to each Person and in
such form and substance as are customary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth in Section 7
(or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, a
representative of such Holders, an underwriter participating in any disposition
of Registrable Securities, and an attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a)
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of the Securities Act and Rule 158 not later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or best
efforts Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the Company
after the effective date of the Registration Statement, which statement shall
cover said 12-month period, or end shorter periods as is consistent with the
requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such selling
Holder as is required by law to be disclosed in the Registration Statement and
the Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder agrees by its acquisition of such Registrable Securities
that (i) it will not offer or sell any Registrable Securities under the
Registration Statement until it has received copies of the Prospectus as then
amended or supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 3(j),
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(b), be borne by
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the Company whether or not pursuant to an Underwritten Offering and whether or
not the Registration Statement is filed or becomes effective and whether or not
any Registrable Securities are sold pursuant to the Registration Statement. The
fees and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with The
Nasdaq Stock Market, Inc. and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed and (B) in compliance
with state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the underwriters or Holders in connection with Blue
Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or the Holders of a majority
of Registrable Securities may designate)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
and of printing prospectuses if the printing of prospectuses is requested by the
managing underwriters, if any, or by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders, in the case of the Special Counsel,
to a maximum amount of $5,000, (v) Securities Act liability insurance, if the
Company so desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to
diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock),
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investment advisors and employees of each of them, each Person who controls any
such Holder (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and the officers, directors, agents and employees of
each such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, settlements,
judgments, costs (including, without limitation, costs of preparation and
reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred,
arising out of or relating to any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by or on behalf of such Holder expressly for
use therein, or to the extent that such information relates to such Holder or
such Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees
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and expenses incurred in connection with defense thereof; provided, that the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including
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any untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allo cation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), the Purchaser shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by the Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that the Purchaser have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the Company nor
any of its subsidiaries has, as of the date hereof, nor shall the Company or any
of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as and to the extent specifically set forth in
Schedule 6(b) attached hereto, neither the Company nor any of its subsidiaries
has previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Without limiting the generality
of the foregoing, without the
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written consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specifically set forth in Schedule 6(b) attached hereto, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of the
Registrable Securities such holder requests to be registered. No right to
registration of Registrable Securities under this Section shall be construed to
limit any registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and 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 7:00 p.m. (New
York City time)
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<PAGE>
on a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in the Purchase Agreement later than 7:00 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the Business Day following the date of mailing, 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. The address for such notices and
communications shall be as follows:
If to the Company: Eurotech, Ltd.
1101 30th Street, NW, Suite 500
Washington DC 20007
Facsimile No.: (202)625-4369
Attn: Chief Financial Officer
With copies to: Ruffa & Ruffa, P.C.
150 East 58th Street
New York, NY 10155
Facsimile No.: (212)759-7696
Attn: William P. Ruffa
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<PAGE>
If to JNC: JNC Strategic Fund Ltd.
c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Director
With copies to (for Encore Capital Management, L.L.C.
communications to 12007 Sunrise Valley Drive, Suite 460
the Purchaser): Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil T. Chau
-and-
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock transfer
books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchaser may assign its respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of the Purchaser
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by the Purchaser to any assignee or transferee of all
or a portion of the Debentures, the Warrant and other Common Stock warrants
referenced in the definition of Registrable Securities or Registrable Securities
without the consent of the Company if: (i) the Purchaser agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished
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<PAGE>
with written notice of (a) the name and address of such transferee or assignee,
and (b) the securities with respect to such registration rights are being
transferred or assigned, (iii) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (iv) such transfer shall have been made in accordance
with the applicable requirements of the Purchase Agreement. The rights to
assignment shall apply to the Purchaser's (and to subsequent) successors and
assigns.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) Governing Law; Submission to Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York, without regard to principles of conflicts of law. Each party hereby
irrevocably submits to the exclusive jurisdiction of any New York state court
sitting in the Borough of Manhattan, the state and federal courts sitting in the
City of New York or any federal court sitting in the Borough of Manhattan in the
City of New York (collectively, the "New York Courts") in respect of any
Proceeding arising out of or relating to this Agreement, and irrevocably accepts
for itself and in respect of its property, generally and unconditionally,
jurisdiction of the New York Courts. The Company irrevocably waives to the
fullest extent it may effectively do so under applicable law any objection that
it may now or hereafter have to the laying of the venue of any such proceeding
brought in any New York Court and any claim that any such Proceeding brought in
any New York Court has been brought in an inconvenient forum. Nothing herein
shall affect the right of any Holder. Each party 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 such party at the
address in effect for notices to it under this Agreement 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.
(k) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining
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<PAGE>
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
EUROTECH, LTD.
By:
-----------------------------
Name:
Title:
JNC STRATEGIC FUND LTD.
By:
-----------------------------
Name:
Title:
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 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.
No. 1 U.S. $1,500,000
EUROTECH, LTD.
8% CONVERTIBLE DEBENTURE DUE FEBRUARY 23, 2001
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Eurotech, Ltd., a corporation organized under the laws of the District of
Columbia and having a principal place of business at 1130 30th Street NW, Suite
500, Washington, DC 20007 (the "Company"), designated as its 8% Convertible
Debentures, due February 23, 2001 (the "Debentures"), in an aggregate principal
amount of $3,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC OPPORTUNITY FUND
LTD., or registered assigns (the "Holder"), the principal sum of One Million
Five Hundred Thousand Dollars ($1,500,000), on or prior to February 23, 2001 or
such earlier date as the Debentures are required to be repaid as provided
hereunder (the "Maturity Date") and to pay interest to the Holder on the
principal sum at the rate of 8% per annum, payable quarterly in arrears
commencing March 31, 1998, but in no event later than the earlier to occur of a
Conversion Date (as defined in Section 4(a)(ii)) for such principal amount or
the Maturity Date. Interest shall accrue daily commencing on the Original Issue
Date (as defined in Section 6) until payment in full of the principal sum,
together with all accrued and unpaid interest and other amounts which may become
due hereunder, has been made. Interest shall be calculated on the basis of a
360-day year and for the actual number of days elapsed. Interest hereunder will
be paid to the Person (as defined in Section 6) in whose name this Debenture (or
one or more predecessor Debentures) is registered on the records of the Company
regarding registration and transfers of the Debentures (the "Debenture
Register"). All overdue, accrued and unpaid interest and other amounts due
hereunder shall bear interest at the rate of 15% per annum (to accrue daily)
from the date such interest is due hereunder through and including the date of
payment. The principal of, and interest on, this Debenture are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the address of the
Holder last appearing on the Debenture Register, except that interest due on the
principal amount (but not overdue interest) may, at the Company's option, be
paid in shares of Common Stock (as defined in Section 6) calculated based upon
the Conversion Price (as defined below) on the date such interest was due. All
amounts due hereunder other than such interest shall be paid in cash.
Notwithstanding anything to the contrary contained herein, the Company may not
issue shares of Common Stock in payment of interest on the principal amount if:
(i) the number of shares of Common Stock at the time authorized, unissued and
unreserved
<PAGE>
for all purposes, or held as treasury stock, is insufficient to pay interest
hereunder in shares of Common Stock; (ii) such shares are not either registered
for resale pursuant to an Underlying Securities Registration Statement (as
defined in Section 6) or freely transferable without volume restrictions
pursuant to Rule 144(k) promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), as determined by counsel to the Company pursuant to a
written opinion letter addressed and in form and substance acceptable to the
Holder and the transfer agent for such shares; or (iii) such shares are not
actively traded on the OTC Bulletin Board (or listed or quoted for trading on
the American Stock Exchange, Nasdaq National Market, Nasdaq SmallCap Market or
The New York Stock Exchange, and any other exchange on which the Common Stock is
then listed for trading (each, a "Subsequent Market")). The Common Stock shall
be deemed to be "actively traded" on the OTC Bulletin Board under this Debenture
if (a) no less than $400,000 of the Common Stock trades on the OTC Bulletin
Board in any one week and (b) there are no fewer than six (6) market makers
actively making a market in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
(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, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, the Conversion Date or
the Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase
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<PAGE>
Agreement or the Registration Rights Agreement (as defined in Section 6),
and such failure or breach shall not have been remedied within 10 days
after the date on which notice of such failure or breach shall have been
given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property which continues undischarged or unstayed for a period of 60
days; or the Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be actively traded on the OTC
Bulletin Board or fail to be listed or quoted for trading on any
Subsequent Market if after the Original Issue Date the Common Stock shall
be listed or quoted for trading on any such Subsequent Market, or if the
Common Stock shall be suspended from trading thereon without being
actively traded, relisted or having such suspension lifted, as the case
may be, within three (3) Trading Days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the Common Stock) or
shall dispose of all or substantially all of its assets in one or more
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<PAGE>
transactions, or shall redeem more than a de minimis number of shares of
Common Stock (other than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the 90th day after the Original Issue Date;
or
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto (other
than an Event resulting from a failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or
prior to the Effectiveness Date (as defined in the Registration Rights
Agreement).
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by the Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions or as
payment of interest hereunder and then held by the Holder and (B) the Per Share
Market Value (as defined in Section 6) on the date prepayment is demanded or the
date the full prepayment price is paid, whichever is greater. 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 the 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 Common
Stock at the option of the Holder in whole or in part at any time and from time
to time upon the earlier to occur of (1) the date an Underlying Securities
Registration Statement is declared effective by the Commission and (2) the 90th
day after the Original Issue Date, and prior to the close of business on the
Maturity Date. The number of shares of Common Stock as shall be issuable upon a
conversion hereunder shall be determined by dividing the outstanding principal
amount of this Debenture to be converted, plus all accrued but unpaid interest
thereon, by the Conversion Price (as defined below), each as subject to
adjustment as provided hereunder. The Holder shall effect conversions by
surrendering the Debentures (or such portions thereof) to be converted, together
with the form of conversion notice attached hereto as Exhibit A (a "Holder
Conversion Notice") to the Company. Each Holder Conversion Notice shall specify
the principal amount of Debentures to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a "Holder
Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the date that such Holder
Conversion Notice is deemed delivered hereunder. Subject to Section 4(b)
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<PAGE>
hereof, each Holder Conversion Notice, once given, shall be irrevocable. If the
Holder is converting less than all of the principal amount represented by the
Debenture(s) tendered by the Holder with the Holder Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall honor such conversion to the extent permissible hereunder and shall
promptly deliver to such Holder (in the manner and within the time set forth in
Section 4(b)) a new Debenture for such principal amount as has not been
converted.
(ii) At any time from and after the second anniversary of the
Original Issue Date, all or any portion of the then outstanding principal amount
under this Debenture (plus accrued and unpaid interest thereon) shall be
convertible into Common Stock at the Conversion Price at the option of the
Company; provided, that the Company is not permitted to deliver a Company
Conversion Notice (as defined below) within ten (10) days of 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 actively traded on the OTC Bulletin Board or
listed or quoted for trading on a Subsequent Market. The Company shall effect
such conversion by delivering to the Holder a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the principal amount of Debentures (and accrued but unpaid
interest thereon) to be converted. The Company shall deliver such Company
Conversion Notice at least two (2) Trading Days, but not more than five (5)
Trading Days before the Maturity Date or earlier date of intended conversion
(the date that the Company intends to effect such conversion 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 thereto to the office of the Company or of any transfer agent of the
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 in
the manner and within the time period set forth in Section 4(b). 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) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures,
(ii) Debentures in a principal amount equal to the principal amount of
Debentures not converted; (iii) a bank check in the amount of all accrued and
unpaid interest (if the Company has elected to pay accrued interest in cash),
together with all other amounts then due and payable in accordance with the
terms hereof, in respect of Debentures tendered for conversion and (iv) if the
Company has elected and is permitted hereunder to pay accrued interest in shares
of the Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of the Common Stock as
equals such interest divided by the Conversion Price calculated on the
Conversion
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Date; provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of the Common Stock issuable upon conversion
of the principal amount of Debentures until Debentures are delivered for
conversion to the Company or the Holder notifies the Company that such Debenture
has been mutilated, lost, stolen or destroyed and complies with Section 9
hereof. 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 Holder by the third
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 (whether subject to a
Holder or a Company Conversion Notice), 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 fourth Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, $1,500 for each day thereafter until the Company delivers such
certificates (such amount shall also be due for each Trading Day after the date
that the Holder may rescind such conversion until such date as the Holder shall
have received the return of the principal amount of Debentures relating to such
rescission). If the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section prior to the 20th day after the Conversion
Date, the Company shall, upon notice from the Holder, prepay such portion of the
aggregate of the principal amount of Debentures then held by such Holder, as
requested by such Holder, for the Mandatory Prepayment Amount, in cash. If any
portion of the Mandatory Prepayment Amount pursuant to this Section is not paid
within seven days after notice therefor is deemed delivered hereunder, the
Company will pay interest on the Mandatory Prepayment Amount at a rate of 15%
per annum (to accrue daily), in cash to such Holder, accruing from such seventh
day until the Mandatory Prepayment Amount, plus all accrued interest thereon, is
paid in full.
(c) (i) The conversion price (the "Conversion Price") in effect on
any Conversion Date shall be the lesser of (A) $2.62 (the "Initial Conversion
Price") and (B) the Applicable Percentage (as defined in Section 6) multiplied
by the Average Price calculated on the Conversion Date. If (a) an Underlying
Securities Registration Statement is not filed on or prior to the Filing Date
(as defined in the Registration Rights Agreement) (if the Company files such
Underlying Securities Registration Statement without affording the Holder the
opportunity to review and comment on the same as required by Section 3(a) of the
Registration Rights Agreement, the Company shall not be deemed to have satisfied
this clause (a)) or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the Securities
Exchange Act of 1934, as amended, within five (5) Business Days of the date that
the Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Securities Registration Statement will not be
"reviewed" or is not subject to further review or comment by the Commission, or
(c) the Underlying Securities Registration Statement is not declared effective
by the Commission on or prior to the Effectiveness Date, or (d) such Underlying
Securities Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying
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Securities Registration Statement filed with and declared effective by the
Commission within ten (10) days, or (e) trading in the Common Stock shall fail
to be actively traded on the OTC Bulletin Board or if the Common Stock shall be
suspended or delisted from trading on any Subsequent Market for any reason for
more than three (3) Trading Days, or (f) the conversion rights of the Holder are
suspended for any reason or if the Holder is not permitted to resell Registrable
Securities under the Underlying Securities Registration Statement, or (g) an
amendment to the Underlying Securities Registration Statement is not filed by
the Company with the Commission within ten (10) days of the Commission's
notifying the Company that such amendment is required in order for the
Underlying Securities Registration Statement to be declared effective (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 clauses
(d) and (g) the date which such ten (10) day period is exceeded, or for purposes
of clause (e) the date on which such three (3) Trading Day period is exceeded,
being referred to as "Event Date"), the Company shall pay, in cash, as
liquidated damages and not as a penalty, on the Event Date and on the first day
of each month thereafter until the triggering Event is cured, 1.0% of the
aggregate principal amount of Debentures then outstanding.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to the Holder) 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
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in the Initial Conversion Price pursuant to this Section, if any such right or
warrant shall expire and shall not have been exercised, the Initial Conversion
Price shall immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it would have
been (but reflecting any other adjustments in the Initial Conversion Price made
pursuant to the provisions of this Section 4 after the issuance of such rights
or warrants) had the adjustment of the Initial Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of the Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holder shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require the Company to prepay,
from funds legally available therefor at the time of such
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<PAGE>
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 3(b). The entire prepayment price shall be
paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holder at its last addresses as it 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
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<PAGE>
become effective or close, and the date as of which it is expected that holders
of the Common Stock of record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange;
provided, however, that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. The Holder is entitled to convert the
Debentures during the 30-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the 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(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holder, 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 1130 30th Street NW, Suite 500,
Washington, DC 20007 (facsimile number (202) 625-4369), attention Chief
Financial Officer, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holder 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
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<PAGE>
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
7:00 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 7:00 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 mail, (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. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holder (the "Optional
Prepayment Notice"), to prepay, from funds legally available therefor at the
time of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to the
Optional Prepayment Price (as defined below). Any such prepayment by the Company
shall be in cash and shall be free of any claim of subordination. The Holder
shall have the right to tender, and the Company shall honor, Conversion Notices
delivered prior to the expiration of the twentieth (20th) Trading Day after
receipt by the Holder of an Optional Prepayment Notice for such Debentures (such
date, the "Optional Prepayment Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Optional Prepayment Price (including interest therefor), plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Prepayment Principal
Amount"), in which event the applicable Per Share Market Value shall be the
lower of the Per Share Market Value calculated on the Optional Prepayment Date
and the Per Share Market Value as of the Holder's written demand for conversion,
or (ii) invalidate ab initio such optional redemption, notwithstanding anything
herein contained to the contrary. If the Holder elects option (i) above, the
Company shall, within three (3) Trading Days of the date such election is deemed
delivered hereunder, deliver to the Holder the shares of Common Stock issuable
upon conversion of the Unpaid Prepayment Amount subject to such conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of notice of such
election, return to the Holder new Debentures for the full Unpaid Prepayment
Principal Amount. If, upon an election under option (i)
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<PAGE>
above, the Company fails to deliver the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Principal Amount within four (4) Trading
Days of the date that such election is deemed delivered hereunder, the Company
shall pay to the Holder in cash, as liquidated damages and not as a penalty,
$1,500 per day until the Company delivers such Common Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored
prior to the 180th day after the Original Issue Date, (ii) 75% for any
conversion honored on or after the 180th day and prior to the 360th after the
original Issue Date, and (iii) 70% for any conversion honored after the 360th
day after the Original Issue Date. For purposes hereof, a conversion is deemed
to have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder.
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the common stock, $.00025 par value per share,
of the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price on
(x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"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.
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<PAGE>
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices, or (b) if the Common
Stock is no longer reported by Bloomberg, or such similar organizations or
agencies, such closing bid price per share shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market 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
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Securities Registration Statement" means an amended
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering, among other things, the resale of the Initial
Registrable Securities (as defined in the Registration Rights Agreement ) and
the Underlying Shares and naming the Holder as a "selling stockholder"
thereunder, provided, however, that in the event that the Initial Registration
Statement (as defined in the Registration Rights Agreement) is declared
effective by the Commission on or prior to the Filing Date (as defined in the
Registration Rights Agreement), the term "Underlying Securities Registration
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Statement" shall mean a registration statement meeting the requirements set
forth in the Registration Rights Agreement, covering the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, 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. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. 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 hereby irrevocably submits 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. The Company 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 instrument 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 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.
-14-
<PAGE>
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).
<PAGE>
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.
EUROTECH, LTD.
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
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<PAGE>
EXHIBIT A
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the above Debenture into shares of
Common Stock, $.00025 par value per share (the "Common Stock"), of EUROTECH,
LTD. (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
<PAGE>
EXHIBIT B
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of EUROTECH, LTD. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture into shares of Common Stock, par value
$.00025 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations: ________________________________________________
Date to Effect Conversion
________________________________________________
Principal Amount of Debentures to be Converted
________________________________________________
Applicable Conversion Price
________________________________________________
Amount of Interest due on the Principal Amount
of Debentures to be Converted
________________________________________________
Number of Shares of Common Stock
outstanding at close of trading
on Conversion Date
________________________________________________
Signature
________________________________________________
Name:
________________________________________________
Address:
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 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.
No. 2 U.S. $500,000
EUROTECH, LTD.
8% CONVERTIBLE DEBENTURE DUE JULY 20, 2001
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Eurotech, Ltd., a corporation organized under the laws of the District of
Columbia and having a principal place of business at 1130 30th Street NW, Suite
500, Washington, DC 20007 (the "Company"), designated as its 8% Convertible
Debentures, due July 20, 2001 (the "Debentures"), in an aggregate principal
amount of $1,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC STRATEGIC FUND
LTD., or registered assigns (the "Holder"), the principal sum of Five Hundred
Thousand Dollars ($500,000), on or prior to July 20, 2001 or such earlier date
as the Debentures are required to be repaid as provided hereunder (the "Maturity
Date") and to pay interest to the Holder on the principal sum at the rate of 8%
per annum, payable quarterly in arrears commencing September 30, 1998, but in no
event later than the earlier to occur of a Conversion Date (as defined in
Section 4(a)(ii)) for such principal amount or the Maturity Date. Interest shall
accrue daily commencing on the Original Issue Date (as defined in Section 6)
until payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest shall be calculated on the basis of a 360-day year and for the actual
number of days elapsed. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of the Debentures (the "Debenture Register"). All overdue, accrued
and unpaid interest and other amounts due hereunder shall bear interest at the
rate of 15% per annum (to accrue daily) from the date such interest is due
hereunder through and including the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
overdue interest) may, at the Company's option, be paid in shares of Common
Stock (as defined in Section 6) calculated based upon the Conversion Price (as
defined
<PAGE>
below) on the date such interest was due. All amounts due hereunder other than
such interest shall be paid in cash. Notwithstanding anything to the contrary
contained herein, the Company may not issue shares of Common Stock in payment of
interest on the principal amount if: (i) the number of shares of Common Stock at
the time authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay interest hereunder in shares of Common
Stock; (ii) such shares are not either registered for resale pursuant to an
Underlying Securities Registration Statement (as defined in Section 6) or freely
transferable without volume restrictions pursuant to Rule 144(k) promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), as
determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; or (iii) such shares are not actively traded on the OTC
Bulletin Board (or listed or quoted for trading on the American Stock Exchange,
Nasdaq National Market, Nasdaq SmallCap Market or The New York Stock Exchange,
and any other exchange on which the Common Stock is then listed for trading
(each, a "Subsequent Market")). The Common Stock shall be deemed to be "actively
traded" on the OTC Bulletin Board under this Debenture if (a) no less than
$400,000 of the Common Stock trades on the OTC Bulletin Board in any one week
and (b) there are no fewer than six (6) market makers actively making a market
in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
(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, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the
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<PAGE>
same shall become due and payable (whether on the applicable quarterly
interest payment date, the Conversion Date or the Maturity Date or by
acceleration or otherwise);
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement (as defined in Section 6), and such failure or breach
shall not have been remedied within 10 days after the date on which notice
of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property which continues undischarged or unstayed for a period of 60
days; or the Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be actively traded on the OTC
Bulletin Board or fail to be listed or quoted for trading on any
Subsequent Market if after the Original Issue Date the Common Stock shall
be listed or quoted for trading on any such Subsequent Market, or if the
Common Stock shall be suspended from trading thereon without being
actively traded, relisted or having such suspension lifted, as the case
may be, within three (3) Trading Days;
-3-
<PAGE>
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the Common Stock) or
shall dispose of all or substantially all of its assets in one or more
transactions, or shall redeem more than a de minimis number of shares of
Common Stock (other than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the 90th day after the Original Issue Date;
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto (other
than an Event resulting from a failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or
prior to the Effectiveness Date (as defined in the Registration Rights
Agreement); or
(ix) the Company shall fail to deliver certificates to a Holder
prior to the Twentieth (20th) day after the Conversion Date pursuant to
Section 5(b).
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by the Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions or as
payment of interest hereunder and then held by the Holder and (B) the Per Share
Market Value (as defined in Section 6) on the date prepayment is demanded or the
date the full prepayment price is paid, whichever is greater. 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 the 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 Common
Stock at the option of the Holder in whole or in part at any time and from time
to time after the Original Issue. The number of shares of Common Stock as shall
be issuable upon a conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be converted, plus all accrued
but unpaid interest thereon, by the Conversion Price (as defined below), each as
subject to adjustment as provided hereunder. The Holder shall effect conversions
by surrendering the Debentures (or such portions thereof) to be converted,
together with the form of conversion notice attached hereto as Exhibit A (a
"Holder Conversion Notice") to the Company. Each Holder
-4-
<PAGE>
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Conversion Notice is deemed to have been
delivered hereunder (a "Holder Conversion Date"). If no Holder Conversion Date
is specified in a Holder Conversion Notice, the Holder Conversion Date shall be
the date that such Holder Conversion Notice is deemed delivered hereunder.
Subject to Section 4(b) hereof, each Holder Conversion Notice, once given, shall
be irrevocable. If the Holder is converting less than all of the principal
amount represented by the Debenture(s) tendered by the Holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) At any time from and after the second anniversary of the
Original Issue Date, all or any portion of the then outstanding principal amount
under this Debenture (plus accrued and unpaid interest thereon) shall be
convertible into Common Stock at the Conversion Price at the option of the
Company; provided, that the Company is not permitted to deliver a Company
Conversion Notice (as defined below) within ten (10) days of 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 actively traded on the OTC Bulletin Board or
listed or quoted for trading on a Subsequent Market. The Company shall effect
such conversion by delivering to the Holder a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the principal amount of Debentures (and accrued but unpaid
interest thereon) to be converted. The Company shall deliver such Company
Conversion Notice at least two (2) Trading Days, but not more than five (5)
Trading Days before the Maturity Date or earlier date of intended conversion
(the date that the Company intends to effect such conversion 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 thereto to the office of the Company or of any transfer agent of the
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 in
the manner and within the time period set forth in Section 4(b). 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) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures,
(ii) Debentures in a principal amount equal to the principal amount of
Debentures not converted; (iii) a bank check in the amount of all accrued and
unpaid interest (if the Company has elected to pay accrued interest in cash),
together with all other amounts then due and payable in
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<PAGE>
accordance with the terms hereof, in respect of Debentures tendered for
conversion and (iv) if the Company has elected and is permitted hereunder to pay
accrued interest in shares of the Common Stock, certificates, which shall be
free of restrictive legends and trading restrictions (other than those required
by Section 3.1(b) of the Purchase Agreement), representing such number of shares
of the Common Stock as equals such interest divided by the Conversion Price
calculated on the Conversion Date; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of the Common Stock
issuable upon conversion of the principal amount of Debentures until Debentures
are delivered for conversion to the Company or the Holder notifies the Company
that such Debenture has been mutilated, lost, stolen or destroyed and complies
with Section 9 hereof. 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 Holder by the third
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 (whether subject to a
Holder or a Company Conversion Notice), 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 fourth Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, $1,500 for each day thereafter until the Company delivers such
certificates (such amount shall also be due for each Trading Day after the date
that the Holder may rescind such conversion until such date as the Holder shall
have received the return of the principal amount of Debentures relating to such
rescission).
(c) (i) The conversion price (the "Conversion Price") in effect on
any Conversion Date shall be the lesser of (A) $1.06 (the "Initial Conversion
Price") and (B) the Applicable Percentage (as defined in Section 6) multiplied
by the Average Price calculated on the Conversion Date. If (a) an Underlying
Securities Registration Statement is not filed on or prior to the Filing Date
(as defined in the Registration Rights Agreement) (if the Company files such
Underlying Securities Registration Statement without affording the Holder the
opportunity to review and comment on the same as required by Section 3(a) of the
Registration Rights Agreement, the Company shall not be deemed to have satisfied
this clause (a)) or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the Securities
Exchange Act of 1934, as amended, within five (5) Business Days of the date that
the Company is notified (orally or in writing, whichever is earlier) by the
Commission that an Underlying Securities Registration Statement will not be
"reviewed" or is not subject to further review or comment by the Commission, or
(c) the Underlying Securities Registration Statement is not declared effective
by the Commission on or prior to the Effectiveness Date, or (d) such Underlying
Securities Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Securities Registration Statement filed with and declared
effective by the Commission within ten (10) days, or (e) trading in the Common
Stock shall fail to be actively traded on the OTC Bulletin Board or if the
Common Stock shall be suspended or delisted from trading on any Subsequent
Market for
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<PAGE>
any reason for more than three (3) Trading Days, or (f) the conversion rights of
the Holder are suspended for any reason or if the Holder is not permitted to
resell Registrable Securities under the Underlying Securities Registration
Statement, or (g) an amendment to the Underlying Securities Registration
Statement is not filed by the Company with the Commission within ten (10) days
of the Commission's notifying the Company that such amendment is required in
order for the Underlying Securities Registration Statement to be declared
effective (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 clauses (d) and (g) the date which such ten (10) day period is
exceeded, or for purposes of clause (e) the date on which such three (3) Trading
Day period is exceeded, being referred to as "Event Date"), the Company shall
pay, in cash, as liquidated damages and not as a penalty, on the Event Date and
on the first day of each month thereafter until the triggering Event is cured,
1.0% of the aggregate principal amount of Debentures then outstanding.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to the Holder) entitling them to subscribe for or purchase shares of
the Common Stock at a price per share less than the Per Share Market Value of
the Common Stock at the record date mentioned below, the Initial Conversion
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of the Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at such Per Share Market
Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Initial
Conversion Price pursuant to this Section, if any such right or warrant shall
expire and shall not have been exercised, the Initial Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would
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<PAGE>
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 the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holder shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require the Company to prepay,
from funds legally available therefor at the time of such prepayment, the
aggregate of its outstanding principal amount of Debentures, plus all interest
and other amounts due and payable thereon, at a price determined in accordance
with Section 3(b). The
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<PAGE>
entire prepayment price shall be paid in cash. This provision shall similarly
apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holder at its last addresses as it shall appear upon the stock books of the
Company, at least 30 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
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<PAGE>
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. The
Holder is entitled to convert the Debentures during the 30-day period commencing
the date of such notice to the effective date of the event triggering such
notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the 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(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holder, 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 1130 30th Street NW, Suite 500,
Washington, DC 20007 (facsimile number (202) 625-4369), attention Chief
Financial Officer, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holder 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
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<PAGE>
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 7:00 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
7:00 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
mail, (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. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holder (the "Optional
Prepayment Notice"), to prepay, from funds legally available therefor at the
time of such prepayment, all or any portion of the outstanding principal amount
of the Debentures which have not previously been repaid or for which Conversion
Notices have not previously been delivered hereunder, at a price equal to the
Optional Prepayment Price (as defined below). Any such prepayment by the Company
shall be in cash and shall be free of any claim of subordination. The Holder
shall have the right to tender, and the Company shall honor, Conversion Notices
delivered prior to the expiration of the twentieth (20th) Trading Day after
receipt by the Holder of an Optional Prepayment Notice for such Debentures (such
date, the "Optional Prepayment Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Optional Prepayment Price (including interest therefor), plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Prepayment Principal
Amount"), in which event the applicable Per Share Market Value shall be the
lower of the Per Share Market Value calculated on the Optional Prepayment Date
and the Per Share Market Value as of the Holder's written demand for conversion,
or (ii) invalidate ab initio such optional redemption, notwithstanding anything
herein contained to the contrary. If the Holder elects option (i) above, the
Company shall, within three (3) Trading Days of the date such election is deemed
delivered hereunder, deliver to the Holder the shares of Common Stock issuable
upon conversion of the Unpaid Prepayment Amount subject to such conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of notice of such
election, return to the Holder new Debentures for the full Unpaid Prepayment
Principal Amount. If, upon an election under option (i) above, the Company fails
to deliver the shares of Common Stock issuable upon conversion of the Unpaid
Prepayment Principal Amount within four (4) Trading Days of the date that such
election is
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<PAGE>
deemed delivered hereunder, the Company shall pay to the Holder in cash, as
liquidated damages and not as a penalty, $1,500 per day until the Company
delivers such Common Stock to the Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Applicable Percentage" means (i) 75% for any conversion honored
prior to the 180th day after the Original Issue Date and (ii) 70% for any
conversion honored thereafter. For purposes hereof, a conversion is deemed to
have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder.
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the common stock, $.00025 par value per share,
of the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price on
(x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"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" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices,
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<PAGE>
or (b) if the Common Stock is no longer reported by Bloomberg, or such similar
organizations or agencies, such closing bid price per share shall be determined
by reference to "Pink Sheet" quotes for the relevant conversion period as
determined in good faith by the Holder or (c) if the Common Stock is not then
publicly traded, the fair market value of a share of Common Stock as determined
by an appraiser selected in good faith by the Holders of a majority in interest
of the Debentures (the Company, after receipt of the determination by such
appraiser, shall have the right to select an additional appraiser, in which
case, the fair market value shall be equal to the average of the determinations
by each such appraiser).
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market 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
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Securities Registration Statement" means an amended
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering, among other things, the resale of the Initial
Registrable Securities (as defined in the Registration Rights Agreement ) and
the Underlying Shares and naming the Holder as a "selling stockholder"
thereunder, provided, however, that in the event that the Initial Registration
Statement (as defined in the Registration Rights Agreement) is declared
effective by the Commission on or prior to the Filing Date (as defined in the
Registration Rights Agreement), the term "Underlying Securities Registration
Statement" shall mean a registration statement meeting the requirements set
forth in the Registration Rights Agreement, covering the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
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<PAGE>
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, 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. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. 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 hereby irrevocably submits 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. The Company 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 instrument 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 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.
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<PAGE>
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 FOLLOWS]
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<PAGE>
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.
EUROTECH, LTD.
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the above Debenture into shares of
Common Stock, $.00025 par value per share (the "Common Stock"), of EUROTECH,
LTD. (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
<PAGE>
EXHIBIT B
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of EUROTECH, LTD. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture into shares of Common Stock, par value
$.00025 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations: __________________________________________________
Date to Effect Conversion
__________________________________________________
Principal Amount of Debentures to be Converted
__________________________________________________
Applicable Conversion Price
__________________________________________________
Amount of Interest due on the Principal Amount of
Debentures to be Converted
__________________________________________________
Number of Shares of Common Stock
outstanding at close of trading
on Conversion Date
__________________________________________________
Signature
__________________________________________________
Name:
__________________________________________________
Address:
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 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.
No. 13 U.S. $2,500,000
EUROTECH, LTD.
8% CONVERTIBLE DEBENTURE DUE NOVEMBER 27, 2000
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Eurotech, Ltd., a corporation organized under the laws of the District of
Columbia and having a principal place of business at 1130 30th Street NW, Suite
500, Washington, DC 20007 (the "Company"), designated as its 8% Convertible
Debentures, due November 27, 2000 (the "Debentures"), in an aggregate principal
amount of $3,000,000.
FOR VALUE RECEIVED, the Company promises to pay to JNC OPPORTUNITY FUND
LTD., or registered assigns (the "Holder"), the principal sum of Two Million
Five Hundred Thousand Dollars ($2,500,000), on or prior to November 27, 2000 or
such earlier date as the Debentures are required to be repaid as provided
hereunder (the "Maturity Date") and to pay interest to the Holder on the
principal sum at the rate of 8% per annum, payable quarterly in arrears
commencing March 31, 1998, but in no event later than the earlier to occur of a
Conversion Date (as defined in Section 4(a)(i)) for such principal amount or the
Maturity Date. Interest shall accrue daily commencing on the Original Issue Date
(as defined in Section 6) until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest shall be calculated on the basis of a 360-day
year and for the actual number of days elapsed. Interest hereunder will be paid
to the Person (as defined in Section 6) in whose name this Debenture (or one or
more predecessor Debentures) is registered on the records of the Company
regarding registration and transfers of the Debentures (the "Debenture
Register"). All overdue, accrued and unpaid interest and other amounts due
hereunder shall bear interest at the rate of 15% per annum (to accrue daily)
from the date such interest is due hereunder through and including the date of
payment. The principal of, and interest on, this Debenture are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the address of the
Holder last appearing on the Debenture Register, except that interest due on the
principal amount (but not overdue interest) may, at the Company's option, be
paid in shares of Common Stock (as defined in Section 6) calculated based upon
the Conversion Price (as defined below) on the date such interest was due. All
amounts due hereunder other than such interest shall be paid in cash.
Notwithstanding anything to the contrary
<PAGE>
contained herein, the Company may not issue shares of Common Stock in payment of
interest on the principal amount if: (i) the number of shares of Common Stock at
the time authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay interest hereunder in shares of Common
Stock; (ii) such shares are not either registered for resale pursuant to an
Underlying Securities Registration Statement (as defined in Section 6) or freely
transferable without volume restrictions pursuant to Rule 144(k) promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), as
determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; or (iii) such shares are not actively traded on the OTC
Bulletin Board (or listed or quoted for trading on the American Stock Exchange,
Nasdaq National Market, Nasdaq SmallCap Market or The New York Stock Exchange,
and any other exchange on which the Common Stock is then listed for trading
(each, a "Subsequent Market")). The Common Stock shall be deemed to be "actively
traded" on the OTC Bulletin Board under this Debenture if (a) no less than
$400,000 of the Common Stock trades on the OTC Bulletin Board in any one week
and (b) there are no fewer than six (6) market makers actively making a market
in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement 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.
(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, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, the Conversion Date or
the Maturity Date or by acceleration or otherwise);
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<PAGE>
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been remedied
within 10 days after the date on which notice of such failure or breach
shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property which continues undischarged or unstayed for a period of 60
days; or the Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be actively traded on the OTC
Bulletin Board or fail to be listed or quoted for trading on any
Subsequent Market if after the Original Issue Date the Common Stock shall
be listed or quoted for trading on any such Subsequent Market, or if the
Common Stock shall be suspended from trading thereon without being
actively traded, relisted or having such suspension lifted, as the case
may be, within three (3) Trading Days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the
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<PAGE>
Common Stock) or shall dispose of all or substantially all of its assets
in one or more transactions, or shall redeem more than a de minimis number
of shares of Common Stock (other than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the 180th day after the Original Issue Date;
or
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto (other
than an Event resulting from a failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or
prior to the 90th day after the Original Issue Date).
(b) If any Event of Default occurs and is continuing the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions or as
payment of interest hereunder and then held by the Holder and (B) the Per Share
Market Value (as defined in Section 6) on the date prepayment is demanded or the
date the full prepayment price is paid, whichever is greater. 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)(i) This Debenture shall be convertible into shares of Common
Stock at the option of the Holder in whole or in part at any time and from time
to time upon the earlier to occur of (1) the date an Underlying Securities
Registration Statement is declared effective by the Commission and (2) the 90th
day after the Original Issue Date, and prior to the close of business on the
Maturity Date. The number of shares of Common Stock as shall be issuable upon a
conversion hereunder shall be determined by dividing the outstanding principal
amount of this Debenture to be converted, plus all accrued but unpaid interest
thereon, by the Conversion Price (as defined below), each as subject to
adjustment as provided hereunder. The Holder shall effect conversions by
surrendering the Debentures (or such portions thereof) to be converted, together
with the form of conversion notice attached hereto as Exhibit A (a "Holder
Conversion Notice") to the Company. Each Holder Conversion Notice shall specify
the principal amount of Debentures to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a "Holder
Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the
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date that such Holder Conversion Notice is deemed delivered hereunder. Subject
to Section 4(b) hereof, each Holder Conversion Notice, once given, shall be
irrevocable. If the Holder is converting less than all of the principal amount
represented by the Debenture(s) tendered by the Holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) At any time from and after the second anniversary of the
Original Issue Date, all or any portion of the then outstanding principal amount
under this Debenture (plus accrued and unpaid interest thereon) shall be
convertible into Common Stock at the Conversion Price at the option of the
Company; provided, that the Company is not permitted to deliver a Company
Conversion Notice (as defined below) within ten (10) days of 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 actively traded on the OTC Bulletin Board or
listed or quoted for trading on a Subsequent Market. The Company shall effect
such conversion by delivering to the Holder a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the principal amount of Debentures (and accrued but unpaid
interest thereon) to be converted. The Company shall deliver such Company
Conversion Notice at least two (2) Trading Days, but not more than five (5)
Trading Days before the Maturity Date or earlier date of intended conversion
(the date that the Company intends to effect such conversion 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 thereto to the office of the Company or of any transfer agent of the
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 in
the manner and within the time period set forth in Section 4(b). 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) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures,
(ii) Debentures in a principal amount equal to the principal amount of
Debentures not converted; (iii) a bank check in the amount of all accrued and
unpaid interest (if the Company has elected to pay accrued interest in cash),
together with all other amounts then due and payable in accordance with the
terms hereof, in respect of Debentures tendered for conversion and (iv) if the
Company has elected and is permitted hereunder to pay accrued interest in shares
of the Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of the
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Common Stock as equals such interest divided by the Conversion Price calculated
on the Conversion Date; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of the Common Stock
issuable upon conversion of the principal amount of Debentures until Debentures
are delivered for conversion to the Company or the Holder notifies the Company
that such Debenture has been mutilated, lost, stolen or destroyed and complies
with Section 9 hereof. 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 Holder by the third
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 (whether subject to a
Holder or a Company Conversion Notice), 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 fourth Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, $1,500 for each day thereafter until the Company delivers such
certificates (such amount shall also be due for each Trading Day after the date
that the Holder may rescind such conversion until such date as the Holder shall
have received the return of the principal amount of Debentures relating to such
rescission). If the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section prior to the 20th day after the Conversion
Date, the Company shall, upon notice from the Holder, prepay such portion of the
aggregate of the principal amount of Debentures then held by such Holder, as
requested by such Holder, for the Mandatory Prepayment Amount, in cash. If any
portion of the Mandatory Prepayment Amount pursuant to this Section is not paid
within seven days after notice therefor is deemed delivered hereunder, the
Company will pay interest on the Mandatory Prepayment Amount at a rate of 15%
per annum (to accrue daily), in cash to such Holder, accruing from such seventh
day until the Mandatory Prepayment Amount, plus all accrued interest thereon, is
paid in full.
(c) (i) The conversion price (the "Conversion Price") in effect on
any Conversion Date shall be the lesser of (A) $5.38 (the "Initial Conversion
Price") and (B) the Applicable Percentage (as defined in Section 6) multiplied
by the Average Price calculated on the Conversion Date. If (a) an Underlying
Securities Registration Statement is not filed on or prior to the 45th day after
the Original Issue Date, or (b) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) Business Days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that an Underlying Securities Registration Statement
will not be "reviewed" or is not subject to further review or comment by the
Commission, or (c) the Underlying Securities 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 Securities Registration Statement is
filed with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) at any time prior to the expiration of the
"Effectiveness Period" (as such term as defined in the Registration Rights
Agreement), without being succeeded by a subsequent Underlying Securities
Registration Statement filed with and declared effective by the Commission
within ten (10) days, or (e) trading in the Common Stock shall fail to be
actively traded on the OTC Bulletin Board
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or if the Common Stock shall be suspended or delisted from trading on any
Subsequent Market for any reason for more than three (3) Trading Days, or (f)
the conversion rights of the Holders of Debentures are suspended for any reason
or if the Holder is not permitted to resell Registrable Securities under the
Underlying Securities Registration Statement, or (g) an amendment to the
Underlying Securities Registration Statement is not filed by the Company with
the Commission within ten (10) days of the Commission's notifying the Company
that such amendment is required in order for the Underlying Securities
Registration Statement to be declared effective (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 clauses (d) and (g) the date which
such ten (10) day period is exceeded, or for purposes of clause (e) the date on
which such three (3) Trading Day period is exceeded, being referred to as "Event
Date"), the Company shall pay, in cash, as liquidated damages and not as a
penalty, on the Event Date and on the first day of each month thereafter until
the triggering Event is cured, 1.0% of the aggregate principal amount of
Debentures then outstanding.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to Holders of Debentures) entitling them to subscribe for or purchase
shares of the Common Stock at a price per share less than the Per Share Market
Value of the Common Stock at the record date mentioned below, the Initial
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of the Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Initial
Conversion Price pursuant to this Section, if any such right or warrant shall
expire and shall not have been exercised, the Initial Conversion Price shall
immediately
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upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Initial Conversion Price made pursuant to the
provisions of this Section 4 after the issuance of such rights or warrants) had
the adjustment of the Initial Conversion Price made upon the issuance of such
rights or warrants been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon
the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to
Holders of Debentures) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Initial Conversion Price at which Debentures shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of the Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per Share
Market Value of the Common Stock on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest of
Debentures then outstanding; and provided, further, that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the holders
of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of the Common
Stock. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 3(b).
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The entire prepayment price shall be paid in cash. This provision shall
similarly apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for
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securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Debentures during the 30-day
period commencing the date of such notice to the effective date of the event
triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
1130 30th Street NW, Suite 500, Washington, DC 20007 (facsimile number (202)
625- 4369),attention Chief Financial Officer, or such other address or facsimile
number as the Company may specify for such purposes by notice to the Holders
delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each Holder of the Debentures at the facsimile telephone
number or address of such Holder appearing on the books of the Company,
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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 7:00 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 7:00 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 mail, (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. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holders of the Debentures
to be prepaid (the "Optional Prepayment Notice"), to prepay, from funds legally
available therefor at the time of such prepayment, all or any portion of the
outstanding principal amount of the Debentures which have not previously been
repaid or for which Conversion Notices have not previously been delivered
hereunder, at a price equal to the Optional Prepayment Price (as defined below).
Any such prepayment by the Company shall be in cash and shall be free of any
claim of subordination. The Holders shall have the right to tender, and the
Company shall honor, Conversion Notices delivered prior to the expiration of the
twentieth (20th) Trading Day after receipt by the Holders of an Optional
Prepayment Notice for such Debentures (such date, the "Optional Prepayment
Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Optional Prepayment Price, plus accrued liquidated damages thereof, has not been
paid in full (the "Unpaid Prepayment Principal Amount"), in which event the
applicable Per Share Market Value shall be the lower of the Per Share Market
Value calculated on the Optional Prepayment Date and the Per Share Market Value
as of the Holder's written demand for conversion, or (ii) invalidate ab initio
such optional redemption, notwithstanding anything herein contained to the
contrary. If the Holder elects option (i) above, the Company shall, within three
(3) Trading Days of the date such election is deemed delivered hereunder,
deliver to the Holder the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Amount subject to such conversion demand and otherwise perform
its obligations hereunder with respect thereto; or, if the Holder elects option
(ii) above, the Company shall promptly, and in any event not later than three
(3) Trading Days from receipt of notice of such election, return to the Holder
new Debentures for the full Unpaid Prepayment Principal Amount. If, upon an
election under option (i) above, the Company fails to deliver the shares of
Common Stock issuable upon conversion of the Unpaid Prepayment Principal Amount
within four (4) Trading Days of the date that such election is deemed delivered
hereunder,
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the Company shall pay to the Holder in cash, as liquidated damages and not as a
penalty, $1,500 per day until the Company delivers such Common Stock to the
Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored
prior to the 180th day after the Original Issue Date, (ii) 75% for any
conversion honored on or after the 180th day and prior to the 360th after the
original Issue Date, and (iii) 70% for any conversion honored after the 360th
day after the Original Issue Date. For purposes hereof, a conversion is deemed
to have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder.
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the Company's common stock, $.00025 par value
per share, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price on
(x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"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.
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"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices, or (b) if the Common
Stock is no longer reported by Bloomberg, or such similar organizations or
agencies, such closing bid price per share shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market 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
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Securities Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate,
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<PAGE>
and in the coin or currency, herein prescribed. This Debenture is a direct
obligation of the Company. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth herein. The Company
may only voluntarily prepay the outstanding principal amount on the Debentures
in accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. 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 hereby irrevocably submits 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. The Company 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 instrument 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 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
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<PAGE>
(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 FOLLOWS]
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<PAGE>
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.
EUROTECH, LTD.
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the above Debenture into shares of
Common Stock, $.00025 par value per share (the "Common Stock"), of EUROTECH,
LTD. (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
<PAGE>
EXHIBIT B
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of EUROTECH, LTD. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture into shares of Common Stock, par value
$.00025 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations: __________________________________________________
Date to Effect Conversion
__________________________________________________
Principal Amount of Debentures to be Converted
__________________________________________________
Applicable Conversion Price
__________________________________________________
Amount of Interest due on the Principal Amount of
Debentures to be Converted
__________________________________________________
Number of Shares of Common Stock
outstanding at close of trading
on Conversion Date
__________________________________________________
Signature
__________________________________________________
Name:
__________________________________________________
Address:
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 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.
No. 14 U.S. $500,000
EUROTECH, LTD.
8% CONVERTIBLE DEBENTURE DUE NOVEMBER 27, 2000
THIS DEBENTURE is one of a series of duly authorized issued debentures of
Eurotech, Ltd., a corporation organized under the laws of the District of
Columbia and having a principal place of business at 1130 30th Street NW, Suite
500, Washington, DC 20007 (the "Company"), designated as its 8% Convertible
Debentures, due November 27, 2000 (the "Debentures"), in an aggregate principal
amount of $3,000,000.
FOR VALUE RECEIVED, the Company promises to pay to DIVERSIFIED STRATEGIES
FUND, L.P., or registered assigns (the "Holder"), the principal sum of Five
Hundred Thousand Dollars ($500,000), on or prior to November 27, 2000 or such
earlier date as the Debentures are required to be repaid as provided hereunder
(the "Maturity Date") and to pay interest to the Holder on the principal sum at
the rate of 8% per annum, payable quarterly in arrears commencing March 31,
1998, but in no event later than the earlier to occur of a Conversion Date (as
defined in Section 4(a)(i)) for such principal amount or the Maturity Date.
Interest shall accrue daily commencing on the Original Issue Date (as defined in
Section 6) until payment in full of the principal sum, together with all accrued
and unpaid interest and other amounts which may become due hereunder, has been
made. Interest shall be calculated on the basis of a 360-day year and for the
actual number of days elapsed. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of the Debentures (the "Debenture Register"). All overdue, accrued
and unpaid interest and other amounts due hereunder shall bear interest at the
rate of 15% per annum (to accrue daily) from the date such interest is due
hereunder through and including the date of payment. The principal of, and
interest on, this Debenture are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
overdue interest) may, at the Company's option, be paid in shares of Common
Stock (as defined in Section 6) calculated based upon the Conversion Price (as
defined below) on the date such interest was due. All amounts due hereunder
<PAGE>
other than such interest shall be paid in cash. Notwithstanding anything to the
contrary contained herein, the Company may not issue shares of Common Stock in
payment of interest on the principal amount if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes,
or held as treasury stock, is insufficient to pay interest hereunder in shares
of Common Stock; (ii) such shares are not either registered for resale pursuant
to an Underlying Securities Registration Statement (as defined in Section 6) or
freely transferable without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
as determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for such shares; or (iii) such shares are not actively traded on the OTC
Bulletin Board (or listed or quoted for trading on the American Stock Exchange,
Nasdaq National Market, Nasdaq SmallCap Market or The New York Stock Exchange,
and any other exchange on which the Common Stock is then listed for trading
(each, a "Subsequent Market")). The Common Stock shall be deemed to be "actively
traded" on the OTC Bulletin Board under this Debenture if (a) no less than
$400,000 of the Common Stock trades on the OTC Bulletin Board in any one week
and (b) there are no fewer than six (6) market makers actively making a market
in the Common Stock.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of Fifty Thousand Dollars
($50,000) unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement 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.
(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, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether
on the applicable quarterly interest payment date, the Conversion Date or
the Maturity Date or by acceleration or otherwise);
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<PAGE>
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been remedied
within 10 days after the date on which notice of such failure or breach
shall have been given;
(iii) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary thereof or there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding
is entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of
its property which continues undischarged or unstayed for a period of 60
days; or the Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or the Company or any subsidiary thereof
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company or any subsidiary
thereof shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
other action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
(iv) the Company shall default in any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock shall fail to be actively traded on the OTC
Bulletin Board or fail to be listed or quoted for trading on any
Subsequent Market if after the Original Issue Date the Common Stock shall
be listed or quoted for trading on any such Subsequent Market, or if the
Common Stock shall be suspended from trading thereon without being
actively traded, relisted or having such suspension lifted, as the case
may be, within three (3) Trading Days;
(vi) the Company shall be a party to any merger or consolidation
pursuant to which the Company shall not be the surviving entity (or, if
the Company is the surviving entity, the Company shall issue or sell to
another Person, or group thereof, in excess of 50% of the
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<PAGE>
Common Stock) or shall dispose of all or substantially all of its assets
in one or more transactions, or shall redeem more than a de minimis number
of shares of Common Stock (other than redemptions of Underlying Shares);
(vii) an Underlying Securities Registration Statement shall not have
been declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the 180th day after the Original Issue Date;
or
(viii) an Event (as hereinafter defined) shall not have been cured
to the satisfaction of the Holder prior to the expiration of thirty (30)
days from the Event Date (as hereinafter defined) relating thereto (other
than an Event resulting from a failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or
prior to the 90th day after the Original Issue Date).
(b) If any Event of Default occurs and is continuing the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration, to be, shall become,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default in respect of the Debentures shall be equal to the sum of (i) the
Mandatory Prepayment Amount (as defined in Section 6) plus (ii) the product of
(A) the number of Underlying Shares issued in respect of conversions or as
payment of interest hereunder and then held by the Holder and (B) the Per Share
Market Value (as defined in Section 6) on the date prepayment is demanded or the
date the full prepayment price is paid, whichever is greater. 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)(i) This Debenture shall be convertible into shares of Common
Stock at the option of the Holder in whole or in part at any time and from time
to time upon the earlier to occur of (1) the date an Underlying Securities
Registration Statement is declared effective by the Commission and (2) the 90th
day after the Original Issue Date, and prior to the close of business on the
Maturity Date. The number of shares of Common Stock as shall be issuable upon a
conversion hereunder shall be determined by dividing the outstanding principal
amount of this Debenture to be converted, plus all accrued but unpaid interest
thereon, by the Conversion Price (as defined below), each as subject to
adjustment as provided hereunder. The Holder shall effect conversions by
surrendering the Debentures (or such portions thereof) to be converted, together
with the form of conversion notice attached hereto as Exhibit A (a "Holder
Conversion Notice") to the Company. Each Holder Conversion Notice shall specify
the principal amount of Debentures to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a "Holder
Conversion Date"). If no Holder Conversion Date is specified in a Holder
Conversion Notice, the Holder Conversion Date shall be the
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<PAGE>
date that such Holder Conversion Notice is deemed delivered hereunder. Subject
to Section 4(b) hereof, each Holder Conversion Notice, once given, shall be
irrevocable. If the Holder is converting less than all of the principal amount
represented by the Debenture(s) tendered by the Holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) At any time from and after the second anniversary of the
Original Issue Date, all or any portion of the then outstanding principal amount
under this Debenture (plus accrued and unpaid interest thereon) shall be
convertible into Common Stock at the Conversion Price at the option of the
Company; provided, that the Company is not permitted to deliver a Company
Conversion Notice (as defined below) within ten (10) days of 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 actively traded on the OTC Bulletin Board or
listed or quoted for trading on a Subsequent Market. The Company shall effect
such conversion by delivering to the Holder a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the principal amount of Debentures (and accrued but unpaid
interest thereon) to be converted. The Company shall deliver such Company
Conversion Notice at least two (2) Trading Days, but not more than five (5)
Trading Days before the Maturity Date or earlier date of intended conversion
(the date that the Company intends to effect such conversion 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 thereto to the office of the Company or of any transfer agent of the
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 in
the manner and within the time period set forth in Section 4(b). 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) Not later than three Trading Days after the Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of the Common Stock being acquired upon the conversion of Debentures,
(ii) Debentures in a principal amount equal to the principal amount of
Debentures not converted; (iii) a bank check in the amount of all accrued and
unpaid interest (if the Company has elected to pay accrued interest in cash),
together with all other amounts then due and payable in accordance with the
terms hereof, in respect of Debentures tendered for conversion and (iv) if the
Company has elected and is permitted hereunder to pay accrued interest in shares
of the Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of the
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<PAGE>
Common Stock as equals such interest divided by the Conversion Price calculated
on the Conversion Date; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of the Common Stock
issuable upon conversion of the principal amount of Debentures until Debentures
are delivered for conversion to the Company or the Holder notifies the Company
that such Debenture has been mutilated, lost, stolen or destroyed and complies
with Section 9 hereof. 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 Holder by the third
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 (whether subject to a
Holder or a Company Conversion Notice), 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 fourth Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, $1,500 for each day thereafter until the Company delivers such
certificates (such amount shall also be due for each Trading Day after the date
that the Holder may rescind such conversion until such date as the Holder shall
have received the return of the principal amount of Debentures relating to such
rescission). If the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section prior to the 20th day after the Conversion
Date, the Company shall, upon notice from the Holder, prepay such portion of the
aggregate of the principal amount of Debentures then held by such Holder, as
requested by such Holder, for the Mandatory Prepayment Amount, in cash. If any
portion of the Mandatory Prepayment Amount pursuant to this Section is not paid
within seven days after notice therefor is deemed delivered hereunder, the
Company will pay interest on the Mandatory Prepayment Amount at a rate of 15%
per annum (to accrue daily), in cash to such Holder, accruing from such seventh
day until the Mandatory Prepayment Amount, plus all accrued interest thereon, is
paid in full.
(c) (i) The conversion price (the "Conversion Price") in effect on
any Conversion Date shall be the lesser of (A) $5.38 (the "Initial Conversion
Price") and (B) the Applicable Percentage (as defined in Section 6) multiplied
by the Average Price calculated on the Conversion Date. If (a) an Underlying
Securities Registration Statement is not filed on or prior to the 45th day after
the Original Issue Date, or (b) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) Business Days of
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that an Underlying Securities Registration Statement
will not be "reviewed" or is not subject to further review or comment by the
Commission, or (c) the Underlying Securities 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 Securities Registration Statement is
filed with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is defined in the
Registration Rights Agreement) at any time prior to the expiration of the
"Effectiveness Period" (as such term as defined in the Registration Rights
Agreement), without being succeeded by a subsequent Underlying Securities
Registration Statement filed with and declared effective by the Commission
within ten (10) days, or (e) trading in the Common Stock shall fail to be
actively traded on the OTC Bulletin Board
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<PAGE>
or if the Common Stock shall be suspended or delisted from trading on any
Subsequent Market for any reason for more than three (3) Trading Days, or (f)
the conversion rights of the Holders of Debentures are suspended for any reason
or if the Holder is not permitted to resell Registrable Securities under the
Underlying Securities Registration Statement, or (g) an amendment to the
Underlying Securities Registration Statement is not filed by the Company with
the Commission within ten (10) days of the Commission's notifying the Company
that such amendment is required in order for the Underlying Securities
Registration Statement to be declared effective (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 clauses (d) and (g) the date which
such ten (10) day period is exceeded, or for purposes of clause (e) the date on
which such three (3) Trading Day period is exceeded, being referred to as "Event
Date"), the Company shall pay, in cash, as liquidated damages and not as a
penalty, on the Event Date and on the first day of each month thereafter until
the triggering Event is cured, 1.0% of the aggregate principal amount of
Debentures then outstanding.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of the Common Stock, (b) subdivide
outstanding shares of the Common Stock into a larger number of shares, (c)
combine outstanding shares of the Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, the Initial Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any Debentures are
outstanding, shall issue rights or warrants to all holders of the Common Stock
(and not to Holders of Debentures) entitling them to subscribe for or purchase
shares of the Common Stock at a price per share less than the Per Share Market
Value of the Common Stock at the record date mentioned below, the Initial
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of the Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase shares of the
Common Stock the issuance of which resulted in an adjustment in the Initial
Conversion Price pursuant to this Section, if any such right or warrant shall
expire and shall not have been exercised, the Initial Conversion Price shall
immediately
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<PAGE>
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Initial Conversion Price made pursuant to the
provisions of this Section 4 after the issuance of such rights or warrants) had
the adjustment of the Initial Conversion Price made upon the issuance of such
rights or warrants been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon
the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to
Holders of Debentures) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Initial Conversion Price at which Debentures shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of the Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per Share
Market Value of the Common Stock on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest of
Debentures then outstanding; and provided, further, that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the holders
of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of the Common
Stock. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, the Holder of this Debenture shall have the
right thereafter to, at its option, (A) convert the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture only into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share exchange,
and the Holders of the Debentures shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B) require the
Company to prepay, from funds legally available therefor at the time of such
prepayment, the aggregate of its outstanding principal amount of Debentures,
plus all interest and other amounts due and payable thereon, at a price
determined in accordance with Section 3(b).
-8-
<PAGE>
The entire prepayment price shall be paid in cash. This provision shall
similarly apply to successive reclassifications or share exchanges.
(vi) All calculations under this Section 4 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for
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<PAGE>
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Debentures during the 30-day
period commencing the date of such notice to the effective date of the event
triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of the Common Stock solely
for the purpose of issuance upon conversion of the Debentures and payment of
interest on the Debentures, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder shall
be entitled to receive, in lieu of the final fraction of a share, one whole
share of Common Stock.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
1130 30th Street NW, Suite 500, Washington, DC 20007 (facsimile number (202)
625-4369), attention Chief Financial Officer, or such other address or facsimile
number as the Company may specify for such purposes by notice to the Holders
delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each Holder of the Debentures at the facsimile telephone
number or address of such Holder appearing on the books of the Company,
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<PAGE>
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 7:00 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 7:00 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 mail, (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. Optional Prepayment.
(a) The Company shall have the right, exercisable at any time upon
twenty (20) Trading Days prior written notice to the Holders of the Debentures
to be prepaid (the "Optional Prepayment Notice"), to prepay, from funds legally
available therefor at the time of such prepayment, all or any portion of the
outstanding principal amount of the Debentures which have not previously been
repaid or for which Conversion Notices have not previously been delivered
hereunder, at a price equal to the Optional Prepayment Price (as defined below).
Any such prepayment by the Company shall be in cash and shall be free of any
claim of subordination. The Holders shall have the right to tender, and the
Company shall honor, Conversion Notices delivered prior to the expiration of the
twentieth (20th) Trading Day after receipt by the Holders of an Optional
Prepayment Notice for such Debentures (such date, the "Optional Prepayment
Date").
(b) If any portion of the Optional Prepayment Price shall not be
paid by the Company by the Optional Prepayment Date, the Optional Prepayment
Price shall be increased by 15% per annum (to accrue daily) until paid (which
amount shall be paid as liquidated damages and not as a penalty). In addition,
if any portion of the optional Prepayment Price remains unpaid through the
expiration of the Optional Prepayment Date, the Holder subject to such
prepayment may elect by written notice to the Company to either (i) demand
conversion in accordance with the formula and the time period therefor set forth
in Section 4 of any portion of the principal amount of Debentures for which the
Optional Prepayment Price, plus accrued liquidated damages thereof, has not been
paid in full (the "Unpaid Prepayment Principal Amount"), in which event the
applicable Per Share Market Value shall be the lower of the Per Share Market
Value calculated on the Optional Prepayment Date and the Per Share Market Value
as of the Holder's written demand for conversion, or (ii) invalidate ab initio
such optional redemption, notwithstanding anything herein contained to the
contrary. If the Holder elects option (i) above, the Company shall, within three
(3) Trading Days of the date such election is deemed delivered hereunder,
deliver to the Holder the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Amount subject to such conversion demand and otherwise perform
its obligations hereunder with respect thereto; or, if the Holder elects option
(ii) above, the Company shall promptly, and in any event not later than three
(3) Trading Days from receipt of notice of such election, return to the Holder
new Debentures for the full Unpaid Prepayment Principal Amount. If, upon an
election under option (i) above, the Company fails to deliver the shares of
Common Stock issuable upon conversion of the Unpaid Prepayment Principal Amount
within four (4) Trading Days of the date that such election is deemed delivered
hereunder,
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<PAGE>
the Company shall pay to the Holder in cash, as liquidated damages and not as a
penalty, $1,500 per day until the Company delivers such Common Stock to the
Holder.
(c) The "Optional Prepayment Price" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
Optional Prepayment Date or (y) the date the Optional Prepayment Price is paid
in full, whichever is less, multiplied by the Average Price on (x) the Optional
Prepayment Date or (y) the date the Optional Prepayment Price is paid in full,
whichever is greater, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such principal amount.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Applicable Percentage" means (i) 80% for any conversion honored
prior to the 180th day after the Original Issue Date, (ii) 75% for any
conversion honored on or after the 180th day and prior to the 360th after the
original Issue Date, and (iii) 70% for any conversion honored after the 360th
day after the Original Issue Date. For purposes hereof, a conversion is deemed
to have been honored when the shares of Common Stock issuable in respect of such
conversion are received by the Holder.
"Average Price" on any date means the average Per Share Market Value
for the five (5) Trading Days immediately preceding such date.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Common Stock" means the Company's common stock, $.00025 par value
per share, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum
of (i) the principal amount of Debentures to be prepaid, plus all accrued and
unpaid interest thereon, divided by the Conversion Price on (x) the date the
Mandatory Prepayment Amount is demanded or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the Average Price on
(x) the date the Mandatory Prepayment Amount is demanded or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of such
Debentures.
"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.
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<PAGE>
"Per Share Market Value" on any particular date means (a) the
closing bid price per share of the Common Stock on such date as quoted by
Bloomberg Information Services, Inc. ("Bloomberg"), or similar organizations or
agencies succeeding to its functions of reporting prices, or (b) if the Common
Stock is no longer reported by Bloomberg, or such similar organizations or
agencies, such closing bid price per share shall be determined by reference to
"Pink Sheet" quotes for the relevant conversion period as determined in good
faith by the Holder or (c) if the Common Stock is not then publicly traded, the
fair market value of a share of Common Stock as determined by an appraiser
selected in good faith by the Holders of a majority in interest of the
Debentures (the Company, after receipt of the determination by such appraiser,
shall have the right to select an additional appraiser, in which case, the fair
market value shall be equal to the average of the determinations by each such
appraiser).
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market 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
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded on the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted on the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Securities Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, interest and liquidated damages (if
any) on, this Debenture at the time, place, and rate,
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<PAGE>
and in the coin or currency, herein prescribed. This Debenture is a direct
obligation of the Company. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms set forth herein. The Company
may only voluntarily prepay the outstanding principal amount on the Debentures
in accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. 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 hereby irrevocably submits 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. The Company 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 instrument 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 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
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(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 FOLLOWS]
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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.
EUROTECH, LTD.
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the above Debenture into shares of
Common Stock, $.00025 par value per share (the "Common Stock"), of EUROTECH,
LTD. (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
<PAGE>
EXHIBIT B
EUROTECH, LTD.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of EUROTECH, LTD. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture into shares of Common Stock, par value
$.00025 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations: __________________________________________________
Date to Effect Conversion
__________________________________________________
Principal Amount of Debentures to be Converted
__________________________________________________
Applicable Conversion Price
__________________________________________________
Amount of Interest due on the Principal Amount of
Debentures to be Converted
__________________________________________________
Number of Shares of Common Stock
outstanding at close of trading
on Conversion Date
__________________________________________________
Signature
__________________________________________________
Name:
__________________________________________________
Address:
