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As filed with the Securities and Exchange Commission on February 23, 2000
Registration No. _________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PREMIER LASER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0472684
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
3 MORGAN
IRVINE, CALIFORNIA 92618
(949) 859-0656
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ROBERT V. MAHONEY WITH COPIES TO:
CHIEF FINANCIAL OFFICER THOMAS G. BROCKINGTON, ESQ.
PREMIER LASER SYSTEMS, INC. ALISON M. BARBAROSH, ESQ.
3 MORGAN RUTAN & TUCKER, LLP
IRVINE, CALIFORNIA 92618 611 ANTON BOULEVARD, 14TH FLOOR
(949) 859-0656 COSTA MESA, CALIFORNIA 92626
(Name, address, including zip code, and telephone (714) 641-5100
number, including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
==================================== ==================== ================== ==================== ================
Proposed Proposed Maximum
Title of Each Class of Securities Amount to be Maximum Offering Aggregate Offering Amount of
to be Registered Registered(1) Price Per Share(2) Price(2) Registration Fee
- ------------------------------------ -------------------- ------------------ -------------------- ----------------
<S> <C> <C> <C> <C>
Class A Common Stock, no par value 2,953,850 shares(3) $1.12 $3,300,041.20 $871.21
==================================== ==================== ================== ==================== ================
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(1) In the event of a stock split, stock dividend or similar transaction
involving Premier's common stock, in order to prevent dilution, the number
of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act
of 1933, as amended.
(2) The aggregate offering price of shares of Premier's common stock is
estimated solely for purposes of calculating the registration fee payable
pursuant hereto, as determined in accordance with Rule 457(c) as of
February 18, 2000.
(3) Represents shares of common stock issuable following conversion of
presently outstanding convertible debentures held by the registered
security holders.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
PREMIER LASER SYSTEMS, INC.
3 MORGAN
IRVINE, CALIFORNIA 92618
(949) 859-0656
2,953,850 shares of (no par value) common stock
The securityholders listed in this Prospectus under the section
"Registered Securityholders" may offer and sell a total of 2,953,850 shares of
our company's common stock, no par value, which shares are issuable upon
conversion of convertible debentures (the "Debentures") previously issued to
such securityholders. This Prospectus has been prepared for the purposes of
registering the shares under the Securities Act of 1933, as amended (the
"Securities Act"), and to allow the Registered Securityholders to make future
sales to the public without restriction. To our knowledge, the Registered
Securityholders have made no arrangement with any brokerage firm for the sale of
the shares.
The Registered Securityholders may sell their shares of common stock
described in this Prospectus for their own benefit in public or private
transactions, on or off the Nasdaq National Market, at prevailing market prices,
or at privately negotiated prices. The Registered Securityholders may sell the
shares directly to purchasers or through brokers or dealers. Brokers or dealers
may receive compensation in the form of discounts, concessions or commissions
from the Registered Securityholders. The compensation to a particular
underwriter, broker-dealer or agent may be in excess of customary commissions.
The Registered Securityholders will pay all commissions, transfer taxes and
other expenses associated with their sales of the shares. We will pay the
expenses of the preparation of this Prospectus. We have also agreed to indemnify
certain Registered Securityholders against certain liabilities, including,
without limitation, liabilities arising under the Securities Act. We will not
receive any of the proceeds from the Registered Securityholders' sales of the
shares. In addition to sales under this Prospectus, the Registered
Securityholders may also engage in other sales of shares under Rule 144 or other
exempt resale transactions. There can be no assurance that any or all of the
Registered Securityholders will sell any or all of the shares offered pursuant
this Prospectus. More information is provided in the section titled "Plan of
Distribution."
Our common stock is listed on the Nasdaq National Market under the
symbol "PLSIA." On February 18, 2000, the last reported sale price of our common
stock on the Nasdaq National Market was $1.03 per share.
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 2, FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY INVESTORS.
---------------
The information in this Prospectus is not complete and may be changed.
The securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is declared effective. This Prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is dated _______________, 2000.
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RISK FACTORS
Before you invest in our common stock, you should be aware that there
are various risks, including those described below. You should carefully
consider these risk factors, together with all the other information included in
this prospectus, before you decide whether to purchase shares of our common
stock.
THERE ARE RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS MADE BY US AND ACTUAL
RESULTS MAY DIFFER.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations
o contain projections of our future results of operations or of
our financial condition
o state other "forward-looking" information
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or over which we have no control. The risk factors listed in
this section, as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
prospectus could have a material adverse effect on our business, results of
operations and financial condition.
RISKS RELATED TO OUR BUSINESS
IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING IN THE FUTURE, WE WILL HAVE
SEVERE DIFFICULTIES FINANCING OUR BUSINESS.
In the future, we will require substantial additional funds for
operating expenses, research and development programs, preclinical and clinical
testing, development of our sales and distribution force, regulatory processes
and manufacturing and marketing programs. Our capital requirements may vary, and
will depend on both internal and external factors. Internal factors affecting
our capital requirements include:
O OUR ABILITY TO GENERATE PROFITS AND CASH FLOW FROM OPERATIONS
O THE PROGRESS OF RESEARCH AND DEVELOPMENT PROGRAMS
O RESULTS OF PRECLINICAL AND CLINICAL TESTING
O THE COST OF FILING, PROSECUTING, DEFENDING AND ENFORCING ANY
PATENT CLAIMS AND OTHER INTELLECTUAL PROPERTY RIGHTS
O DEVELOPMENTS AND CHANGES IN OUR EXISTING RESEARCH
O LICENSING AND OTHER RELATIONSHIPS
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O THE TERMS OF ANY NEW COLLABORATIVE, LICENSING AND OTHER
ARRANGEMENTS THAT WE MAY ESTABLISH
O THE AMOUNT OF LEGAL, ACCOUNTING AND ADMINISTRATIVE COSTS
INCURRED IN CONNECTION WITH PENDING LITIGATION
External factors affecting our capital requirements include:
O COMPETING TECHNOLOGICAL AND MARKET DEVELOPMENTS
O THE TIME AND COST INVOLVED IN OBTAINING REGULATORY APPROVALS
We are currently experiencing cash flow difficulties. We do not
currently have a credit facility. However, we are seeking additional sources of
financing, which may include short-term debt, long-term debt or equity. We will
be unable to fund our current operations unless we are successful in concluding
such a financing in the near term. If we are unsuccessful in obtaining such
financing in the near term, there is a risk that we will not have sufficient
cash to fund our operations and will be required to pursue restructuring
alternatives, including a possible restructuring through the provisions of the
Bankruptcy Code.
WE HAVE INCURRED NET LOSSES IN THE PAST AND EXPECT TO INCUR FUTURE LOSSES WHICH
MAY NEGATIVELY IMPACT OUR ABILITY TO SUSTAIN OUR OPERATIONS.
We incurred net losses of approximately $76,343,000 from April 1, 1995
through March 31, 1999, and approximately $30,841,000 for the year ended March
31, 1999. As of December 31, 1999, we had an accumulated deficit of
approximately $97,573,350. We expect to continue to incur net losses until
product sales generate sufficient revenues to fund our continuing operations. We
may fail to achieve significant revenues from sales or achieve or sustain
profitability. Our ability to achieve profitability in the future will depend in
part on our ability to continue to successfully develop clinical applications,
obtain regulatory approvals for our products and sell these products on a wide
scale. These risks apply to both our laser products and our ophthalmic
diagnostic products.
THE HIGH COST OF DENTAL LASERS, SAFETY AND EFFICACY CONCERNS OF DENTISTS AND
PATIENTS AND THE SUBSTANTIAL MARKET ACCEPTANCE OF DENTAL DRILLS MAY PREVENT US
FROM ACHIEVING THE BROAD MARKET ACCEPTANCE WHICH IS NECESSARY FOR OUR SUCCESS.
Our products may not be accepted by the medical or dental community or
by patients. We do not know if these products can be successfully commercialized
on a broad basis. The acceptance of dental lasers may be adversely affected by
their high cost, concerns by patients and dentists relating to their safety and
efficacy, and the substantial market acceptance and penetration of alternative
dental tools such as the dental drill. Our future sales and profitability depend
in part on our ability to demonstrate to dentists, ophthalmologists,
optometrists and other physicians the potential cost and performance advantages
of our laser systems, diagnostic products and other products over traditional
methods of treatment and over competitive products. Current economic pressure
may make doctors and dentists reluctant to purchase substantial capital
equipment or invest in new technology. We currently have a limited sales force
and will need to hire additional sales and marketing personnel to increase the
general acceptance of our products. Of all the factors impacting our
profitability, the failure of our products to achieve broad market acceptance
would have the greatest negative impact on our business, financial condition and
results of operations and our profitability.
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WE ARE INVOLVED IN PENDING LITIGATION AND A REGULATORY INVESTIGATION AND MAY BE
ADVERSELY AFFECTED BY AN ADVERSE OUTCOME IN THE LAWSUIT OR BY THE COSTS OF
DEFENDING THIS LAWSUIT.
We have been sued in a number of related securities class action
matters, generally relating to allegations of misrepresentations during the
period from May 7, 1997 to April 15, 1998. We have reached an agreement in
principle to settle this litigation and recorded an expense in the quarter ended
December 31, 1998, relating to this settlement. In the quarter ended March 31,
1999, we recorded an additional expenses of $250,000 to cover continuing legal
fees incurred in connection with this settlement. However, this settlement is
subject to several conditions, and it is possible that it may not be completed,
in which case the litigation would continue. An adverse judgment entered in this
litigation could materially and adversely affect our business and results of
operations.
In addition, the Securities and Exchange Commission has commenced an
investigation of our practices and procedures relating to revenue recognition
issues and related matters. The Securities and Exchange Commission has begun
taking depositions of past and present employees as well as our outside
accountants. The costs of our continuing defense of the litigation matters and
responses to the regulatory investigations, including accounting and legal fees
as well as management time and effort, will be substantial, and we expect these
costs to materially and adversely affect our results of operations until these
matters are resolved. We do not know when these matters will be resolved. In
addition, the Securities and Exchange Commission is empowered to assess
substantial penalties against us in connection with its findings in the pending
investigation. The imposition of any of these penalties could materially and
adversely affect our business, financial condition and results of operations.
IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE THE OPHTHALMIC IMAGING SYSTEMS
("OIS") BUSINESS WITH OUR OTHER OPERATIONS, WE MAY INCUR SUBSTANTIAL AND
UNANTICIPATED EXPENSES AND OPERATING INEFFICIENCIES.
We acquired a majority of the outstanding common stock of OIS in 1998.
In March 1999, we agreed to manufacture OIS's products on an outsourcing basis.
In addition, we have agreed with OIS to acquire the remaining outstanding stock
of OIS, subject to satisfaction of certain conditions. We are not sure if the
synergies of the two entities will allow us to reduce expenses in such a way as
to make OIS profitable. In addition, members of our management will have to
continue to expend time and effort on new activities relating to the OIS
operations, which will detract from their time available to attend to our other
activities. We cannot assure you that the expenses or dislocations that we may
suffer as a result of the coordination of these businesses will not be material.
BECAUSE SOME OF THE COMPONENTS WE USE ARE NOT WIDELY AVAILABLE, THERE IS A RISK
THAT WE MAY NOT ALWAYS BE ABLE TO OBTAIN THESE COMPONENTS, WHICH COULD PREVENT
US FROM FILLING ORDERS ON TIME AND REDUCE OUR SALES.
We purchase some of the raw materials, components and subassemblies
included in our products from a limited group of qualified suppliers and do not
maintain long-term supply contracts with any of our key suppliers. Some of the
components used by OIS are manufactured by a sole vendor, including Foresight
Imaging for its prism card and Kodak for its 12 bit camera. In addition, our
Arago laser product is manufactured for us by one supplier, LaserMed, Inc.
Further, our components are subject to rapid innovation and obsolescence. The
discontinuance of the manufacturing of these components may require us to
redesign some of the hardware and software used in our products to accommodate a
replacement component. While we believe that suppliers could be found for all of
our components and products, we cannot assure you that any supplier could be
replaced in a timely manner. Any interruption in the supply of key components
could materially harm our ability to manufacture our products and our business,
financial condition and results of operations.
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IN ORDER TO CONTINUE TO SELL OUR PRODUCTS IN FOREIGN MARKETS, WE MUST DEVELOP
AND MAINTAIN FOREIGN SALES DISTRIBUTION CHANNELS AND MANAGE POLITICAL AND
ECONOMIC INSTABILITY IN FOREIGN MARKETS AND DEAL WITH GOVERNMENTAL QUOTAS AND
OTHER REGULATIONS.
A substantial portion of our sales are made in foreign markets. The
primary risks to which we are exposed due to our foreign sales are the
difficulty and expense of maintaining foreign sales distribution channels,
political and economic instability in foreign markets and governmental quotas
and other regulations.
The regulation of medical devices worldwide also continues to develop,
and it is possible that new laws or regulations could be enacted which would
have an adverse effect on our business. In addition, we may experience
additional difficulties in providing prompt and cost effective service of our
medical lasers in foreign countries. We do not carry insurance against these
risks. The occurrence of any one or more of these events may individually or in
the aggregate have a material adverse effect upon our business, financial
condition and results of operations.
IF WE CANNOT ADAPT TO TECHNOLOGICAL ADVANCES, OUR PRODUCTS MAY BECOME
TECHNOLOGICALLY OBSOLETE AND OUR PRODUCT SALES COULD SIGNIFICANTLY DECLINE.
The markets in which our medical products compete are subject to rapid
technological change as well as the potential development of alternative
surgical techniques or new pharmaceutical products. These changes could render
our products uncompetitive or obsolete. We will be required to invest in
research and development to attempt to maintain and enhance our existing
products and develop new products. We do not know if our research and
development efforts will result in the introduction of new products or product
improvements.
IF WE ARE UNABLE TO PROTECT OUR PATENTS AND PROPRIETARY TECHNOLOGY WE MAY NOT BE
ABLE TO COMPETE EFFECTIVELY.
Our success will depend in part on our ability to obtain patent
protection for products and processes, to preserve our trade secrets and to
operate without infringing the proprietary rights of third parties. While we
hold a number of U.S. and foreign patents and have other patent applications
pending in the United States and foreign countries, we cannot assure you that
any additional patents will be issued, that the scope of any patent protection
will exclude competitors or that any of our patents will be held valid if
subsequently challenged. Further, other companies may independently develop
similar products, duplicate our products or design products that circumvent our
patents. We are aware of certain patents which, along with other patents that
may exist or be granted in the future, could restrict our right to market some
of our technologies without a license, including, among others, patents relating
to our lens emulsification product and ophthalmic probes for the Er:YAG laser.
We also rely upon unpatented trade secrets, and we cannot assure you
that others will not independently develop or otherwise acquire substantially
equivalent trade secrets. In addition, at each balance sheet date, we are
required to review the value of our intangible assets based on various factors,
such as changes in technology. Any adjustment downward in the value of our
intangible assets may result in a write-off of the intangible asset and a
substantial charge to earnings, which would adversely affect our operating
results in the future.
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IN OUR BUSINESS, WE COULD BECOME INVOLVED IN PATENT AND INTELLECTUAL PROPERTY
LITIGATION, IN WHICH AN ADVERSE DETERMINATION COULD SUBJECT US TO SIGNIFICANT
LIABILITIES AND RESTRICT OUR MANUFACTURING RIGHTS.
In the past, we have received allegations that some of our laser and
diagnostic products infringe on other patents. There has been significant patent
litigation in the medical device industry. Adverse determinations in litigation
or other patent proceedings to which we may become a party could subject us to
significant legal judgments or other liabilities to third parties and could
require us to seek licenses from third parties that may or may not be
economically viable. We cannot assure you that any licenses required under these
or any other patents or proprietary rights would be available on terms
acceptable to us. If we do not obtain these licenses, we could encounter delays
in product introductions while we attempt to design around these patents, or we
could find that the development, manufacture or sale of products requiring such
licenses could be enjoined.
OUR BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATION WHICH IMPOSES SIGNIFICANT
COSTS ON US AND IF NOT COMPLIED WITH COULD LEAD TO THE ASSESSMENT OF PENALTIES.
Our products are regulated as medical devices by the United States Food
& Drug Administration. As such, these devices require either Section 510(k)
premarket clearance or approval of a premarket approval application by the FDA
prior to commercialization. Satisfaction of regulatory requirements is expensive
and may take several years to complete. We cannot assure you that further
clinical trials of our medical products or of any future products will be
successfully completed or, if they are completed, that any requisite FDA or
foreign governmental approvals will be obtained.
FDA or other governmental approvals of products we may develop in the
future may require substantial filing fees which could limit the number of
applications we seek and may entail limitations on the indicated uses for which
our products may be marketed. In addition, approved or cleared products may be
subject to additional testing and surveillance programs required by the FDA and
other regulatory agencies, and product approvals and clearances could be
withdrawn for failure to comply with regulatory standards or by the occurrence
of unforeseen problems following initial marketing. Also, we have made
modifications to some of our existing products which we do not believe require
the submission of a new 510(k) notification to the FDA. However, we cannot
assure you that the FDA would agree with our determination. If the FDA did not
agree with our determination, they could require us to cease marketing one or
more of the modified devices until the devices have been cleared.
We are also required to adhere to a wide variety of other regulations
governing the operation of our business. Noncompliance with state, local,
federal or foreign requirements can result in serious penalties that could harm
our business.
THE INTENSE COMPETITION WE FACE COULD RESULT IN REDUCED SALES AND DOWNWARD
PRESSURE ON THE PRICES OF OUR PRODUCTS.
We are, and will continue to be, subject to intense competition in our
targeted markets, principally from businesses providing other traditional
surgical and nonsurgical treatments, including existing and developing
technologies, and competitive products. Many of our competitors have
substantially greater financial, marketing and manufacturing resources and
experience than us. In addition, we expect that other companies will enter the
laser market, particularly as medical lasers gain increasing market acceptance.
Significant competitive factors which will affect future sales in the
marketplace include regulatory approvals, performance, pricing and general
market acceptance.
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The ophthalmic diagnostic market is also highly competitive. There are
many companies engaged in this market, some with significantly greater resources
than ours. Our competitors may be able to develop technologies, procedures or
products that are more effective or economical than ours, or that would render
our products obsolete or noncompetitive.
To continue to remain competitive, we must develop new software and
hardware meeting the needs of ophthalmologists and optometrists. Our future
revenues will depend, in part, on our ability to develop and commercialize these
new products as well as on the success of development and commercialization
efforts of our competitors.
A SUCCESSFUL PRODUCT LIABILITY CLAIM ASSERTED AGAINST US DUE TO A DEFECT IN ONE
OF OUR PRODUCTS IN EXCESS OF OUR INSURANCE COVERAGE WOULD HARM OUR BUSINESS.
The sale of our medical products involves the inherent risk of product
liability claims against us. We currently maintain product liability insurance
coverage in the amount of $5 million per occurrence and $5 million in the
aggregate, but this insurance is expensive, subject to various coverage
exclusions and may not be obtainable in the future on terms acceptable to us. We
do not know whether claims against us arising with respect to our products will
be successfully defended or that our insurance will be sufficient to cover
liabilities arising from these claims. A successful claim against us in excess
of our insurance coverage could materially harm our business.
THERE IS UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT WHICH IS CRITICAL TO
MARKET ACCEPTANCE OF OUR PRODUCTS.
Our laser systems and other products are generally purchased by
physicians, dentists and surgical centers which then bill various third party
payors, such as government programs and private insurance plans, for the
procedures conducted using these products. Third-party payors carefully review
and are increasingly challenging the prices charged for medical products and
services, and scrutinizing whether to cover new products and evaluating the
level of reimbursement for covered products. While we believe that the
procedures using our products have generally been reimbursed, payors may deny
coverage and reimbursement for our products if they determine that the device
was not reasonable and necessary for the purpose for which it was used, was
investigational or not cost-effective. As a result, we cannot assure you that
reimbursement from third party payors for these procedures will be available or
if available, that reimbursement will not be limited. If third party
reimbursement of these procedures is not available, it will be more difficult
for us to sell our products on a profitable basis. Moreover, we are unable to
predict what legislation or regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may be enacted in the future,
or what effect such legislation or regulation may have on us.
THE COVERAGE AND SPENDING LIMITATIONS CONTAINED IN HEALTH CARE REFORM PROPOSALS
WOULD, IF ADOPTED, REDUCE DEMAND FOR OUR PRODUCTS.
Several states and the United States government are investigating a
variety of alternatives to reform the health care delivery system and further
reduce and control health care spending. These reform efforts include proposals
to limit spending on health care items and services, limit coverage for new
technology and limit or control the price health care providers and drug and
device manufacturers may charge for their services and products. If adopted and
implemented, such reforms could have a material adverse effect on our business,
financial condition and results of operations.
IF WE EXPERIENCE PROBLEMS WITH YEAR 2000 COMPLIANCE OUR OPERATIONS MAY BE
DISRUPTED.
Many existing computer programs use only two digits to identify the
year in the date field. These programs were designed and developed without
considering the impact of the change from the 20th to the 21st century. As a
result, any computer programs that have time-sensitive software may recognize a
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date using "00" as the year 1900 rather than the year 2000. This could result in
system failure or miscalculations, causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities.
We are heavily dependent upon the proper functioning of our own
computer and data-dependent systems. This includes, but is not limited to, our
support/administrative and operational/production systems. No problems were
immediately experienced at January 1, 2000. However, any failure or
malfunctioning on the part of these or other systems could harm our business in
ways that we currently do not know and cannot discern, quantify or otherwise
anticipate. In addition, if our key vendors experience Year 2000 compliance
issues, then our business could be harmed. Due to the interrelated nature of
international commerce, if there is a failure in Year 2000 compliance by us or
one of our direct or indirect business partners, we could suffer major
disruptions in our ability to call on customers, obtain orders from customers,
obtain parts from suppliers, manufacture products for sale, ship products to our
customers, or receive payment for our sales.
We design, manufacture and sell medical products which contain computer
chips and we utilize software developed by other companies. We rely on external
business partners. As such, there can be no assurance that our business will not
be negatively affected by Year 2000 problems experienced by these business
partners.
RISKS RELATED TO THIS OFFERING
CHANGES IN REVENUE AND OPERATING RESULTS MAY CAUSE THE MARKET PRICE OF OUR STOCK
TO FLUCTUATE, WHICH MAY ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL
CAPITAL.
Due to the relatively high sales price of our products and low sales
unit volume, minor timing differences in receipt of customer orders have
produced and could continue to produce significant fluctuations in quarterly
results. In addition, if anticipated sales and shipments in any quarter do not
occur when expected, expenditures and inventory levels could be
disproportionately high, and our operating results for that quarter, and
potentially for future quarters, would be adversely affected. Quarterly results
may also fluctuate based on a variety of other factors. The important factors
which may cause our quarterly results to fluctuate are seasonality and
production delays. During the past four fiscal quarters, our net loss has
fluctuated from a low of $2.1 million to a high of $12.9 million. Such
fluctuations may cause our stock price to decline and adversely affect our
ability to raise additional capital.
THE VOLATILITY OF OUR STOCK PRICE MAKES THESE SECURITIES RISKY FOR THOSE SEEKING
A STABLE INVESTMENT.
The market price of our common stock is very volatile, and our common
stock therefore may not be a suitable investment for those who seek stable
investment prices over the short or long term. Our common stock was first
publicly traded in December 1994 and has had last reported closing sale prices
ranging from a low of $1.03 per share in February 2000 to a high of $14.00 per
share in May 1997. The market price of our common stock could continue to
fluctuate substantially due to a variety of risk factors, including those
described elsewhere in this prospectus. The market price for our common stock
may also be affected by our ability to meet analysts' expectations. Any failure
to meet these expectations, even slightly, could have an adverse effect on the
market price of our common stock. In addition, the market prices of securities
issued by many companies may change for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against the company. If similar litigation were
instituted against us, it could result in substantial costs and a diversion of
our management's attention and resources, which could have an adverse effect on
our business, results of operations and financial condition.
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A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR SALE, AND IF SOLD, THESE SHARES
MAY CREATE EXCESS SUPPLY IN THE MARKET CAUSING OUR STOCK PRICE TO DECLINE.
Sales of a substantial number of our shares of common stock in the
public market could adversely affect the market price for our common stock. At
this time, approximately 8.4 million shares of our common stock are issuable
upon the full exercise of our outstanding Class B Warrants, and over 7.4
million shares of our common stock are issuable upon exercise of other
outstanding warrants and options and conversion of outstanding debentures. The
existence of these outstanding warrants and options could adversely affect our
ability to obtain future financing. We have also reserved 2,250,000 shares of
our common stock for issuance in connection with the proposed settlement of
outstanding litigation. The consummation of this settlement will require
satisfaction of a number of conditions, and we cannot assure you that the
settlement will be completed.
The price which we may receive for our common stock issued upon
exercise of outstanding options and warrants will likely be less than the market
price of our common stock at the time these options and warrants are exercised.
Moreover, the holders of the options and warrants might be expected to exercise
them at a time when we would, in all likelihood, be able to obtain needed
capital by a new offering of our securities on terms more favorable than those
provided for by the options and warrants.
OUR PREFERRED STOCK MAY DELAY OR PREVENT A TAKEOVER OF OUR COMPANY POSSIBLY
PREVENTING YOU FROM OBTAINING HIGHER SHARE PRICES.
Our articles of incorporation authorize the issuance of 8,850,000
shares of "blank check" preferred stock, which will have terms as may be
determined from time to time by the board of directors. Accordingly, the board
of directors is empowered, without shareholder approval, to issue preferred
stock with terms which could adversely affect the rights of the holders of the
common stock. The preferred stock could also be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of Premier. This could have the effect of preventing others from seeking
to acquire your shares in transactions at premium prices.
In March 1998, we adopted a Shareholder Rights Plan, which entitles
certain of our shareholders to purchase our Series A Junior Participating
Preferred Stock. These rights are not exercisable until the acquisition by a
person or affiliated group of 15% or more of the outstanding shares of our
common stock, or the commencement or announcement of a tender offer or exchange
offer which would result in the acquisition of 15% or more of our outstanding
shares. Upon request, we will provide you with a copy of the Shareholder Rights
Plan. The Shareholder Rights Plan may have the effect of discouraging, delaying
or preventing a change of control of Premier.
SHORT SELLING OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
If a significant number of shares of common stock which are issued upon
conversion of the debentures and payment of interest thereon are then sold in
the market, the price of our common stock could be depressed due to the presence
of these additional shares in the market. This downward pressure could encourage
short sales of common stock by the selling shareholders or others. By increasing
the number of shares offered for sale, material amounts of short selling could
place further downward pressure on the market price of the common stock.
-9-
<PAGE>
ABOUT THIS PROSPECTUS
This Prospectus is part of a Registration Statement we filed with the
Securities and Exchange Commission (the "SEC"). You should rely only on the
information incorporated by reference or provided in this Prospectus. We have
not authorized anyone else to provide you with different information. The
Registered Securityholders will not make an offer of the shares in any state
where the offer is not permitted. You should not assume that the information in
this Prospectus is accurate as of any date other than the date on the front of
the document.
USE OF PROCEEDS
The Registered Securityholders will directly receive the proceeds from
the sale of the shares. We will not receive any proceeds from the sale of the
shares offered by this Prospectus.
DILUTION
The following discussion and table treats our Class A Common Stock,
Class E-1 Common Stock and Class E-2 Common Stock as a single class.
As of December 31, 1999, we had a net tangible book value (deficit) of
$(2,816,020), or $(.14) per share of common stock. Net tangible book value per
share represents the amount of total tangible assets less the amount of our
total liabilities, divided by the number of shares of common stock outstanding.
After giving effect to the issuance and conversion of the debentures and
exercise of the warrants, our adjusted pro forma net tangible book value as of
December 31, 1999 would have been $994,412, or $.04 per share of common stock.
This amount represents an immediate increase in pro forma net tangible book
value of $.18 per share to our existing shareholders and an immediate dilution
to the persons converting the debentures and exercising the warrants of
approximately $1.25 per share. Dilution is determined by subtracting pro forma
net tangible book value per share of common stock after this offering from the
price paid by new investors for a share of our common stock. The following table
illustrates this dilution on a per share basis and assume that all of the
warrants will be exercised:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assumed average price per share(1)..........................................................................$1.29
Net tangible book value (deficit) per share before exercise.......................$(.14)
Increase per share attributable to the conversion of the debentures and
exercise of the warrants.........................................................$.18
Pro forma net tangible book value per share after conversion and exercise....................................$.04
Dilution....................................................................................................$1.25
======
</TABLE>
- -----------
(1) The debentures are convertible into common stock based on the closing sale
price of the common stock on the day the debenture is converted.
Accordingly, the conversion price for the debentures will fluctuate on a
daily basis. For purposes of this dilution table, we have assumed a
conversion price of $1.50 per share for $1,822,080 worth of outstanding
debentures and $1.15 for $2,000,000 worth of outstanding debentures. Based
on such assumed prices, the outstanding debentures would be convertible
into approximately 2,953,850 shares of common stock. The assumed average
price per share equals the total amount of the debentures, divided by this
assumed number of shares into which the debentures would have been
convertible.
-10-
<PAGE>
REGISTERED SECURITYHOLDERS
The following table sets forth certain information as of February 18,
1999, with respect to each Registered Securityholder . The securities registered
under the Registration Statement of which this Prospectus is a part include
securities issuable upon the conversion of convertible debentures. The holders
of such debentures are entitled to determine whether and when to convert such
debentures, except that under certain conditions we may require certain of the
Registered Securityholders to convert the debentures into common stock, in
accordance with their terms. We will not receive any of the proceeds from the
sale of the shares by the Registered Securityholders. None of the Registered
Securityholders will beneficially own more than 1% of our outstanding shares
after the sale of the securities offered hereby.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES BEING OFFERED PURSUANT NUMBER OF SHARES
NAME OF REGISTERED BENEFICIALLY OWNED TO THIS BENEFICIALLY
SHAREHOLDER PRIOR TO THIS OFFERING(1) Prospectus(1) OWNED AFTER OFFERING(2)
- ------------------- ------------------------- ---------------------- -----------------------
<S> <C> <C> <C>
B & W Tek Inc. 15,586 15,586 0
Benedikt J. Jean 106,667 106,667 0
Dominick & Dominick 23,333 23,333 0
Eddy Philippe & Assoc. 14,320 14,320 0
Herkimer LLC 1,541,372 1,541,372 0
Herzfeld & Rubin P.C. 106,667 106,667 0
Hughes & Luce LLP 57,648 57,648 0
Indus Instruments 66,667 66,667 0
Innovative Optics 11,485 11,485 0
Kaiser Systems, Inc. 351,480 351,480 0
Laser Med, Inc. 20,600 20,600 0
Michael Cohen 10,000 10,000 0
Mister Packaging 6,580 6,580 0
MRS Services 11,503 11,503 0
Neil A. Haworth Co. 13,500 13,500 0
Oak Products 52,973 52,973 0
R&K Computers 24,771 24,771 0
Ripley Woodbury Marketing
Communications 52,667 52,667 0
Rocky Mountain 50,000 50,000 0
Saphikon 22,429 22,429 0
Sarver & Associates 50,000 50,000 0
Strong River Investments, Inc. 197,758 197,758 0
Thomas Bende, PhD 100,000 100,000 0
Visual Dimensions 7,533 7,533 0
White Zuckerman 38,311 38,311 0
</TABLE>
- -----------------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. All of the securities being registered consist of shares of
Class A Common Stock. The number of shares of common stock issuable upon
conversion of the debentures is calculated by dividing the amount of the
debenture by the closing sale price of the common stock on the day the
debenture is converted. For purposes of this Prospectus and the
-11-
<PAGE>
Registration Statement, we have assumed a closing sale price of $1.50 per
share for an aggregate of $1,822,080 worth of convertible debentures, and
$1.15 for an aggregate of $2,000,000 worth of convertible debentures
issued to Strong River Investments, Inc. and Herkimer LLC. For each of the
Registered Securityholders, the number of shares of common stock
beneficially owned and being offered under the Prospectus represents the
number of shares of our common stock issuable upon conversion of
convertible debentures within 60 days.
(2) Assumes that all of the shares are sold pursuant to this Prospectus.
Other than broker discounts and commissions, if any, we have agreed to
pay the expenses in connection with this Prospectus.
-12-
<PAGE>
PLAN OF DISTRIBUTION
The Registered Securityholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of our common stock on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Registered Securityholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker- dealer solicits purchasers
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account
o an exchange distribution in accordance with the rules of the
applicable exchange
o privately negotiated transactions
o short sales
o broker-dealers may agree with the selling shareholders to sell
a specified number of shares at a stipulated price per share
o a combination of any of these methods of sale
o any other method permitted by applicable law
The Registered Securityholders may also sell shares under Rule 144
under the Securities Act, if available, rather than under this Prospectus.
The Registered Securityholders may also engage in short sales against
the box, puts and calls and other transactions in our securities or derivatives
of our securities and may sell or deliver shares in connection with these
trades. The Registered Securityholders may pledge their shares to their brokers
under the margin provisions of customer agreements. If a Registered
Securityholder defaults on a margin loan, the broker may, from time to time,
offer and sell the pledged shares.
Broker-dealers engaged by the Registered Securityholders may arrange
for other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Registered Securityholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The Registered Securityholders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.
The Registered Securityholders and any broker-dealers or agents that
are involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with these sales. In such event, any
commissions received by these broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares. We have agreed to indemnify the certain Registered
Securityholders against specified losses, claims, damages and liabilities,
including liabilities under the Securities Act.
-13-
<PAGE>
Total expenses incurred in connection with the preparation of this
Prospectus, consisting primarily of legal, accounting, and filing fees, are
estimated to be approximately $11,471.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless the shares have been registered or qualified for
sale in these states or an exemption from registration or qualification is
available and complied with.
DESCRIPTION OF CONVERTIBLE DEBENTURES
The securities being offered by the Registered Securityholders consist
of shares of our Class A Common Stock which are issuable upon the conversion of
convertible debentures. We are not required to pay interest on the principal sum
of the debentures.
The debentures are convertible, at the option of the holder, into
shares of our Class A Common Stock from time to time after the date they were
issued. Debentures in the principal amount of $2,000,000 provide that they are
not convertible until after March 17, 2000. Under certain circumstances, we may
require the Registered Securityholders to convert their debentures into shares
of common stock. The number of shares of our common stock issuable upon
conversion is determined by dividing the outstanding principal amount of the
debenture to be converted by the closing sale price of the common stock on the
date the conversion is to be effective, which date may not be prior to the date
the notice of conversion is deemed to have been delivered to us under the terms
of the debenture agreement. However, under certain circumstances the conversion
price may not be less than $1.50 (or $1.15 for debentures issued to Strong River
Investments, Inc. and Herkimer LLC). Notwithstanding the foregoing, we may not
issue upon conversion a number of shares that exceeds 19.999% of the number of
shares of common stock outstanding immediately prior to the issuance of the
debenture, unless the common stock is then listed for trading on the Nasdaq or
the Nasdaq SmallCap Market and we have obtained shareholder approval for such
issuance.
Since the number of shares of common stock issuable upon conversion of
the debentures is dependent in part upon the market price of the common stock
prior to the conversion, the actual number of shares of common stock that will
then be issued in respect of such conversions and, consequently, offered for
sale pursuant to this Prospectus, cannot be determined at this time. Therefore,
for purposes of this Prospectus, we have assumed a conversion rate of $1.50 per
share for an aggregate of $1,822,080 worth of convertible debentures, and $1.15
per share for an aggregate of $2,000,000 worth of convertible debentures issued
to Strong River Investments, Inc. and Herkimer LLC. Therefore, based upon an
aggregate principal amount of the debentures of $3,822,080, we are registering
an aggregate of 2,953,850 shares of our common stock.
Certain of the Registered Securityholders has agreed to a maximum value
of shares of common stock that such Registered Securityholder may sell in any
calendar month. The limitation agreed to by the Registered Securityholders
varies among them.
LEGAL MATTERS
The validity of the shares offered pursuant to this Prospectus will be
passed upon for us by Rutan & Tucker, LLP, Costa Mesa, California. As of
February 18, 2000, Rutan & Tucker, LLP held convertible debentures issued by
Premier in the aggregate amount of approximately $131,000. Based upon an assumed
closing sale price of our common stock of $1.50 per share, such debentures would
be convertible into approximately 87,333 shares of our common stock, and Rutan &
Tucker, LLP would be deemed to beneficially own approximately 87,333 shares of
our common stock.
-14-
<PAGE>
EXPERTS
The consolidated financial statements and related consolidated
financial statement schedule, incorporated in this Prospectus by reference from
our Annual Report on Form 10-K for the year ended March 31, 1999, as amended,
have been audited by Haskell & White LLP, independent auditors, as stated in
their report, which is incorporated in this Prospectus by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
RECENT DEVELOPMENTS
Effective November 19, 1999, we appointed Michael J. Quinn as our new
President and Chief Executive Officer.
Effective December 13, 1999, Tom Hazen is no longer an officer or
employee of our company.
On January 5, 2000, we issued a press release announcing that our board
of directors removed Colette Cozean as chief technology officer.
On January 18, 2000, we announced that our board of directors appointed
Michael J. Quinn to our board of directors. In addition, we announced that
Colette Cozean had resigned from the board of directors, and Patrick Day and G.
Lynn Powell retired from the board of directors.
Due to our cash position as of February 15, 2000, we temporarily laid
off 54 of our 80 employees pending a determination of whether we will be able to
obtain additional funding.
On February 18, 2000, we announced that digital equipment manufacturer
Ophthalmic Imaging Systems terminated their planned merger agreement.
WHERE YOU CAN FIND MORE INFORMATION
We are a public company. We file annual, quarterly and special reports,
proxy statements and other information with the SEC. Our SEC filings are
available to the public over the Internet at the SEC's website at
http://www.sec.gov. You may also read and copy any document we file with the SEC
at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Midwest Regional Offices at 500 West Madison Street,
Chicago, Illinois 60606 and Northeast Regional Office at 7 World Trade Center,
New York, New York 10048. You can also obtain copies of such material at
prescribed rates from the Public Reference Section of the SEC at its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public references
facilities.
Our common stock is traded on the Nasdaq National Market under the
symbol "PLSIA." You may inspect reports, proxy statements and other information
concerning us at the National Association of Securities Dealers, Inc., at 1735 K
Street, N.W., Washington D.C. 2006.
-15-
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this Prospectus and information that we file subsequently
with the SEC will automatically update this Prospectus. We incorporate by
reference the documents listed below:
o Annual Report on Form 10-K for the fiscal year ended March 31,
1999, as filed with the SEC on June 29, 1999 pursuant to the
Securities Exchange Act of 1934, as amended, and amended by
Form 10-K/A filed with the SEC on October 12, 1999, and by
Form 10-K/A filed with the SEC on February 22, 2000.
o Quarterly Report on Form 10-Q for the quarter ended December
31, 1999, as filed with the SEC on February 14, 2000.
o Quarterly Report on Form 10-Q for the quarter ended September
30, 1999, as filed with the SEC on November 15, 1999.
o Quarterly Report on Form 10-Q for the quarter ended June 30,
1999, as filed with the SEC on August 16, 1999, as amended by
Form 10-Q/A filed with the SEC on October 12, 1999.
o Current Report on Form 8-K, as filed with the SEC on November
30, 1999.
o Current Report on Form 8-K, as filed with the SEC on November
5, 1999.
o Current Report on Form 8-K, as filed with the SEC on June 1,
1999.
o The description of our common stock contained in our
Registration Statement on Form 8-A filed under the Securities
Exchange Act of 1934, as amended, on December 7, 1994, as
amended January 30, 1995, together with any amendment or
report filed to amend or update such description.
o All other reports filed by us pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended,
since the end of our fiscal year ended March 31, 1999.
We also incorporate by this reference any future filings we make with
the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended. Documents filed with the SEC after the date of
this Prospectus are made a part of this Prospectus as of the date such documents
are filed with the SEC.
Any statement in a document incorporated or deemed to be incorporated
by reference in this Prospectus is deemed to be modified or superseded to the
extent that a statement contained in this Prospectus, or in any other document
we subsequently file with the SEC, modifies or supersedes such statement. If any
statement is so modified or superseded, it does not constitute a part of this
Prospectus, except as so modified or superseded.
-16-
<PAGE>
You may request a copy of the documents incorporated by reference in
this Prospectus, other than exhibits to such documents, at no cost, by writing
to or telephoning us at the following address:
Premier Laser Systems, Inc.
Attention: Robert V. Mahoney, Chief Financial Officer
3 Morgan
Irvine, California 92618
(949) 859-0656
-17-
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California General Corporations Law provides that California
corporations may include provisions in their articles of incorporation relieving
directors of monetary liability for breach of their fiduciary duty as directors,
except for the liability of a director resulting from (i) any transaction from
which the director derives an improper personal benefit, (ii) acts or omissions
involving intentional misconduct or a knowing and culpable violation of law,
(iii) acts or omissions that a director believes to be contrary to the best
interests of the registrant or its shareholders or that involves the absence of
good faith on the part of the director, (iv) acts or omissions constituting an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the registrant or its shareholders, (v) acts or omissions showing a
reckless disregard for the director's duty to the registrant or its shareholders
in circumstances in which the director was aware or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to the registrant or its shareholders, (vi) any improper transaction
between a director and the registrant in which the director has a material
financial interest, or (vii) the making of an illegal distribution to
shareholders or an illegal loan or guaranty. Our Articles of Incorporation
provide that our directors are not liable to us or our shareholders for monetary
damages for breach of their fiduciary duties to the fullest extent permitted by
California law.
The inclusion of the above provision in the Articles of Incorporation
may have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefitted us and our shareholders.
Our Articles of Incorporation and bylaws provide that we will indemnify
our directors and officers to the fullest extent permitted by California law,
including circumstances in which indemnification is otherwise discretionary
under California law. Since the California statute is nonexclusive, it is
possible that certain claims beyond the scope of the statute may be
indemnifiable. Accordingly, we have also entered into an indemnification
agreement (the "Indemnification Agreement") with certain of our directors and
officers that requires us to indemnify such directors and officers to the
fullest extent permitted by law.
Set forth below is a description of the principal provisions of the
Indemnification Agreement:
First, the Indemnification Agreement imposes upon us the burden of
proving that the indemnified party has not met the applicable standard of
conduct required for indemnification. The California statute requires a finding
by the Board of Directors, independent legal counsel, or the shareholders that
the applicable standard of conduct has been met.
Second, the Indemnification Agreement provides that litigation expenses
shall be advanced to an indemnified party at his request, against an undertaking
to repay the amount advanced if it is ultimately determined that he is not
entitled to indemnification for such expenses. The California statute provides
that such expenses may be advanced against such an undertaking, upon
authorization by the Board of Directors.
Third, in the event we do not pay a requested indemnification amount,
the Indemnification Agreement allows such indemnified party to contest this
determination by petitioning a court to make an independent determination of
whether such indemnified party is entitled to indemnification under the
Indemnification Agreement. The California statute does not set forth the
procedure for contesting a corporation's determination of a party's right to
indemnification.
-18-
<PAGE>
Finally, the Indemnification Agreement explicitly provides that actions
by an Indemnified Party at our request as a director, officer or agent of an
employee benefit plan, corporation, partnership, joint venture or other
enterprise owned or controlled by us shall be covered by the indemnification.
The California statute does not specifically address this issue. It does,
however, provide that to the extent that an indemnified party has been
successful on the merits, he shall be entitled to such indemnification.
We are currently engaged in class action litigation in which certain
current and former directors are seeking indemnification, and for which we have
agreed to provide indemnification.
We are also empowered under our bylaws to purchase insurance on behalf
of any person we are required or permitted to indemnify.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons pursuant to
the foregoing provisions, or otherwise, Premier has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
-19-
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations in connection with the offering
described in this Prospectus other than those contained in this Prospectus, and,
if given or made, such information or representations must not be relied upon as
having been authorized by Premier or any of the Registered Securityholders. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy, nor shall there be any sale of these securities by any person in any
jurisdiction in which such an offer, solicitation or sale would be unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of Premier since the date of this Prospectus or that the information
contained in this Prospectus is correct as of any time subsequent to the date of
this Prospectus.
-------------------------
TABLE OF CONTENTS
PAGE
----
Risk Factors...................................... 2
About this Prospectus............................. 10
Use of Proceeds................................... 10
Dilution.......................................... 10
Registered Securityholders........................ 11
Plan of Distribution.............................. 13
Description of Convertible Debentures............. 14
Legal Matters..................................... 15
Experts........................................... 15
Recent Developments............................... 15
Where You Can Find More Information............... 15
Incorporation of Certain Documents
by Reference................................... 17
Indemnification of Directors and Officers......... 19
--------------------
2,953,850 Shares
PREMIER LASER SYSTEMS, INC.
COMMON STOCK
------------------
PROSPECTUS
-------------------
FEBRUARY __, 2000
-20-
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the Offering described in this Registration Statement:
SEC registration fee....................................871
Printing and engraving expenses.......................1,000
Legal fees and expenses...............................5,000
Blue Sky fees and expenses..............................100
Accounting fees and expenses..........................3,500
Miscellaneous.........................................1,000
Total.............................$11,471
========
All of the above expenses will be paid by Premier.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California General Corporations Law provides that California
corporations may include provisions in their articles of incorporation relieving
directors of monetary liability for breach of their fiduciary duty as directors,
except for the liability of a director resulting from (i) any transaction from
which the director derives an improper personal benefit, (ii) acts or omissions
involving intentional misconduct or a knowing and culpable violation of law,
(iii) acts or omissions that a director believes to be contrary to the best
interests of the Registrant or its shareholders or that involves the absence of
good faith on the part of the director, (iv) acts or omissions constituting an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Registrant or its shareholders, (v) acts or omissions showing a
reckless disregard for the director's duty to the Registrant or its shareholders
in circumstances in which the director was aware or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to the Registrant or its shareholders, (vi) any improper transaction
between a director and the Registrant in which the director has a material
financial interest, or (vii) the making of an illegal distribution to
shareholders or an illegal loan or guaranty. The Registrant's Articles of
Incorporation provide that the Registrant's directors are not liable to the
Registrant or its shareholders for monetary damages for breach of their
fiduciary duties to the fullest extent permitted by California law.
The inclusion of the above provision in the Articles of Incorporation
may have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefitted the Registrant and its
shareholders.
The Registrant's Articles of Incorporation and bylaws provide that the
Registrant shall indemnify its directors and officers to the fullest extent
permitted by California law, including circumstances in which indemnification is
otherwise discretionary under California law. Since the California statute is
nonexclusive, it is possible that certain claims beyond the scope of the statute
may be indemnifiable. Accordingly, the Registrant has also entered into an
indemnification agreement (the "Indemnification Agreement") with certain of its
directors and officers that requires the Registrant to indemnify such directors
and officers to the fullest extent permitted by law.
Set forth below is a description of the principal provisions of the
Indemnification Agreement:
II-1
<PAGE>
First, the Indemnification Agreement imposes upon the Registrant the
burden of proving that the indemnified party has not met the applicable standard
of conduct required for indemnification. The California statute requires a
finding by the Board of Directors, independent legal counsel, or the
shareholders that the applicable standard of conduct has been met.
Second, the Indemnification Agreement provides that litigation expenses
shall be advanced to an indemnified party at his request, against an undertaking
to repay the amount advanced if it is ultimately determined that he is not
entitled to indemnification for such expenses. The California statute provides
that such expenses may be advanced against such an undertaking, upon
authorization by the Board of Directors.
Third, in the event the Registrant does not pay a requested
indemnification amount, the Indemnification Agreement allows such indemnified
party to contest this determination by petitioning a court to make an
independent determination of whether such indemnified party is entitled to
indemnification under the Indemnification Agreement. The California statute does
not set forth the procedure for contesting a corporation's determination of a
party's right to indemnification.
Finally, the Indemnification Agreement explicitly provides that actions
by an Indemnified Party at the request of the Registrant as a director, officer
or agent of an employee benefit plan, corporation, partnership, joint venture or
other enterprise owned or controlled by the Registrant shall be covered by the
indemnification. The California statute does not specifically address this
issue. It does, however, provide that to the extent that an indemnified party
has been successful on the merits, he shall be entitled to such indemnification.
We are currently engaged in class action litigation in which certain
current and former directors are seeking indemnification, and for which we have
agreed to provide indemnification.
The Registrant is also empowered under its bylaws to purchase insurance
on behalf of any person it is required or permitted to indemnify.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable.
II-2
<PAGE>
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
4.1 Form of Secured Convertible Debenture issued to each
Securityholer*
5 Opinion of Rutan & Tucker, LLP*
10.1 Form of Secured Convertible Debenture Purchase Agreement
with each Securityholder*
23.1 Consent of Haskell & White LLP*
23.2 Consent of Rutan & Tucker, LLP (included in Exhibit 5)*
- ------------------------
* Filed herewith
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total value of securities offered would not exceed
that which was registered) and any deviation from the
low or high end of the estimated maximum offering
range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price present no
more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the Registrant pursuant to Section 13 or Section 15(d) of the Securities of
1934, as amended, that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
of 1934, as amended (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial BONA FIDE offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities of 1934, as
amended; and, where interim financial information requires to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on February 22, 2000.
PREMIER LASER SYSTEMS, INC.
By: /S/ Michael J. Quinn
-------------------------------------
Michael J. Quinn, Chief Executive
Officer (Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael J. Quinn and Robert V. Mahoney,
jointly and severally, his attorneys-in-fact and agents, each with the power of
substitution and resubstitution, for him and in his name, place or stead, in any
and all capacities, to sign any amendment to this Registration Statement on Form
S-3, and to file such amendments, together with exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, granting to
each attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as he might or could do in person, and ratifying and
confirming all that the attorneys-in-fact and agents, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, including a
majority of the Board of Directors, in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Quinn Chief Executive Officer, February 22, 2000
- -------------------------------------------- President (Principal Executive
Michael J. Quinn Officer), Director
/s/ Robert V. Mahoney Executive Vice President, Finance February 22, 2000
- -------------------------------------------- and Chief Financial Officer
Robert V. Mahoney (Principal Financial and
Accounting Officer)
/s/ Frederic J. Feldman Chairman of the Board of February 22, 2000
- -------------------------------------------- Directors, Director
Frederic J. Feldman
/s/ John Hunkeler, M.D. Director February 22, 2000
- --------------------------------------------
John Hunkeler, M.D.
/s/ Lewis H. Stanton Director February 22, 2000
- --------------------------------------------
Lewis H. Stanton
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
-------- -----------
4.1 Form of Secured Convertible Debenture issued to each
Securityholder
5 Opinion of Rutan & Tucker, LLP
10.1 Form of Secured Convertible Debenture Purchase Agreement with
each Securityholder
23.1 Consent of Haskell & White LLP
23.2 Consent of Rutan & Tucker, LLP (included in Exhibit 5)
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 $[ ]
PREMIER LASER SYSTEMS, INC.
6% SECURED CONVERTIBLE DEBENTURE
DUE JANUARY 21, 2003
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of Premier Laser Systems, Inc., a California corporation, having a
principal place of business at 3 Morgan, Irvine, California 92618 (the
"COMPANY"), designated as its 6% Secured Convertible Debentures, due January 21,
2003, in the aggregate principal amount of $2,000,000 (the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to [ ], or its
registered assigns (the "HOLDER"), the principal sum of [ ] ($[ ]), on January
21, 2003 or such earlier date as the Debentures are required or permitted to be
repaid as provided hereunder (the "MATURITY DATE") and to pay interest to the
Holder on such principal sum at the rate of 6% per annum, payable on a quarterly
basis on March 31, June 30, September 30 and December 31 of each year while such
Debentures are outstanding (each an "INTEREST PAYMENT DATE") and on each
Conversion Date (as defined herein) for such principal amount, commencing on the
earlier to occur of a Conversion Date for such principal amount and March 31,
2000, in cash or shares of Common Stock (as defined in Section 7). Subject to
the terms and conditions herein, the decision whether to pay interest hereunder
in Common Stock or cash shall be at the discretion of the Company. Interest
shall accrue daily commencing on the Original Issue Date (as defined in Section
7) 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.
Any interest not paid on any Interest Payment Date shall continue to accrue and
shall be due and payable upon conversion of the Debentures. Interest hereunder
will be paid to the Person (as defined in Section 7) in whose name this
Debenture is registered on the records of the Company regarding registration and
transfers of Debentures (the "DEBENTURE REGISTER"). All overdue accrued and
unpaid interest shall entail a late fee at the rate of 15% per annum (or such
lower maximum amount of interest permitted to be charged under applicable law)
(to accrue daily, from the date such interest is due hereunder through and
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<PAGE>
including the date of payment), payable in cash. Not less than ten (10) Trading
Days (as defined in Section 7) prior to an Interest Payment Date, the Company
shall provide the Holder notice of its intention to pay interest in cash or
shares of Common Stock (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Failure to timely provide such notice shall be deemed an election by
the Company to pay the applicable interest in shares of Common Stock if
permitted pursuant to the terms hereof. If interest is paid in shares of Common
Stock, the number of shares of Common Stock issuable on account of such interest
shall equal the cash amount of such interest on such Interest Payment Date or
Conversion Date (as applicable) divided by the Conversion Price (as defined
below) on such date. Notwithstanding anything to contrary set forth herein, for
purposes of determining the number of shares of Common Stock that are issuable
as payment of interest hereunder, the Conversion Price shall not be subject to
any Floor to which the Conversion Price would otherwise be subject.
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) after the Interest Effectiveness Date (as defined in
Section 7) such shares (x) are not registered for resale pursuant to an
effective Underlying Shares Registration Statement (as defined in
Section 7) and (y) may not be sold without volume restrictions pursuant
to Rule 144(k) promulgated under the Securities Act (as defined in
Section 7), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent in
the form and substance acceptable to the applicable Holder and such
transfer agent (if the Company is permitted and elects to pay interest
in shares of Common Stock under this clause (ii) prior to the Interest
Effectiveness Date and thereafter an Underlying Shares Registration
Statement shall be declared effective by the Commission (as defined in
Section 7), the Company shall, within three (3) Trading Days after the
date of such declaration of effectiveness, exchange such shares for
shares of Common Stock that are free of restrictive legends of any
kind);
(iii) such shares are not listed or quoted on the Nasdaq
National Market ("NASDAQ") or on the New York Stock Exchange, American
Stock Exchange or the Nasdaq SmallCap Market (each, a "SUBSEQUENT
MARKET");
(iv) the Company has failed to timely satisfy its
conversion obligations hereunder;
or
(v) the issuance of such shares would result in a
violation of Section 4(a)(ii)(A).
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<PAGE>
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 7) 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 (as defined in Section 7) 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, any Debentures, free of any
claim of subordination except in accordance with a subordination
agreement executed by the Holder, as and when the same shall become due
and payable (whether on the applicable Interest Payment Date, a
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 any of, any Debenture, the Purchase Agreement, the
Registration Rights Agreement (as defined in Section 7) or either of
the Security Agreements (as defined in Section 7), 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 (for purposes of
this subsection (iii), "subsidiary" shall mean a subsidiary of the
Company representing 5% or more of the consolidated revenues of the
Company and its consolidated subsidiaries for the last fiscal year of
the Company prior to any of the events contemplated in this paragraph)
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
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<PAGE>
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, adjustment or restructuring of its debts; or
the Company or any subsidiary thereof shall by any act or failure to
act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the
Company or any 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,
factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness
for borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding 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 be either delisted from the NASDAQ
or suspended from trading on the NASDAQ without resuming trading and/or
being relisted thereon or on a Subsequent Market or having such
suspension lifted for five (5) consecutive Trading Days or eight (8)
Trading Days in the aggregate (which need not be consecutive days);
(vi) the Company shall be a party to any Change of Control
Transaction (as defined in Section 7), shall agree to sell or dispose
all or in excess of 50% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction), or shall redeem or repurchase more than a de minimis
number of shares of Common Stock or other equity securities of the
Company (other than redemptions of Underlying Shares (as defined in
Section 7));
(vii) an Underlying Shares Registration Statement shall not
have been declared effective by the Commission on or prior to the 30th
day after the Effectiveness Date (as defined in the Registration Rights
Agreement);
(viii) if, during the Effectiveness Period, the effectiveness
of the Underlying Shares Registration Statement lapses for any reason
or the Holder shall not be permitted to resell Registrable Securities
under the Underlying Shares Registration Statement, in either case, for
more than five (5) consecutive Trading Days or an aggregate of eight
(8) Trading Days (which need not be consecutive days);
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<PAGE>
(ix) 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 defined below) relating
thereto (other than an Event resulting from a failure of an Underlying
Shares Registration Statement to be declared effective by the
Commission on or prior to the Effectiveness Date, which shall be
covered by Section 3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the twelfth (12th) day after a
Conversion Date pursuant to and in accordance with Section 4(b) or the
Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests
for conversions of any Debentures in accordance with the terms hereof;
(xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In within seven (7) days after notice
is deemed delivered hereunder;
(xii) the Company shall issue in excess of an aggregate of
25,000 shares of Common Stock or shall issue Common Stock Equivalents
(as defined herein) entitling the holders thereof to acquire in excess
of an aggregate of 25,000 shares of Common Stock in connection with or
to any present or future lender or creditor of the Company or any
affiliate subsidiary thereof, provided, however, that notwithstanding
the foregoing the Company shall (without causing an Event of Default)
be permitted to exchange up to $3,500,000 of trade payables for
debentures convertible into shares of Common Stock;
(xiii) except for (a) the issuance of up to 2,250,000 shares
of Common Stock in settlement of the litigation described in Schedule
2.1(g) to the Purchase Agreement (less any shares issued from May 17,
1999 to the date of this Debenture) and (b) the payment of up to an
aggregate of $250,000 in cash, the Company shall agree to pay or settle
any litigation or action for an amount in stock or cash that exceeds
the insurance coverage for such litigation or action;
(xiv) the Company shall, without the consent of the Holders,
restructure any material portion of its present or future debt
obligations or payables (for purposes of this subsection, it is agreed
that solely extending the time for repayment of debt in any such
extensions whereby the aggregate annual rate of interest applicable to
such debt (inclusive of the consideration, if any, for such extension),
does not exceed the prime rate of interest then in effect as announced
by The Chase Manhattan Bank, N.A. plus 3% shall not constitute a
restructuring of debt); or
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<PAGE>
(xv) any of the Common Stock contemplated by clause (xiii) of
this Section 3 shall be registered under the Securities Act or have
registration rights (other than under Rule 144 promulgated under the
Securities Act).
(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 shall become, immediately
due and payable in cash. The aggregate amount payable upon an Event of Default
shall be equal to the sum of (i) the Mandatory Prepayment Amount (as defined in
Section 7) plus (ii) the product of (A) the number of Underlying Shares issued
in respect of conversions hereunder or as payment of interest hereunder, in
either case, within thirty (30) days of the date of a declaration of an Event of
Default and then held by the Holder and (B) the Per Share Market Value (as
defined in Section 7) on the date prepayment is due or the date the full
prepayment price is paid, whichever is greater. Interest shall accrue on the
prepayment amount hereunder from the seventh day after such amount is due (being
the date of an Event of Default) through the date of prepayment in full thereof
at the rate of 15% per annum. All Debentures and Underlying Shares for which the
full repayment price hereunder shall have been paid in accordance herewith shall
promptly, and in any event within two (2) Business Days, be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind, and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
SECTION 4. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER. 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 March 17, 2000 (subject to
the limitations on conversion set forth in Section 4(a)(ii) hereof). The number
of shares of Common Stock 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 (to the extent not
previously paid in cash), by the Conversion Price. 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 "CONVERSION NOTICE") to the Company. Each 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 "CONVERSION
DATE"). If no Conversion Date is specified in a Conversion Notice, the
Conversion Date shall be the date that such Conversion Notice is deemed
delivered hereunder. Subject to Section 4(b), each Conversion Notice, once
given, shall be irrevocable. If the Holder is converting less than all of the
principal amount represented by the Debenture(s) tendered by the Holder with the
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
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<PAGE>
(ii) CERTAIN CONVERSION RESTRICTIONS
(A)(1) A Holder may not convert Debentures or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 5) and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of interest on, the Debentures held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 4.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of
Debentures are convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of Debentures that, without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Company shall notify the Holder of this fact and
shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 4(b) and, at the option of the Holder, either retain any principal
amount tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
(2) A Holder may not convert Debentures or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, the Debentures held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the
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<PAGE>
restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of Debentures are convertible shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Conversion Notice for a
principal amount of Debentures that would result in the issuance of in excess of
the permitted amount hereunder, without regard to any other shares that the
Holder or its affiliates may beneficially own, the Company shall notify the
Holder of this fact and shall honor the conversion for the maximum principal
amount permitted to be converted on such Conversion Date in accordance with the
periods described in Section 4(b) and, at the option of the Holder, either
retain any principal amount tendered for conversion in excess of the permitted
amount hereunder for future conversions or return such excess principal amount
to the Holder. The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 61 days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.
(B) If the Common Stock is then listed for trading on the
NASDAQ or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not issue in
excess of 3,562,489 shares of Common Stock upon conversions of Debentures or as
payment of interest thereon in shares of Common Stock (such number of shares,
the "ISSUABLE MAXIMUM"). The Issuable Maximum equals 19.999% of the number of
shares of Common Stock outstanding immediately prior to the closing of
transactions set forth in the Purchase Agreement. If on any Conversion Date (A)
the Common Stock is listed for trading on the NASDAQ or the Nasdaq SmallCap
Market, (B) the Conversion Price then in effect is such that the aggregate
number of shares of Common Stock that would then be issuable upon conversion in
full of all then outstanding Debentures and as payment of interest thereon in
shares of Common Stock, together with any shares of Common Stock previously
issued upon conversion of Debentures and as payment of interest thereon, would
exceed the Issuable Maximum, and (C) the Company shall not have previously
obtained the vote of shareholders (the "SHAREHOLDER APPROVAL"), if any, as may
be required by the applicable rules and regulations of the Nasdaq Stock Market
(or any successor entity) applicable to approve the issuance of shares of Common
Stock in excess of the Issuable Maximum pursuant to the terms hereof, then the
Company shall issue to the Holder requesting a conversion a number of shares of
Common Stock equal to the Issuable Maximum and, with respect to the remainder of
the principal amount of Debentures then held by such Holder for which a
conversion in accordance with the Conversion Price would result in an issuance
of shares of Common Stock in excess of the Issuable Maximum (the "EXCESS
PRINCIPAL"), the converting Holder shall have the option to require the Company
to either (1) use its best efforts to obtain the Shareholder Approval applicable
to such issuance as soon as is possible, but in any event not later than the
75th day after such request, or (2) pay cash to the converting Holder in an
amount equal to the Mandatory Prepayment Amount for the Excess Principal. If the
converting Holder shall have elected the first option pursuant to the
immediately preceding sentence and the Company shall have failed to obtain the
Shareholder Approval on or prior to the 75th day after such request, then,
within three days of such 75th day, the Company shall pay to the converting
Holder a cash amount equal to the Mandatory Prepayment Amount for the Excess
Principal. If the Company fails to pay the Mandatory Prepayment Amount in full
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pursuant to this Section, the Company will pay interest thereon at a rate of 15%
per annum to the converting Holder, accruing daily from the Conversion Date
until such amount, plus all such interest thereon, is paid in full. In the event
there is more than one holder of Debentures, the Issuable Maximum to which each
Debenture holder will be entitled shall be determined pro rata by reference to
the percentage of the principal amount of the Debenture at issue and $2,000,000,
provided that if one or more Debentures shall have been redeemed or converted
without having been issued its pro rata allocated portion of the Issuable
Maximum such unissued shares shall be allocated pro rata to the remaining
Debenture Holders.
(b) (i) Not later than three (3) Trading Days after any
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 Common Stock being acquired upon the
conversion of Debentures (subject to the limitations set forth in Section
4(a)(ii) hereof), (ii) Debentures in a principal amount equal to the principal
amount of Debentures not converted, (iii) a bank check in the amount of accrued
and unpaid interest (if the Company has elected or is required to pay accrued
interest in cash), and (iv) if the Company has elected and is permitted
hereunder to pay accrued interest in shares of 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 shares
of Common Stock; PROVIDED, that the Company shall not be obligated to issue
certificates evidencing the shares of 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 Debentures have
been lost, stolen or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon request of the
Holder, if available, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions. If in the case of any
Conversion Notice such certificate or certificates, including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid interest hereunder, are not delivered to or as
directed by the applicable Holder by the third (3rd) Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the principal amount of
Debentures tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i), including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid interest hereunder, by the third (3rd) Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $5,000 for each Trading Day after such
third (3rd) Trading Day until such certificates are delivered. Nothing herein
shall limit a Holder's right to pursue actual damages for the Company's failure
to deliver certificates representing shares of Common Stock upon conversion
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within the period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
Further, if the Company shall not have delivered any cash due in respect of
conversions of Debentures or as payment of interest thereon by the third (3rd)
Trading Day after the Conversion Date, the Holder may, by notice to the Company,
require the Company to issue shares of Common Stock pursuant to Section 4(c),
except that for such purpose the Conversion Price applicable thereto shall be
the lesser of the Conversion Price on the Conversion Date and the Conversion
Price on the date of such Holder demand. Any such shares will be subject to the
provision of this Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid interest hereunder, by the third (3rd) Trading Day after the
Conversion Date, and if after such third (3rd) Trading Day the Holder purchases
(in an open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which the Holder
anticipated receiving upon such conversion (a "BUY-IN"), then the Company shall
(A) pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder anticipated receiving from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either reissue
Debentures in principal amount equal the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its delivery
requirements under Section 4(b)(i). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of Debentures with respect to which the market price of
the Underlying Shares on the date of conversion was a total of $10,000 under
clause (A) of the immediately preceding sentence, the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 4(b)(ii) in respect of the certificates resulting in such Buy-In.
(c) (i) The conversion price (the "CONVERSION PRICE")
in effect on any Conversion Date shall be the lesser of (1) the lesser of (I)
$1.80 and (II) the lowest exercise price of the Class B Warrants (as defined in
Section 7) from and after the Closing Date under the Purchase Agreement (if the
amount under this clause (II) shall have been decreased due to a decrease in the
exercise price of the Class B Warrants and thereafter such exercise price shall
be increased, the amount due under this clause (II) shall not be readjusted
upwards and shall remain the lower amount) (the lower such amount, the "INITIAL
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CONVERSION PRICE") and (2) 85% of the average of the three (3) lowest Per Share
Market Values during the twenty (20) Trading Days immediately preceding the
applicable Conversion Date (which Trading Days may include Trading Days prior to
the Original Issue Date), PROVIDED, that such twenty (20) Trading Day period
shall be extended for the number of Trading Days during such period in which (A)
trading in the Common Stock is suspended by the NASDAQ or a Subsequent Market on
which the Common Stock is then listed, or (B) after the date declared effective
by the Commission, the Underlying Shares Registration Statement is not
effective, or (C) after the date declared effective by the Commission, the
Prospectus included in the Underlying Shares Registration Statement may not be
used by the Holder for the resale of Underlying Shares. Notwithstanding the
foregoing, the Conversion Price shall not be less than 90% of the Floor (as
defined in Section 7) for so long as the Floor remains in effect in accordance
with Section 6; PROVIDED, that the Floor shall be subject to reduction due to
operation of this Section 4(c). If (a) an Underlying Shares Registration
Statement is not filed on or prior to the Filing Date (as defined under the
Registration Rights Agreement) (if the Company files such Underlying Shares
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 Exchange Act, within five
(5) days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that an Underlying Shares Registration
Statement will not be "reviewed," or not subject to further review, or (c) the
Underlying Shares Registration Statement is not declared effective by the
Commission on or prior to the Effectiveness Date, or (d) such Underlying Shares
Registration Statement is filed with and declared effective by the Commission
but thereafter ceases to be effective as to all Registrable Securities at any
time prior to the expiration of the Effectiveness Period (as defined in the
Registration Rights Agreement), without being succeeded within ten (10) days by
an amendment to such Underlying Shares Registration Statement or by a subsequent
Underlying Shares Registration Statement filed with and declared effective by
the Commission, or (e) the Common Stock shall be delisted or suspended from
trading on the NASDAQ or on any Subsequent Market for more than three (3)
Business Days (which need not be consecutive days), (f) the conversion rights of
the Holders are suspended for any reason (which shall not be triggered due to
the operation of the restrictions set forth in Section 4(a)(ii) hereof), or (g)
an amendment to the Underlying Shares 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 Shares
Registration Statement to be declared effective (any such failure or breach
being referred to as an "EVENT," and for purposes of clauses (a), (c), (f) the
date on which such Event occurs, or for purposes of clause (b) the date on which
such five (5) day period is exceeded, or for purposes of clauses (d) and (g) the
date which such 10 day-period is exceeded, or for purposes of clause (e) the
date on which such three (3) Business Day-period is exceeded, being referred to
as "EVENT DATE"), then, on the Event Date and on each monthly anniversary
thereof until such time as the applicable Event is cured, the Company shall pay
to the Holder 2.5% of the aggregate principal amount of the Debentures then
outstanding in cash, as liquidated damages and not as penalty. The provisions of
this Section are not exclusive and shall in no way limit the Company's
obligations under the Registration Rights Agreement.
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(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 Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Company, then the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any
Debentures are outstanding, shall issue rights, options or warrants (other than
the rights, options and warrants outstanding prior to the Original Issue Date
and specified in Schedule 2.1(c) to the Purchase Agreement but not any
modifications thereof) to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Per Share Market Value at the record date mentioned
below, then 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 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 (plus the
amounts payable on exercise of the corresponding options, warrants or rights)
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, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Initial Conversion Price
pursuant to this Section, if any such right, option 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 after the issuance of such rights or warrants) had
the adjustment of the Initial Conversion Price made upon the issuance of such
rights, options or warrants been made on the basis of offering for subscription
or purchase only that number of shares of the Common Stock actually purchased
upon the exercise of such rights, options or warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while Debentures are outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt (other than the rights,
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options and warrants outstanding prior to the Original Issue Date and specified
in Schedule 2.1(c) to the Purchase Agreement but not any modifications thereof)
that are convertible into or exchangeable for shares of Common Stock ("COMMON
STOCK EQUIVALENTS") entitling any Person to acquire shares of Common Stock, in
any case at a price per share less than the Conversion Price then in effect,
then the Conversion Price shall be multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such shares of Common Stock or such Common Stock
Equivalents plus the number of shares of Common Stock which the offering price
for such shares of Common Stock or Common Stock Equivalents (plus the amounts
payable on exercise of the corresponding options, warrants or rights) would
purchase at the Conversion Price, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock so issued or issuable,
PROVIDED, that for purposes hereof, all shares of Common Stock that are issuable
upon conversion, exercise or exchange of Common Stock Equivalents shall be
deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued. No adjustment shall be made under this
Section 4(c)(iv) as a result of a lowering of the exercise price for the Class B
Warrants or as a result of the issuance of up to 2,250,000 shares of Common
Stock in connection with the litigation disclosed in Schedule 2.1(g) to the
Purchase Agreement (but there will be an adjustment hereunder for any issuance
in excess of such number of shares). However, upon the expiration of any Common
Stock Equivalents the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section, if any such Common Stock Equivalents
shall expire and shall not have been exercised, the 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 Conversion Price made pursuant to the
provisions of this Section after the issuance of such Common Stock Equivalents)
had the adjustment of the Conversion Price made upon the issuance of such Common
Stock Equivalents 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 Common Stock Equivalents actually exercised.
(v) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the 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 determined as of the record date mentioned above, and of
which the numerator shall be such Per Share Market Value 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, if the Holders of a majority in interest
of the Debentures dispute such valuation, such fair market value shall be
determined by a nationally recognized or major regional investment banking firm
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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 the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(vi) 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 Holders shall have the
right thereafter to, at their 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 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.
(vii) 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.
(viii) Whenever the Initial Conversion Price is
adjusted pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly
mail to each Holder a notice setting forth the Initial Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(ix) If (A) the Company shall declare a dividend (or
any other distribution) on the Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of the Common Stock; (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; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
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involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; PROVIDED, HOWEVER, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert Debentures during the 20-day
period commencing the date of such notice to the effective date of the event
triggering such notice.
(x) In case of any (1) merger or consolidation of the
Company with or into another Person that would constitute a Change of Control
Transaction, or (2) sale by the Company of more than one-half of the assets of
the Company (on an as valued basis) in one or a series of related transactions,
or (3) tender or other offer or exchange (whether by the Company or another
Person) pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, stock, cash or property of the
Company or another Person; then a Holder shall have the right to (A) if
permitted under Section 3(b) hereof, exercise its rights of prepayment under
Section 3(b) with respect to such event, (B) convert its aggregate principal
amount of Debentures then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of Debentures could have been converted immediately
prior to such merger, consolidation or sales would have been entitled, (C) in
the case of a merger or consolidation, (x) require the surviving entity to issue
convertible debentures in a principal amount equal to the aggregate principal
amount of Debentures then held by such Holder, plus all accrued and unpaid
interest and other amounts owing thereon, which newly issued debentures shall
have terms identical (including with respect to conversion) to the terms of this
Debenture and shall be entitled to all of the rights and privileges of a Holder
of Debentures set forth herein and the agreements pursuant to which the
Debentures were issued (including, without limitation, as such rights relate to
the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible debentures, shall have the right to
convert such instrument only into shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger or consolidation, or (D) in the event of an exchange or
tender offer or other transaction contemplated by clause (3) of this Section,
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tender or exchange its aggregate principal amount of Debentures for such
securities, stock, cash and other property receivable upon or deemed to be held
by holders of Common Stock that have tendered or exchanged their shares of
Common Stock following such tender or exchange, and such Holder shall be
entitled upon such exchange or tender to receive such amount of securities, cash
and property as the shares of Common Stock into which such aggregate principal
amount of Debentures could have been converted (taking into account all then
accrued and unpaid interest) immediately prior to such tender or exchange would
have been entitled as would have been issued. In the case of clause (C), the
conversion price applicable for the newly issued convertible debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale, consolidation, tender or exchange shall include
such terms so as to continue to give the Holders of Debentures the right to
receive the securities, cash and property set forth in this Section upon any
conversion or redemption following such event. This provision shall similarly
apply to successive such events.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of 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(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(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.
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(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 3
Morgan, Irvine, California 92618 (facsimile number (949) 859-5241), 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, with a copy to Rutan & Tucker, LLP, 611 Anton
Boulevard, Costa Mesa, CA 92626 (facsimile number (714) 546-9035), attention
Thomas G. Brockington, Esq. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) four days
after deposit in the United States mail, (iv) the Business Day following the
date of mailing, if sent 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
and from time to time in accordance with the terms hereof, upon twenty (20)
Trading Days prior written notice to the Holders of the Debentures to be prepaid
and accompanied by any waiver required by holders of senior indebtedness of the
Company for such prepayment (an "OPTIONAL PREPAYMENT NOTICE"), to prepay 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. The prepayment price applicable to prepayments under this Section
5(a) shall equal the Optional Prepayment Price (as defined in Section 7) and
shall be paid in cash. Any such prepayment shall be free of any claim of
subordination. The Company shall not be entitled to deliver an Optional
Prepayment Notice to the Holders if: (i) the number of shares of Common Stock at
the time authorized, unissued and unreserved for all purposes is insufficient to
satisfy the Company's conversion obligations of the aggregate principal amount
of Debentures then outstanding, or (ii) there is neither an effective Underlying
Shares Registration Statement under which the Holders can resell all of the
issued Underlying Shares and all of the Underlying Shares as are issuable upon
conversion in full of the principal amount of Debentures subject to prepayment
under the Optional Prepayment Notice (which Underlying Shares Registration
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Statement must be effective through the applicable Optional Prepayment Date, as
defined below) nor may all of such issued and issuable Underlying Shares be sold
by the Holders subject to such prepayment without volume restrictions pursuant
to Rule 144 promulgated under the Securities Act, as determined by counsel to
the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent in the form and substance acceptable to the Holders and such
transfer agent, or (iii) the Common Stock is not then listed for trading on the
NASDAQ or on a Subsequent Market. 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 (the 20th Trading Day after
receipt by the Holders of an Optional Prepayment Notice is referred to herein as
the "OPTIONAL PREPAYMENT DATE").
(b) The Company shall have the right to prepay up to 20% of
the then outstanding principal amount of Debentures in any two consecutive month
period at an Optional Prepayment Price equal to the Profit Sharing Prepayment
Price (as defined in Section 7), but only if the Per Share Market Value for each
of the twenty (20) consecutive Trading Days preceding the date of the Optional
Prepayment Notice for which such prepayment price is sought is equal to or
greater than 135% of the Initial Conversion Price. The provisions of Sections
5(a) and (c) relating to the other conditions and provisions governing
prepayments shall apply to a prepayment seeking the pricing set forth in this
Section 5(b). The Company may not deliver a notice under this Section if an
Event of Default shall have occurred and not been cured to the satisfaction of
the Purchasers.
(c) If any portion of the Optional Prepayment Price shall not
be paid by the Company by the second (2nd) Business Day following 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 (x) 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 (y) invalidate AB INITIO such optional
redemption, notwithstanding anything herein contained to the contrary. If the
Holder elects option (x) above, the Company shall within three (3) Trading Days
after such election is deemed delivered hereunder to the Holder deliver the
shares of Common Stock issuable upon conversion of the Unpaid Prepayment
Principal Amount subject to such conversion demand and otherwise perform its
obligations hereunder with respect thereto; or, if the Holder elects option (y)
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 (x) above, the Company fails to deliver the shares of Common Stock
issuable upon conversion of the Unpaid Prepayment Principal Amount within the
time period set forth in this Section, the Company shall pay to the Holder in
cash, as liquidated damages and not as a penalty, $2,500 per day until the
Company delivers such Common Stock to the Holder.
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SECTION 6. MANDATORY PREPAYMENT/ELIMINATION OF FLOOR.
(a) If the Conversion Price for ten (10) or more days (which
need not be consecutive days) shall be equal to or below $1.15, the Holder may,
at any time thereafter, deliver a notice to the Company (the "HOLDER NOTICE")
requiring the Company to act in accordance with the immediately following
sentence. Within three (3) Business Days after delivery of the Holder Notice
under this Section 6(a), the Company shall notify the Holder of its election to
either (i) prepay the entire outstanding principal amount of the Debentures
which have not previously been repaid or for which Conversion Notices have not
previously been delivered, together with interest and other amounts owed in
respect thereof, at a price equal to the Mandatory Prepayment Price, no later
than ten (10) Business Days from such election, or (ii) discontinue and remove
permanently the Floor. The Company shall honor Conversion Notices delivered
prior to the expiration of the three (3) Business Day period contemplated by
this Section 6(a), provided, that such conversions shall be subject to the
Floor. A failure of the Company to timely elect under this Section 6(a) shall be
deemed an election to discontinue permanently the Floor.
(b) If the Conversion Price for ten (10) consecutive Trading
Days shall be equal to or less than $1.00, then the Holder may deliver a Holder
Notice, requiring the Company to act in accordance with the immediately
following sentence. Within three (3) Business Days after delivery of the Holder
Notice under this Section 6(b), the Company shall notify the Holder of its
election to either (i) prepay the entire outstanding principal amount of the
Debentures which have not previously been repaid or for which Conversion Notices
have not previously been delivered, together with interest and other amounts
owed in respect thereof, at a price equal to the Mandatory Prepayment Price, no
later than ten (10) Business Days from such election, or (ii) discontinue and
remove permanently the Floor. The Company shall honor Conversion Notices
delivered prior to the expiration of the three (3) Business Day period
contemplated by this Section 6(b), provided, that such conversions shall be
subject to the Floor. A failure of the Company to timely elect under this
Section 6(b) shall be deemed an election to discontinue permanently the Floor.
SECTION 7. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"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 or the State of California are authorized or required by law
or other government action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 40% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which
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is not approved by those individuals who are members of the board of directors
on the date hereof in one or a series of related transactions, (iii) the merger
of the Company with or into another entity, consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the Company's
securities continue to hold at least 60% of such securities following such
transaction or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"CLASS B WARRANTS" means the Company's Class B Warrants,
entitling the holders thereof to purchase 7,592,460 shares of Common Stock.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Class A Common Stock, no par value
per share, of the Company and stock of any other class into which such shares
may hereafter have been reclassified or changed.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FLOOR" means the lower of (i) $1.15, and (ii) 80% of the
lowest exercise price of the Class B Warrants from and after the Closing Date
under the Purchase Agreement (if the amount under this subsection (ii) shall
have been decreased due to a decrease in the exercise price of the Class B
Warrants and thereafter such exercise price shall be increased, the amount due
under this subsection (ii) shall not be readjusted upwards and shall remain the
lower amount). However, if the Company shall issue the shares of Common Stock
permitted by clause (a) of Section 3(a)(xiii) and the issuance or resale of any
such shares shall be registered prior to the date that is 64 Trading Days after
the date that an Underlying Shares Registration Statement is first declared
effective by the Commission (provided, that such 64 Trading Day period shall be
extended for the number of Trading Days during such period in which (A) trading
in the Common Stock is suspended by the NASDAQ or a Subsequent Market on which
the Common Stock is then listed, or (B) after the date declared effective by the
Commission, the Underlying Shares Registration Statement is not effective, or
(C) after the date declared effective by the Commission, the Prospectus included
in the Underlying Shares Registration Statement may not be used by the Holder
for the resale of Underlying Shares), then the then applicable Floor shall be
reduced by 10%.
"INTEREST EFFECTIVENESS DATE" means the earlier to occur of
(x) the Effectiveness Date and (y) the date that an Underlying Shares
Registration Statement is declared effective by the Commission.
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal
the sum of (i) the greater of (A) 115% of the principal amount of Debentures to
be prepaid, plus all accrued and unpaid interest thereon, and (B) the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
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Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value on (x) the date the Mandatory Prepayment Amount is demanded
or otherwise due 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.
"OPTIONAL PREPAYMENT PRICE" shall equal (A) 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 Per Share Market Value 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 Debentures, or (B) when applicable under Section 5(b), the
Profit Sharing Prepayment Price.
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.
"PER SHARE MARKET VALUE" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or a Subsequent Market,
the closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (d) if the Common Stock is not then publicly traded the fair
market value of a share of Common Stock as determined by an Appraiser selected
in good faith by the Holders of a majority in interest of the principal amount
of Debentures then outstanding.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PROFIT SHARING PREPAYMENT PRICE" shall equal 115% of the
principal amount of Debentures to be prepaid in accordance with Section 5(b),
plus all accrued and unpaid interest thereon and all other amounts, expenses,
costs and liquidated damages due in respect of such Debentures.
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"PURCHASE AGREEMENT" means the Secured 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.
"QUALIFIED FACILITY" means a credit facility or factoring
arrangement with a nationally or regionally recognized institutional lender,
whereby such lender has made available to the Company a minimum of $500,000 in a
financing without conditions or restrictions (including with respect to
borrowing base requirements) as to the availability of funds whereby such lender
has required the Company to grant a first priority security interest in the
collateral secured by the security interests granted pursuant to the Security
Agreements.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENTS" means collectively (i) the Security
Agreement, dated as of May 17, 1999 between the Company and the original Holders
of Debentures, as amended modified or supplemented from time to time in
accordance with its terms, and (ii) the Intellectual Property Security Agreement
dated as of May 17, 1999 between the Company and the original Holders of
Debentures, 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 or on such Subsequent Market on which the Common Stock is
then listed or quoted, or (b) if the Common Stock is not listed on the NASDAQ or
a Subsequent Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); 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 issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"UNDERLYING SHARES 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.
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SECTION 8. 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. Except for debt issued under a Qualified
Facility, the Company shall not issue any debt or other instrument which shall
be PARI PASSU with or senior to the Debentures in right of payment, whether with
respect to interest or upon liquidation, dissolution or otherwise.
SECTION 9. 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 10. 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 11. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holders hereby irrevocably submit
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this 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 12. Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Debenture. Any waiver must be in writing.
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SECTION 13. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest due hereunder shall violate applicable laws
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of interest.
SECTION 14. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
SECTION 15. The payment obligations under this Debenture and
the obligations of the Company to the Holder arising upon the conversion of all
or any of the Debentures in accordance with the provisions hereof are secured
pursuant to the Security Agreements.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Secured
Convertible Debenture to be duly executed by a duly authorized officer as of the
date first above indicated.
PREMIER LASER SYSTEMS, INC.
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
Class A Common Stock, no par value per share (the "Common Stock"), of Premier
Laser Systems, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations: ____________________________________________________
Date to Effect Conversion
____________________________________________________
Principal Amount of Debentures to be Converted
____________________________________________________
Number of shares of Common Stock to be Issued
____________________________________________________
Applicable Conversion Price
____________________________________________________
Signature
____________________________________________________
Name
____________________________________________________
Address
Exhibit 5
February 23, 2000
Premier Laser Systems, Inc.
3 Morgan
Irvine, California 92618
Re: Registration Statement on Form S-3
--- ----------------------------------
Ladies and Gentlemen:
At your request, we have examined the form of Registration Statement on
Form S-3 (the "Registration Statement") to be filed by Premier Laser Systems,
Inc. (the "Company") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, for the purpose of registering the sale of
certain shares of Class A Common Stock of the Company (the "Common Stock") by
the securityholders set forth therein. We are familiar with the proceedings
taken and proposed to be taken in connection with the issuance and sale of the
securities in the manner set forth in the Registration Statement. Subject to
completion of the proceedings contemplated in connection with the foregoing
matters, we are of the opinion that all of the Common Stock to be sold pursuant
to the Registration Statement has been duly authorized and, when issued and sold
in the manner set forth in the Registration Statement will, upon such issuance
and sale, be validly and legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement or any amendment thereto.
Respectfully submitted,
/s/ RUTAN & TUCKER, LLP
================================================================================
SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Among
PREMIER LASER SYSTEMS, INC.,
and
THE INVESTORS SIGNATORY HERETO
Dated as of January 21, 1999
================================================================================
<PAGE>
SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this
"AGREEMENT"), dated as of January 21, 2000, among Premier Laser Systems Inc., a
California corporation (the "COMPANY"), and the investors signatory hereto (each
such investor is a "PURCHASER" and all such investors are, collectively, the
"PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase from the Company an
aggregate principal amount of $2,000,000 of the Company's 6% Secured Convertible
Debentures, due three (3) years from the date of issuance, which shall be in the
form of EXHIBIT A (the "DEBENTURES") and which are convertible into shares of
the Company's Class A Common Stock, no par value per share (the "COMMON STOCK").
WHEREAS, the Purchasers have made loans to the Company for an aggregate
principal amount of $1,550,000, plus accrued interest (collectively, the
"OUTSTANDING LOAN AMOUNTS"), which are evidenced by the promissory notes of the
Company (the "NOTES").
WHEREAS, the parties intend to cancel the Notes and use the Outstanding
Loan Amounts to pay a portion of the Purchase Price for the Debentures.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy are hereby acknowledged, the Company and the Purchasers agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 THE CLOSING.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to the Purchasers and the Purchasers
shall, severally and not jointly, purchase from the Company the Debentures for
an aggregate purchase price of $2,000,000. 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 ("ROBINSON SILVERMAN"), 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."
(b) At the Closing, the parties shall deliver or shall cause
to be delivered the following: (A) the Company shall deliver to each Purchaser
(1) the Debentures in the aggregate principal amount indicated below each
Purchaser's name on the signature page to this Agreement, registered in the name
of such Purchaser, in the form of EXHIBIT A, (2) a Common Stock purchase
warrant, in the form of EXHIBIT D, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right at any time and from time
to time thereafter through the fifth anniversary of the Closing Date to acquire
the number of shares of Common Stock indicated below such Purchaser's name on
the signature page to this Agreement (collectively, the "WARRANTS"), (3) the
<PAGE>
legal opinion of Rutan & Tucker, LLP, outside counsel to the Company, in the
form of EXHIBIT C, and (4) all other documents, instruments and writings
required to have been delivered at or prior to the Closing by the Company
pursuant to this Agreement, including (A) an executed Registration Rights
Agreement, dated the date hereof, by and among the Company and the Purchasers,
in the form of EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT"), and (B) an
executed Amendment No. 3 To Security Agreements dated as of the date hereof,
among the Purchasers and the Company (the "SECURITY AGREEMENTS AMENDMENT"); and
(B) each Purchaser shall deliver to the Company (1) the purchase price indicated
below such Purchaser's name on the signature page to this Agreement to which the
portion of the Outstanding Loan Amount owing in respect of the Notes made to
such Purchaser through the retirement and cancellation of such Notes (as
described below such Purchaser's name on the signature page to this Agreement)
shall be credited and the balance of the purchase price shall be paid in
immediately available funds to an account specified for such purpose by the
Company, and (2) an executed Registration Rights Agreement, Security Agreement
Amendment and IP Security Amendment.
1.2 CERTAIN DEFINED TERMS. For purposes of this Agreement,
"CONVERSION PRICE," "ORIGINAL ISSUE DATE" and "TRADING DAY" shall have the
meanings set forth in the Debentures; "BUSINESS DAY" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York or the State of California
are authorized or required by law or other governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to the Purchasers:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California, 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) (collectively the "SUBSIDIARIES"). Each of the Subsidiaries
is an entity, duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the full 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 the Debentures or
any of this Agreement, the Registration Rights Agreement, the Warrants, the
Security Agreement or the IP Security Agreement, dated May 17, 1999, by and
among the Company and the Purchasers, as amended by the Security Agreements
Amendment (the "SECURITY AGREEMENT"), dated May 17, 1999, by and among the
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Company and the Purchaser, as amended by the Security Agreements Amendment (the
"IP SECURITY AGREEMENT") (collectively, the "TRANSACTION DOCUMENTS"), (y) have
or result in a material adverse effect on the results of operations, assets,
prospects, or condition (financial or otherwise) 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 of the Transaction
Documents (any of (x), (y) or (z), 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 each of 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 and no further action is required by the Company. Each of
the Transaction Documents and the Debentures has been duly executed by the
Company and, when delivered (or filed, as the case may be) in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms. Neither
the Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.
(c) CAPITALIZATION. The number of 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 a result of the purchase and sale of the
Debentures and the Warrants and 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 securities, rights or
obligations convertible into or exchangeable for, or giving any Person (as
defined below) 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 or group
of related Persons 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, in excess of 5% of the Common Stock. 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 THE DEBENTURES AND THE WARRANTS. The
Debentures and the Warrants are duly authorized and, when issued and paid for in
accordance with the terms hereof, will be duly and validly issued, fully paid
and nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "LIENS"). The Company has on the date hereof
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and will, at all times while the Debentures and the Warrants are outstanding,
maintain an adequate reserve of duly authorized shares of Common Stock, reserved
for issuance to the holders of the Debentures and the Warrants, to enable it to
perform its conversion, exercise and other obligations under this Agreement, the
Debentures and the Warrants. Such number of reserved and available shares of
Common Stock is not less than the sum of (i) 200% of the number of shares of
Common Stock which would be issuable upon conversion in full of the Debentures,
assuming such conversion occurred on the Original Issue Date for the Debentures,
the Filing Date or the Effectiveness Date (each as defined in the Registration
Rights Agreement), whichever yields the lowest Conversion Price, (ii) the number
of shares of Common Stock issuable upon exercise of the Warrants, and (iii) the
number of shares Common Stock which would be issuable upon payment of interest
on the Debentures, assuming the Debentures are outstanding for three years and
all interest is paid in shares of Common Stock (such number of shares of Common
Stock as contemplated in clauses (i)-(iii), the "INITIAL MINIMUM"). All such
authorized shares of Common Stock shall be duly reserved for issuance to the
holders of the Debentures and the Warrants. The shares of Common Stock issuable
upon conversion of the Debentures, as payment of interest thereon and upon
exercise of the Warrants are collectively referred to herein as the "UNDERLYING
SHARES." The Debentures, the Warrants and the Underlying Shares are collectively
referred to herein as, the "SECURITIES." When issued in accordance with the
Debentures and the Warrants, 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 articles of incorporation, bylaws or other charter
documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), 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 (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument (evidencing
a Company debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary 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, could not have or
result in a Material Adverse Effect. The sale and issuance of the Securities
hereunder shall not cause any Purchaser or Purchasers to be an "Acquiring
Person" under the Rights Plan (as defined in Section 3.17).
(f) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization or order
of, give any notice to, 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 filings required pursuant to Section
3.11, (ii) the filing with the Securities and Exchange Commission (the
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"COMMISSION") of a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale of the Underlying
Shares by the Purchasers (the "UNDERLYING SHARES REGISTRATION STATEMENT"), (iii)
the application(s) to the Nasdaq National Market ("NASDAQ") for the listing of
the Underlying Shares for trading on the NASDAQ (and with any other national
securities exchange or market on which the Common Stock is then listed), (iv)
applicable Blue Sky filings and (v) in all other cases where the failure to
obtain such consent, waiver, authorization or order, or to give such notice or
make such filing or registration could not have or result in, individually or in
the aggregate, a Material Adverse Effect (collectively, the "REQUIRED
APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed
in SCHEDULE 2.1(G), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the 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.
(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 a Material Adverse Effect. The security
interests granted to the Purchasers pursuant to the Security Agreement and IP
Security Agreement will convey and grant to the Purchasers a first priority
security interest in all of the Collateral (as such terms is defined in such
agreements).
(i) PRIVATE OFFERING. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"). Neither the Company
nor any Person acting on its behalf has taken any action that could subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act.
(j) SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as set forth
in SCHEDULE 2.1 (J) attached hereto, 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 three years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC DOCUMENTS" and,
together with the Schedules to this Agreement, the "DISCLOSURE MATERIALS") on a
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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. All material agreements to which the Company is
a party or to which the property or assets of the Company are subject have been
filed as exhibits to the SEC Documents as required. 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 as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
("GAAP"), 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 and its consolidated subsidiaries 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, immaterial,
year-end audit adjustments. Since September 30, 1999, except as specifically
disclosed in the SEC Documents, (a) there has been no event, occurrence or
development that has or that could 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 or required to be disclosed in filings
made with the Commission, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not declared
or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock.
(k) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for certain fees payable by the
Company to Wharton Capital Partners, Ltd., and its Affiliates, no fees or
commissions will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, or bank with respect to
the transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any 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 by this Agreement. The
Company shall indemnify and hold harmless the Purchasers, their employees,
officers, directors, agents, and partners, and their respective Affiliates, 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, as such fees and expenses are incurred.
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(m) SOLICITATION MATERIALS. Neither the Company nor any Person
acting on the Company's behalf has solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) FORM S-3 ELIGIBILITY. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) EXCLUSIVITY. The Company shall not issue and sell the
Debentures to any Person other than the Purchasers other than with the specific
prior written consent of the Purchasers.
(p) SENIORITY. No indebtedness of the Company is senior to the
Debentures in right of payment, whether with respect to interest or upon
liquidation, dissolution or otherwise.
(q) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. Except as
specified in SCHEDULE 2.1 (Q) hereto, the Company has not, in the two years
preceding the date hereof, received notice (written or oral) from the NASDAQ or
any other stock exchange, market or trading facility on which the Common Stock
is or has been listed (or on which it has been quoted) to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such exchange or market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with all such
maintenance requirements.
(r) 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
or material 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"). The patents and trademark specified in the IP Security
Agreement are the only patent or trademark intellectual property rights (or
applications therefor) held by the Company and the Subsidiaries for which
applications for patents and trademarks have been made or granted in the United
States (excluding, for such purposes, patents and trademarks held by Ophthalmic
Imaging Systems, Inc.). To the best knowledge of the Company all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(s) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as
set forth on SCHEDULE 6(B) to the Registration Rights Agreement, the Company has
not granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied. No
Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(t) REGULATORY PERMITS. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents, except where the
failure to possess such permits could not, individually or in the aggregate,
have or result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
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(u) TITLE. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property and personal property owned
by them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all Liens, except for Liens granted to the
Purchasers pursuant to the Security Agreement and IP Security Agreement and for
other Liens as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held under lease
by the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(v) DISCLOSURE. The Company confirms that it has not provided
any of the Purchasers or its agents or counsel with any information that
constitutes or might constitute material non-public information. The Company
understands and confirms that the Purchasers shall be relying on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct and do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(w) OPHTHALMIC IMAGING SYSTEMS, INC. The Company owns free and
clear of all Liens 2,131,758 shares of the common stock, no par value, of
Ophthalmic Imaging Systems, Inc., a California corporation, and 150 shares of
Series B Preferred Stock, which together represent 51% of the total issued and
outstanding shares of voting stock of such entity (the "OPHTHALMIC SHARES").
(x) The Company has not issued any of the shares of Common
Stock permitted to be issued or paid any other monies permitted to be paid under
Section 3(a)(xiii) of the Debentures.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with 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
purchase by such Purchaser of the Securities hereunder has been duly authorized
by all necessary action on the part of such Purchaser. Each of this Agreement,
the Registration Rights Agreement, the Security Agreement Amendment and the IP
Security Amendment has been duly executed and delivered by such Purchaser and
constitutes the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms.
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(b) INVESTMENT INTENT. Such 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 such 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. Nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold Securities for any amount of time.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Debentures and the Warrant, it was, and at the date hereof it is, and at
each exercise date under the Warrant, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF THE PURCHASER. Such 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 THE PURCHASER TO BEAR RISK OF INVESTMENT. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the opportunity
to ask such questions 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 such Purchaser or its representatives or counsel shall modify, amend
or affect such 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) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
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(h) RELIANCE. Such Purchaser understands and acknowledges that
(i) the Securities 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 such Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that each of the
Purchasers makes 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 of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, 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 of such transferred Securities under the
Securities Act. Notwithstanding the foregoing, the Company, without requiring a
legal opinion as described in the immediately preceding sentence, hereby
consents to and agrees to register on the books of the Company and with any
transfer agent for the securities of the Company any transfer of Securities by a
Purchaser to an Affiliate of such Purchaser or to one or more funds or managed
accounts under common management with such Purchaser, and any transfer among any
such Affiliates or one or more funds or managed accounts, provided that 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 the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement.
(b) The Purchasers agree 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.
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Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Debentures, the payment of interest
thereon, and exercise of the Warrants or other issuances of Underlying Shares as
contemplated hereby, by the Debentures or the Warrants occurs at any time while
an Underlying Shares Registration Statement is effective under the Securities
Act or, in the event there is not an effective Underlying Shares Registration
Statement, at such time, 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 shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the day that the Underlying Shares Registration Statement is declared effective
by the Commission. The Company agrees that, in the event any Underlying Shares
are issued with a legend in accordance with this Section 3.1(b), it will, within
three (3) Trading Days after request therefor by a Purchaser, provide such
Purchaser with a certificate or certificates representing such Underlying
Shares, free from such legend at such time as such legend would not have been
required under this Section 3.1(b) had such issuance occurred on the date of
such request. 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. However, the Company may provide
appropriate instructions to any transfer agent of the Company to enforce the
provisions of this Section 3.1(b) when the Underlying Shares Registration
Statement is not effective.
3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Debentures and
payment of interest thereon in accordance with the terms of the Debentures, and
(ii) exercise of the Warrants in accordance with their terms, will 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 upon (x) conversion of the
Debentures and payment of interest thereon in accordance with the terms of the
Debentures, and (y) exercise of the Warrants in accordance with their terms, is
unconditional and absolute, subject to the limitations set forth herein in the
Debentures or pursuant to the Warrants, regardless of the effect of any such
dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchasers own
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. As long as the Purchasers own Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchasers to sell the Securities under Rule 144 promulgated
under the Securities 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 Underlying
Shares 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.
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3.4 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate of the Company 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 sale of the Securities to the Purchasers.
3.5 INCREASE IN AUTHORIZED SHARES. If on any date 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) issuing 200% of the number of Underlying Shares
as would then be issuable upon a conversion in full of the Debentures and as
payment of any accrued and unpaid interest in respect thereof in shares of
Common Stock, or (b) issuing the number of Underlying Shares upon exercise in
full of the Warrants (the "CURRENT REQUIRED MINIMUM"), in either case, due to
the unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then 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 stockholders of the Company proxy materials requesting authorization
to amend the Company's Articles 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 Purchasers in order to provide
for such number of authorized and unissued shares of Common Stock to enable the
Company to comply with its issuance, conversion exercise and reservation of
shares obligations as set forth in this Agreement, the Debentures and the
Warrants (the sum of (x) the number of shares of Common Stock then outstanding
plus all shares of Common Stock issuable upon exercise of all outstanding
options, warrants and convertible instruments, and (y) the Current Required
Minimum, shall be a reasonable number). 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 stockholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (c) within five (5) Business Days of
obtaining such stockholder authorization, file an appropriate amendment to the
Company's Articles of Incorporation to evidence such increase.
3.6 RESERVATION AND LISTING OF UNDERLYING SHARES. (a) The Company shall
(i) in the time and manner required by NASDAQ and such other exchange, market or
quotation system on which the Common Stock is traded, prepare and file with the
NASDAQ (and such other national securities exchange or market or trading or
quotation facility) an additional shares listing application covering a number
of shares of Common Stock which is not less than the Initial Minimum, (ii) take
all steps necessary to cause such shares of Common Stock to be approved for
listing in the NASDAQ (as well as on any such other national securities exchange
or market or trading or quotation facility on which the Common Stock is then
listed) as soon as possible thereafter, and (iii) provide to the Purchasers
evidence of such listing, and the Company shall maintain the listing of its
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Common Stock thereon. If the number of Underlying Shares issuable upon
conversion in full of the then outstanding Debentures, as payment of interest
thereon, and upon exercise of the then unexercised portion of the Warrants
exceeds 85% of the number of Underlying Shares previously listed on account
thereof with NASDAQ (and any such other required exchanges), then the Company
shall take the necessary actions to immediately list a number of Underlying
Shares as equals no less than the then Current Required Minimum.
(b) The Company shall maintain a reserve of shares of Common
Stock for issuance upon conversion of the Debentures and for payment of interest
thereupon in shares of Common Stock and upon exercise in full of the Warrants in
accordance with this Agreement, the Debentures and the Warrants, respectively,
in such amount as may be required to fulfill its obligations in full under the
Transaction Documents, which reserve shall equal no less than the then Current
Required Minimum.
3.7 CONVERSION AND EXERCISE PROCEDURES. The Conversion Notice (as
defined in EXHIBIT A) and Form of Election to Purchase under the Warrants set
forth the totality of the procedures with respect to the conversion of the
Debentures and exercise of the Warrants, 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
Purchasers to convert their Debentures and exercise their Warrants as
contemplated in the Debentures and the Warrants (as applicable).
3.8 NOTICE OF BREACHES. Each of the Company and the Purchasers 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 therein to be
incorrect or breached as of the 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.
3.9 CONVERSION AND EXERCISE OBLIGATIONS OF THE COMPANY. The Company
shall honor conversions of the Debentures and exercises of the Warrants and
shall deliver Underlying Shares in accordance with the respective terms,
conditions and time periods set forth in the Debentures and the Warrants.
3.10 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS. (a) The Company
shall not, directly or indirectly, without the prior written consent of the
Purchasers, 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 (including the issuance of any debt or other instrument is at any
time over life thereof convertible into or exchangeable for Common Stock or any
other transaction intended to be exempt or not subject to registration under the
Securities Act (a "SUBSEQUENT PLACEMENT") for a period of 180 days after the
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later to occur of the Effectiveness Date (as defined in the Registration Rights
Agreement) and the date that the Commission first declares effective an
Underlying Shares Registration Statement, except (i) the granting of options or
warrants to employees, consultants, 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 of Common Stock issuable
upon exercise of any currently outstanding warrants (including the Class B
Warrants (as defined herein)) and upon conversion of any currently outstanding
convertible securities of the Company, in each case only if such security is
disclosed in SCHEDULE 2.1(C), (iii) shares of Common Stock or Common Stock
Equivalents (as defined in the Debentures) permitted to be issued without giving
rise to an Event of Default under Sections 3(a)(xii) or 3(a)(xiii)(a) of the
Debentures, and (iv) shares of Common Stock issuable upon conversion of
Debentures, as payment of interest thereon and upon exercise of the Warrants in
accordance with the Debentures or the Warrants, respectively, unless (A) the
Company delivers to the Purchasers a written notice (the "SUBSEQUENT PLACEMENT
NOTICE") of its intention effect such Subsequent Placement, which Subsequent
Placement Notice shall describe in reasonable detail the proposed terms of such
Subsequent Placement, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Placement shall be effected, and attached
to which shall be a term sheet or similar document relating thereto and (B) the
Purchasers shall not have notified the Company by 5:00 p.m. (New York City time)
on the tenth (10th) Trading Day after their receipt of the Subsequent Placement
Notice of their willingness to cause the Purchasers to provide (or to cause its
sole designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on the same terms set forth in the
Subsequent Placement Notice. If the Purchasers shall fail to notify the Company
of their intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Placement substantially upon the terms and to
the Persons (or Affiliates of such Persons) set forth in the Subsequent
Placement Notice; PROVIDED, that the Company shall provide the Purchasers with a
second Subsequent Placement Notice, and the Purchasers shall again have the
right of first refusal set forth above in this paragraph (a), if the Subsequent
Placement subject to the initial Subsequent Placement Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Placement
Notice within thirty (30) Trading Days after the date of the initial Subsequent
Placement Notice with the Person (or an Affiliate of such Person) identified in
the Subsequent Placement Notice. If the Purchasers shall indicate a willingness
to provide financing in excess of the amount set forth in the Subsequent
Placement Notice, then each Purchaser shall be entitled to provide financing
pursuant to such Subsequent Placement Notice up to an amount equal to such
Purchaser's pro rata portion of the aggregate principal amount of Debentures
purchased by the Purchasers under this Agreement, but the Company shall not be
required to accept financing from the Purchasers in an amount in excess of the
amount set forth in the Subsequent Placement Notice.
(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered, in the Underlying Shares
Registration Statement in accordance with the Registration Rights Agreement, and
(z) Common Stock permitted to be issued pursuant to paragraph (a)(i), (ii) and
(iv) of Section 3.10(a), the Company shall not, for a period of not less than 90
Trading Days after the date that the Underlying Shares Registration Statement is
declared effective by the Commission, without the prior written consent of the
Purchasers (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. Any
days that a Purchaser is not permitted to sell Underlying Shares under the
Underlying Shares Registration Statement shall be added to such 90 Trading Day
period for the purposes of (i) and (ii) above.
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3.11 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. The Company shall:
(i) on the Closing Date issue a press release acceptable to the Purchasers
disclosing the transactions contemplated hereby, (ii) file with the Commission a
Report on Form 8-K disclosing the transactions contemplated hereby within ten
(10) Business Days after the Closing Date, and (iii) 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
the Purchasers promptly after the filing thereof. The Company shall, no less
than two (2) Business Days prior to the filing of any disclosure required by
clauses (ii) and (iii) above, provide a copy thereof to the Purchasers. No such
filing or disclosure may be made that mentions the Purchasers by name without
the prior consent of the Purchasers. The Company and the Purchasers shall
consult with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or stock market or trading facility with respect to the
transactions contemplated hereby and neither party shall issue any such press
release or otherwise make any such public statement, filings or other
communications 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, filing or other communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the names of the Purchasers, or include the
names of the Purchasers in any filing with the Commission, or any regulatory
agency, trading facility or stock market without the prior written consent of
the Purchasers, except to the extent such disclosure (but not any disclosure as
to the controlling Persons thereof) is required by law, in which case the
Company shall provide the Purchasers with prior notice of such disclosure.
3.12 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection
with the sale of all or substantially all of the assets of the Company or
licensing arrangements in the ordinary course of the Company's business, the
Company shall not transfer, sell or otherwise dispose of any Intellectual
Property Rights, or allow any of the Intellectual Property Rights to become
subject to any Liens, or fail to renew such Intellectual Property Rights (if
renewable and it would otherwise lapse if not renewed), without the prior
written consent of the Purchasers.
3.13 USE OF PROCEEDS. The Company shall use the net proceeds from the
sales of the Securities hereunder for general working capital purposes only.
3.14 REIMBURSEMENT. If any Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
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with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the applicable Purchaser or entity in connection with
the transactions contemplated by this Agreement.
3.15 CERTAIN TRADING RESTRICTIONS. The Purchasers will not enter into
any Short Sales (as hereinafter defined) at a price below the Initial Conversion
Price (as defined in the Debentures), PROVIDED, that the limitations set forth
in this Section shall cease to be in effect on the earlier of (x) date that an
Underlying Shares Registration Statement is first declared effective by the
Commission and (y) the Effectiveness Date. For purposes of this Section, a
"Short Sale" by a Purchaser shall mean a sale of Common Stock by such Purchaser
that is marked as a short sale and that is made at a time when there is no
equivalent offsetting long position in Common Stock held by such Purchaser. For
purposes of determining whether there is an equivalent offsetting long position
in Common Stock held by a Purchaser, Underlying Shares that have not yet been
issued but for which the Company has received a Conversion Notice (with respect
to Debentures) or Form of Election to Purchase (with respect to Warrants), as
the case may be, shall be deemed held long by a Purchaser.
3.16 CERTAIN FUTURE ACTIONS. Subject to compliance with the Transaction
Documents relating thereto, the Company is expressly permitted to (i) lower the
exercise price of its Class B Warrants, entitling the holders thereof to
purchase an aggregate of 7,592,460 shares of Common Stock (the "CLASS B
WARRANTS") and (ii) issue up to an aggregate of 2,250,000 shares of Common Stock
in satisfaction of the litigation described in SCHEDULE 2.1(G) hereto less the
number of shares of Common Stock, if any, which have been issued in respect of
such litigation from May 17, 1999 to the Closing Date.
3.17 RIGHTS PLAN. The Company may not claim or enforce any claims that
any Purchaser is (or that the Purchasers taken collectively are) an "Acquiring
Person" under the Company's Shareholders Rights Agreement, dated as of March
1998 (or any amendment thereto) (the "RIGHTS PLAN"), by virtue of its purchase
or beneficial ownership of Securities.
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3.18 CONTINUED OWNERSHIP OF THE OPHTHALMIC SHARES. So long as the
security interests granted to the Purchasers under the Security Agreement
Amendment and the IP Security Agreement Amendment shall be in effect the Company
shall not without the prior written consent of the Purchasers pledge, sell,
transfer, or assign or otherwise dispose of the Ophthalmic Shares.
ARTICLE IV
MISCELLANEOUS
4.1 FEES AND EXPENSES. At the Closing the Company shall reimburse the
Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to Robinson
Silverman $20,000 for the preparation and negotiation of the Transaction
Documents. The amounts contemplated by the immediately preceding sentence shall
be retained by the Purchasers and shall not be delivered to the Company at the
Closing. Other than the amounts contemplated in the immediately preceding
sentence, and except as otherwise 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 Securities.
4.2 ENTIRE AGREEMENT; AMENDMENTS. The Transaction Documents, together
with the Exhibits and Schedules thereto, and the Transfer Agent Instructions
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, which the parties acknowledge have been
merged into such documents, exhibits and schedules.
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 6:30 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 this Agreement later than 6:30 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:
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If to the Company: Premier Laser Systems, Inc.
3 Morgan
Irvine, CA 92618
Facsimile No.: (949) 859-5241
Attn: Chief Financial Officer
With copies to: Rutan & Tucker, LLP
611 Anton Boulevard, 14th floor
Costa Mesa, CA 92626-1998
Facsimile No.: (714) 546-9035
Attn: Thomas G. Brockington, Esq.
If to a Purchaser: To the address set forth under such
Purchaser's name on the signature pages
hereto.
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 the Company and each of the Purchasers 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 require ment 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.
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 Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company. This
provision shall not limit each Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.
4.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 GOVERNING LAW. The corporate laws of the State of California shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
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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, 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 via registered or
certified mail or overnight delivery (with evidence of delivery) 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 herein shall survive the Closing and the delivery and conversion or
exercise (as the case may be) of the Debentures and the Warrants.
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 provisions of this Agreement shall not
in any way be affecting 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.
4.12 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. The Company and each of the Purchasers
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
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<PAGE>
4.13 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Secured Convertible Debenture Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.
PREMIER LASER SYSTEMS, INC.
By:
--------------------------------------
Name:
Title:
<PAGE>
STRONG RIVER INVESTMENTS, INC.
By:
---------------------------------------
Kenneth L. Henderson
Attorney-in-Fact
Debentures Purchase Price: $227,422
Warrants to be issued at Closing: 3,375
Outstanding Principal Amount
and Accrued Interest Represented by
Notes to Such Purchase: $227,422
Cash to be paid at closing: $ 0
Address for Notice:
Strong River Investments, Inc.
c/o Gonzalez-Ruiz & Aleman (BVI) Limited
Wickhams Cay I, Vanterpool Plaza
P.O. Box 873
Road Town, Tortolla. BVI
With copies for
communications to
any Purchaser to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Eric L. Cohen, Esq.
<PAGE>
HERKIMER LLC
By:
---------------------------------------------
Name:
Title:
Debentures Purchase Price: $1,772,578
Warrants to be issued at Closing: 26,625
Outstanding Principal Amount
and Accrued Interest Represented by
Notes to Such Purchase: $1,333,673
Cash to paid at Closing: $ 438,905
Address for Notice:
c/o Citco Trustees (Cayman) Limited
Commercial Centre
P.O. Box 31106 SMB
Grand Cayman
Cayman Islands
British West Indies
Facsimile No.: (345) 945-7566
with a copy to: Southridge Capital Management LLC
Executive Pavillon
20 Grove Street
Ridgefield, CT 06877
Facsimile No.: (203) 431-8301
With copies for
communications to
any Purchaser to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630 and (212) 541-1432
Attn: Eric L. Cohen, Esq.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Premier Laser Systems, Inc. of our report dated June 9, 1999, except
for notes 2, 3 and 8, as to which the date is October 4, 1999, and the fourth
paragraph on Note 1 as to which the date is February 17, 2000, appearing in the
prospectus, which is part of this Registration Statement, and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ HASKELL & WHITE LLP
Irvine, California
February 18, 2000
