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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarter ended March 31, 1998.
Commission file number 1-11388
PLC SYSTEMS INC.
(Exact name of registrant as specified in its charter)
BRITISH COLUMBIA, CANADA 04-3153858
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 FORGE PARK, FRANKLIN, MASSACHUSETTS 02038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 541-8800
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practical date.
CLASS OUTSTANDING AT MAY 14, 1998
Common Stock, no par value 18,985,081
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PLC SYSTEMS INC.
INDEX
Part I. Financial Information:
Item 1.
Condensed Consolidated Balance Sheets...............................3
Condensed Consolidated Statements of Operations.....................4
Condensed Consolidated Statements of Cash Flows.....................5
Notes to Condensed Consolidated Financial Statements................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......13
Part II. Other Information:
Item 1. Legal Proceedings.............................................14
Item 2. Changes in Securities.........................................14
Item 3. Not Applicable................................................14
Item 4. Not Applicable................................................14
Item 5. Not Applicable................................................14
Item 6. Exhibits and Reports on Form 8-K..............................14
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Item 1. Financial Statements
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PLC SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 9,952 $ 3,484
Marketable securities.............................................. 3,005 12,845
Accounts receivable, net........................................... 704 1,337
Inventories ....................................................... 3,032 2,512
Prepaid expenses and other current assets.......................... 433 502
-------- --------
Total current assets........................................... 17,126 20,680
Equipment, furniture and leasehold improvements, net ................. 5,931 5,636
Other assets........................................................... 702 701
-------- --------
Total assets.................................................... $ 23,759 $ 27,017
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 1,385 $ 917
Accrued clinical costs............................................. 1,461 1,292
Accrued compensation............................................... 667 570
Accrued expenses................................................... 857 923
Deferred revenue................................................... 52 70
5% Convertible Debentures......................................... - 3,819
Other accrued liabilities.......................................... 118 296
-------- --------
Total current liabilities....................................... 4,540 7,887
Capital lease obligations.............................................. 103 121
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 25,000 shares authorized, 18,976 and 16,419
shares issued and outstanding at June 30, 1997 and December 31, 1996,
respectively and 18,368 shares issued and outstanding at March 31, 1998
and December 31, 1997, respectively................................. 75,235 71,115
Accumulated deficit.................................................... (55,469) (51,533)
Foreign currency translation........................................... (650) (573)
--------- ---------
19,116 19,009
--------- ---------
Total liabilities and stockholders' equity............................. $ 23,759 $ 27,017
======= =======
</TABLE>
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PLC SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
MARCH 31,
------------------
1998 1997
---- ----
Revenues:
Product sales.............................. $ 365 $ 771
Placement and service fees................. 580 817
-------- --------
Total revenues ......................... 945 1,588
Cost of revenues:
Product sales ............................ 152 336
Placement and service fees.................. 536 494
-------- --------
Total cost of revenues................... 688 830
-------- --------
Gross profit.................................. 257 758
Operating expenses:
Selling, general and administrative ........ 3,053 2,817
Research and development.................... 1,291 1,071
-------- --------
Total operating expenses................ 4,344 3,888
-------- --------
Loss from operations.......................... (4,087) (3,130)
Other income:
Interest income, net........................ 150 91
Gain from foreign currency, net............. 1 17
-------- --------
151 108
-------- --------
Provision for income taxes.................... $ (3,936) $ (3,022)
--------- ---------
Net loss...................................... $ (3,936) $(3,022)
========= =========
Basic and diluted loss per share.............. $ (.21) $ (.18)
Shares used to compute basic and diluted
loss per share.............................. 18,759 16,547
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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PLC SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
MARCH 31,
------------------
1998 1997
---- ----
Operating activities:
Net loss..................................... $(3,936) $(3,022)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization.............. 606 421
Change in assets and liabilities:
Accounts receivable................... 752 1,182
Inventory ........................... (502) (806)
Prepaid expenses and other assets..... 52 154
Accounts payable...................... 464 (355)
Deferred revenue...................... (253) (75)
Accrued liabilities................... 344 219
------- --------
Net cash used for operating activities......... (2,473) (2,282)
Investing activities:
Purchase of marketable securities.......... (999) -
Maturities of marketable securities........ 10,839 4,494
Purchase of fixed assets................... (872) (857)
------- --------
Net cash provided by investing activities...... 8,968 3,637
Financing activities:
Net proceeds from sales of common shares... 196 517
Principal payments on capital lease
obligations................................ (16) (3)
------- --------
Net cash provided by financing activities...... 180 514
Effect of exchange rate changes on cash
and cash equivalents........................... (207) (186)
------- --------
Net increase in cash and cash equivalents...... 6,468 1,683
Cash and cash equivalents at beginning
of period...................................... 3,484 3,039
-------- --------
Cash and cash equivalents at end of period..... $ 9,952 $ 4,722
======= =======
NON-CASH FINANCING ACTIVITIES:
Conversion of Convertible Debentures and
accrued interest into Common Stock.......... $ 3,828 $ -
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31,1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
2. NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" ("Statement 128") which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All loss per share amounts for all periods have been
presented, and have been restated, to conform to Statement 128.
3. COMPREHENSIVE INCOME
As of January 1,1998 the Company adopted Statement 130, Reporting Comprehensive
Income. Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components:however the adoption of this Statement
had no impact on the Company's net loss or shareholders equity. Statement 130
requires unrealized gains or losses on the Company's available-for-sale
securities and foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders equity to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
During the first quarter of 1998 and 1997,total comprehensive loss amounted to
$4,013,00 and $3,169,00.
4. INVENTORY
Inventories consist of the following (in thousands):
March 31, December 31,
1998 1997
--------- ------------
Raw materials . . . . . . $1,450 $1,141
Work in process . . . . . 300 10
Finished goods . . . . . . 1,282 1,361
----- -----
$3,032 $2,512
====== ======
5. ISSUANCE OF CONVERTIBLE DEBENTURES
a. Convertible Debentures due July 17, 2002 and August 14, 2002.
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In July 1997, the Company entered into a $20 million financing
commitment. Under the terms of the financing, the Company received $10,075,000
in July 1997 and $10,075,000 in August 1997 from the issuance of five-year
convertible debentures to accredited investors through Salomon Smith Barney Inc.
as placement agent. The convertible debentures accrue interest at 5% per annum,
payable in cash or common stock at the Company's option, at the time of
conversion. The debentures are convertible into common shares under a
predetermined formula. The first tranche of the debentures are convertible into
common shares at the lesser of (a) $25.98, or (b) the market price of the
Company's Common Stock at the time of conversion, with no more than 1,007,500
shares of Common Stock issuable in full payment of all accrued interest and
principal. In September 1997, the entire first tranche of convertible debentures
of $10,075,000 and related accrued interest converted into 890,394 shares of
common stock. The second tranche of the debentures are convertible into common
shares at the lesser of (a) $14.60, or (b) the market price of the Company's
Common Stock at the time of conversion, with no more than 1,507,500 shares of
Common Stock issuable in full payment of all accrued interest and principal. In
September 1997, $5,825,000 of the second tranche of convertible debentures and
related accrued interest converted into 512,572 shares of common stock. In
January and February 1998, the remaining $4,250,000 of the second tranche of
convertible debt and related accrued interest converted into 576,606 shares of
common stock.
In connection with the issuance of the first tranche of convertible
debentures, the Company issued 69,875 redeemable warrants to purchase shares of
its Common Stock at $27.81 per share. In connection with the issuance of the
second tranche of convertible debentures, the Company issued 80,125 redeemable
warrants to purchase shares of its Common Stock at $15.78 per share. If the
average closing sale price of its Common Stock for any consecutive 30 trading
day period commencing January 17, 1999 exceeds the exercise price by more than
50%, the Company has the right, exercisable at any time upon 30 days notice to
the holder to redeem the warrant at a price of $.10 per warrant share. The
warrants issued in connection with the first tranche expire on July 17, 2002.
The warrants issued in connection with the second tranche expire on August 14,
2002.
b. Convertible Debentures due April 23, 2003
In April 1998, the Company entered into a $10 million financing
commitment. Under the terms of the financing, the Company received $5 million in
April 1998 from the issuance of non-interest bearing five-year convertible
debentures (the first tranche) to accredited investors through Salomon Smith
Barney Inc. as placement agent. The debentures are convertible into common
shares under a predetermined formula. The first tranche of the debentures are
convertible into common shares at the lesser of (a) $19.53, or (b) commencing
July 22, 1998, the average of the five lowest consecutive closing bid price
during a look-back period consisting of thirty consecutive trading days prior to
conversion. In connection with the first tranche, the maximum number of the
Company's Common Stock issuable related to the debt conversion is 640,000.
In conjunction with the second tranche,the maximum number of the Company's
Common stock issuable related to the debt would be 671,422.The Company will
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
have the right to force conversion, in whole or in part, so long as the
Company's closing bid prices of its Common Stock has traded at or above $23.44
for a period of thirty day consecutive trading days, with thirty days prior
notice to the holder for cash or stock, at the option of the Company.
In connection with the first tranche, the Company issued 4,864
redeemable warrants to purchase shares of its Common Stock at $19.53 per share.
If the average closing sale price of its Common Stock for any consecutive 30
trading day period commencing April 23, 1999 exceeds the exercise price by more
than 50%, the Company has the right, exercisable at any time upon 30 days notice
to the holder to redeem the warrant at a price of $.10 per warrant share. The
warrants expire on April 23, 2003.
6. LEGAL PROCEEDINGS
In September 1996, CardioGenesis Corporation, ("CardioGenesis") filed a civil
lawsuit in the United States District Court for the Northern District of
California seeking to have the Company's synchronization patent declared
invalid, or, alternatively, asking the court to determine whether CardioGenesis
infringes on this patent. In October 1996, the Company filed an answer and
counterclaim alleging that CardioGenesis infringes on this patent. The
counterclaim seeks both injunctive relief and monetary damages against
CardioGenesis. In October 1997, CardioGenesis filed an amended complaint seeking
to have the Company's synchronization patent declared unenforceable.
CardioGenesis is not seeking monetary damages from the Company.
In January 1997, CardioGenesis Corporation, filed a challenge to the Company's
European synchronization patent in the European Patent Office and in March 1997
the Company filed its response. In addition, in April 1997, the Company filed an
infringement lawsuit against CardioGenesis in the Munich District Courts
alleging infringement of its synchronization patent. An oral hearing has been
scheduled in the Munich District Court on October 1, 1998.
The Company and certain of its officers have been named as defendants in 21
purported class action lawsuits filed between August 1997 and November 1997 in
the United States District Court for the District of Massachusetts. The suits
allege violations of the federal securities laws. The plaintiffs are seeking
damages in connection with such alleged violations. Nineteen of these complaints
have been consolidated by the court into a single action for pretrial purposes
and the remaining two suits have been consolidated into the one suit for
pretrial purposes . These matters are in the earliest stages of litigation and
the Company has filed motions to dismiss all of these claims. There can be no
assurance that the motions to dismiss these claims will be successful.
Management is unable to make a meaningful estimate of the amount or range of
loss that could result from an unfavorable outcome of these pending litigation
matters. It is possible that the Company's result of operations or cash
flows in a particular quarter or annual period or its financial position
could be materially affected by an ultimate unfavorable outcome of this
pending litigation. The Company believes that it has valid defenses to these
class action litigation matters and intends to vigorously defend itself in
these matters.
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Item 2.
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PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company has both a placement strategy and a direct/distributor sales
strategy for Heart Laser System purchases. The placement program allows the
Company to receive recurring revenues based on the usage of the Heart Laser
System rather than one-time revenues for the sale of each Heart Laser System.
Under the placement model, an installation fee is paid when the Heart Laser
System is installed and the Company then receives a fee per use. Sterile
handpieces and other disposables are included in the per procedure fee. Revenues
from these contracts are classified as placement fees. The cost of the Heart
Laser System is depreciated over the term of the contract. In the near term, it
is expected that placement revenues will continue to be negatively impacted
until the U.S. Food and Drug Administration ("FDA") approval is granted and
medicare reimbursement is granted by the Health Care Financing Administration
(HCFA).
In certain foreign countries where credit risk is high or where health care is
not reimbursed by the government or insurance, the Heart Laser System is sold as
capital equipment and the related sterile handpieces and other disposables are
sold separately for each procedure. The Company sells Heart Laser Systems
directly and through distributors. These sales are classified as product sales.
RESULTS OF OPERATIONS
Total revenues for the quarter ended March 31, 1998 were $945,000, a
decrease of 40% when compared to $1,588,000 for the quarter ended March 31,
1997. Product sales for the quarter ended March 31, 1998 were $365,000, a
decrease of 53% when compared to $771,000 for the quarter ended March 31, 1997.
In 1998, the Company shipped four Heart Laser Systems under the placement
strategy while in 1997, the Company shipped six Heart Laser Systems, of which
one was a sale and five where under the placement strategy. Included in the 1998
sales amount is recognition of deferred revenue from a 1996 sale accounting for
approximately 63% of product sales for the quarter ended March 31,1998.
Placement and service fees for the three months ended March 31, 1998
were $580,000, a decrease of 29% when compared with $817,000 for the same period
in fiscal 1997. Although the Company has increased its placement contract base,
revenue dollars have decreased. The Company generates a revenue stream over
the life of the placement contract. Typically, the revenue generated in the
initial periods of the contract are less than in later periods when PreMarket
Approval ("PMA") is anticipated and minimum contractual billings are increased.
In May 1997, the Health Care Financing Administration (HCFA) instituted a
non-coverage policy for TMR procedures performed on Medicare patients in
the United States. The HCFA announcement coupled with the July 28, 1997 FDA
Advisory Panel recommendation of non-approval caused the Company to
reexamine its requirement of contractual minimum billings prior to FDA approval.
As a result, the Company permitted a slowdown in the contractual minimum
billings to an actual usage billing. On April 24, 1998, an FDA Advisory Panel
unanimously recommended that the Heart Laser System for TMR be approved for
marketing for patients who suffer severe, stable angina. The FDA Panel's
decision is not binding. The Company awaits the FDA's final action on the
application. Until PMA approval and reimbursement, of which no assurance can be
given, the Company expects that future billings
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under placement contracts will be impacted similarly and the effect on future
revenue on existing contracts cannot be predicted.
Total gross profit for the three month period ended March 31, 1998
approximated 27% down from 48% for the comparable period in fiscal 1997. This
decrease resulted from two factors. First, the total gross margin declined due
to unfavorable capacity and manufacturing variances. The Company anticipates
that after PMA approval, of which no assurance can be given, production will
increase to levels which will absorb manufacturing overhead and mitigate these
variances. Secondly, the Company's existing placement contracts are in the
pre-PMA contractual minimum billings period, which are typically lower than
minimums required after PMA approval, of which no assurance can be given, at
which time annual minimums increase. The cost of the laser is charged on a
straight-line basis over the life of the placement contract. The overall
depreciation on Heart Laser Systems under existing placement contracts is
increasing at a faster rate than the corresponding revenue generated due to the
lower pre-PMA minimum billings. This has resulted in a lower gross margin in
1998 as compared to 1997. Until such time that the Company sees an increase to
its minimum billings on existing and future placement contracts, the gross
margin is expected to be negatively impacted.
Selling, general and administrative expenditures of $3,053,000 for the three
period ending March 31, 1998 increased 8% when compared to fiscal 1997
expenditures of $2,817,000. The increase in the quarter ended March 31, 1998
over the 1997 period primarily relates to additional sales and marketing
personnel in anticipation of a possible FDA approval.
Research and development expenditures for the three months ended March
31, 1998 was $1,291,000 an increase of 21% when compared to spending of
$1,071,000 for the comparable period in fiscal 1997. This increase is related to
increased staffing requirements associated with growing demands for clinical
study compilation and data preparation and the development of new products.
Other income of $151,000 for the period ended March 31, 1998 increased
$43,000 or 40% when compared to $108,000 for the comparable period in 1997.
Included in other income is interest income, interest expense and other expense.
Interest income for the three months ended March 31, 1998 was $192,000 when
compared to $92,000 for the comparable period in fiscal 1997. The Company's
average cash balances were higher in the 1998 period. Interest expense for the
three months ended March 31, 1998 was $42,000 when compared to $1,000 for the
comparable period in 1997. In 1998 the Company recorded interest expense on
the outstanding debentures. In the comparable period in 1997, there was no
outstanding debentures. The Company records transactions in several foreign
currencies, which resulted in currency fluctuation income of $1,000 for the
three months ended March 31, 1998 as compared to income of $17,000 for the three
months ended March 31, 1997.
The Company incurred a net loss of $3,936,000 for the quarter ended
March 31, 1998 when
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compared to the net loss of $3,022,000 for the quarter ended March 31, 1997. As
previously discussed in more detail, the following resulted in a higher loss for
the three month period in 1998; lower overall revenues, unfavorable capacity and
manufacturing variances, and higher overall expenses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and cash equivalents of
$9,952,000 and marketable securities of $3,005,000. In April 1998, the Company
entered into a $10 million financing commitment. Under the terms of the
financing, the Company received approximately $5 million in net proceeds through
the issuance of convertible debentures due April 23, 2003. See Note 5 in the
accompanying condensed consolidated financial statements.
For the three months ended March 31, 1998, the Company incurred a loss
of $3,936,000 which resulted in the use of approximately $2,500,000 to support
operations. Cash provided by investing activities was approximately $9,000,000
related to the net maturities of approximately $10,000,000 of marketable
securities, offset by an investment of approximately $900,000 in fixed assets
primarily related to its placement contract activity. Cash provided by financing
activities was approximately $200,000 from the exercise of stock options.
In February 1997, the Company's PMA was filed by the FDA. In
anticipation of a possible FDA approval, the Company had been increasing its
overall operating expenses to be positioned to increase its production
capacities. In order to be adequately positioned to meet these demands, the
Company secured financing in July 1997. On July 28, 1997, an FDA Advisory Panel
recommended a non-approval pending further patient data. In December 1997, the
Company submitted all of the requested data on the Heart Laser System. Given
this delay, the Company has monitored its operating expenses closely and
minimized increases to expenses and overhead during this period.
On April 24, 1998, an FDA Advisory Panel unanimously recommended that
the Heart Laser System for TMR be approved for marketing for patients who suffer
from severe, stable angina and are not amenable to conventional coronary
revascularization techniques (e.g., bypass surgery and angioplasty). As part
of its recommendation, the Panel described certain labeling conditions and
post-market surveillance obligations for FDA's consideration. The FDA Panel's
decision is not binding. The Company awaits the FDA's final action on the
application. The Company secured a financing commitment up to $10 million from
two institutional investors. On April 23, 1998, the Company received $5 million
from the issuance of convertible debentures due April 23, 2003, with a
commitment to receive up to an additional $5 million at the Company's option.
The Company has secured this additional capital to support a successful market
launch of the Heart Laser System to open-heart centers in the U.S. full FDA
clearance of which no assurance can be given. In addition, this new funding
will allow the Company to conduct further research in the TMR arena, such as an
ongoing study evaluating TMR as an adjunct to bypass surgery, as well as to
develop new products. With the $13 million in cash and marketable securities at
March 31, 1998, along with the $10 million financing commitment of April 23,
1998, the Company believes that it has sufficient resources to meet its working
capital demands for at least the next twelve months.
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The Company and certain of its officers have been named as defendants
in 21 purported class action lawsuits filed between August 1997 and November
1997. See Note 6 in the accompanying condensed consolidated financial statements
for further discussion. The Company has insurance coverage for such legal action
. The maximum deductable under such coverage has been incurred.
The Year 2000 Issue refers to potential problems with computer systems
or any equipment with computer chips or software that uses dates where the date
has been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar business activities. The Company is presently evaluating the impact of
the Year 2000 Issue as it affects business operations, interfaces with customers
and vendors, and contingencies related to products that have been sold that may
need to be modified. To date, the Company is unaware of any situations of
noncompliance that would materially adversely effect its operations or financial
condition. There can be no assurance, however, that instances of noncompliance
which could have a material adverse effect on the Company's operations or
financial condition will not be identified, that the systems of other companies
with which the Company transacts business will be corrected on a timely basis;
or that failure by such entities to correct a Year 2000 problem or a correction
which is incompatible with the Company's information systems would not have a
material adverse effect on the Company's operations and financial condition.
Unanticipated decreases in operating revenues, increases in expenses,
or a further delay in the expected FDA approval, may adversely impact the
Company's cash position. The Company may seek additional financing through the
issuance and sale of debt or equity securities, bank financing, joint ventures
or by other means. The availability of such financing and the reasonableness of
any related terms in comparison to market conditions cannot be assured.
The Company believes that operating losses are likely until after such
time, if ever , as the Company receives its PMA from the FDA for the Heart Laser
System. Although the Heart Laser System has been granted "expedited review"
status by the FDA, the Company cannot project when, if at all, such approval
will be granted or that any approval will include desirable claims. Any failure
or delay in receiving any such approval would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the Company must also convince health care professionals, third party
payors and the general public of the medical and economic benefits of the Heart
Laser System. No assurance can be given that the Company will be successful in
marketing the Heart Laser System or that the Company will be able to operate
profitably on a consistent basis.
This report contains forward-looking statements regarding anticipated
increases in revenues, marketing of products and proposed products and other
matters. These statements, in addition to statements made in conjunction with
the words "anticipate," "expect," "intend," "believe," "seek," "estimate" and
similar expressions are forward-looking statements that involve a number of
risks and uncertainties. The following is a list of factors, among others, that
would cause actual results to differ materially from the forward-looking
statements: approval by the U.S. Food and Drug
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Administration, business conditions and growth in certain market segments
and general economy, an increase in competition or other competitive
developments, increased or continued market acceptance of the Company's
products and proposed products by health care professionals and third party
payors, and other risks and uncertainties indicated from time to time in the
Company's annual report, SEC Form 10k for fiscal year ended December 31,1997 and
the Company's other filings with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
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PLC SYSTEMS INC.
Part II Other Information
ITEM 1. LEGAL PROCEEDINGS.
See Note 6 to Notes to Consolidated Financial Statements filed with
this Form 10-Q.
ITEM 2. CHANGES IN SECURITIES.
See Note 5 to Notes to Consolidated Financial Statements filed with
this Form 10-Q.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) EXHIBITS
(I) The following exhibits are filed herewith:
Exhibit
NO. TITLE
10a Convertible Debenture Purchase Agreement.
10b Form of Convertible Debenture.
10c Form of Redeemable Warrant
10d Registration Rights Agreement.
27 Financial Data Schedule.
b.) REPORTS ON FORM 8-K
None
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PLC SYSTEMS INC.
Part II Other Information
(Continued)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLC SYSTEMS INC.
Registrant
Date: MAY 15, 1998 By:/s/ PATRICIA L. MURPHY
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Patricia L. Murphy
(Chief Financial Officer)
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Exhibit 10.a
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
PLC SYSTEMS INC.
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April 23, 1998
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, dated as of April 23, 1998
(this "AGREEMENT"), among PLC Systems Inc., a corporation organized and existing
under the laws of British Columbia, Canada (the "COMPANY"), Southbrook
International Investments, Ltd., a British Virgin Islands corporation
("SOUTHBROOK"), Brown Simpson Strategic Growth Fund, L.P., a New York limited
partnership ("BROWN SIMPSON L.P."), and Brown Simpson Strategic Growth Fund,
Ltd., a Cayman Islands exempt company ("BROWN SIMPSON LIMITED"). Southbrook,
Brown Simpson Limited and Brown Simpson LP are each sometimes referred to herein
as a "PURCHASER" and collectively as 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 desire, severally and not jointly, to purchase up to an aggregate
principal amount of $10,000,000 of the Company's to be created Convertible
Debentures, due April 23, 2003 (the "CONVERTIBLE DEBENTURES"), which are
convertible into shares of the Company's common stock, no par value (the "COMMON
STOCK").
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
1.1 PURCHASE AND SALE, Subject to the terms and conditions set forth
herein, the Company shall issue and sell to the Purchasers and the Purchasers
shall, severally and not jointly, purchase an aggregate principal amount of up
to $10,000,000 of Convertible Debentures, at the closings described below. All
references herein to "dollars" or "$" shall be to U.S. dollars (U.S.$) unless
otherwise specified.
1.2 THE CLOSINGS (a) THE TRANCHE CLOSINGS. (i) 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 an
aggregate principal amount of $5,000,000 of Convertible Debentures (the"TRANCHE
1 DEBENTURES") for an aggregate purchase price of $5,000,000, each Purchaser
being obligated to pay a purchase price equal to the principal amount of
Tranche 1 Debentures to be issued and sold to it at the Tranche 1 Closing
(as defined below). The closing of the purchase and sale of the Tranche 1
Debentures (the "TRANCHE 1 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 Tranche 1 Closing
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is hereinafter referred to as the "TRANCHE 1 CLOSING DATE."
(ii) At the Tranche 1 Closing, (a) the Company
shall deliver (A) to Southbrook (1) $4,000,000 aggregate principal amount of
Tranche 1 Debentures and the Southbrook Tranche 1 Warrant (as defined in Section
3.17), each registered in the name of Southbrook, (2) the legal opinions of
Mintz, Levin, Cohen, Ferris, Glovsky and Popeo, P.C. and DuMoulin, Black,
substantially in the forms attached hereto as EXHIBIT E-1 and EXHIBIT E-2,
respectively (the "TRANCHE 1 OPINIONS"), and (3) all other documents,
instruments and writings required to have been delivered at or prior to the
Tranche 1 Closing by the Company to Southbrook pursuant to this Agreement; (B)
to Brown Simpson Limited (1) $750,000 aggregate principal amount of Tranche 1
Debentures and the Tranche 1 Brown Simpson Limited Warrant, each registered in
the name of Brown Simpson Limited, (2) a Tranche 1 Opinion, and (3) all other
documents, instruments and writings required to have been delivered at or prior
to the Tranche 1 Closing by the Company to Brown Simpson Limited pursuant to
this Agreement; and (C) to Brown Simpson L.P. (1) $250,000 aggregate principal
amount of Tranche 1 Debentures and the Tranche 1 Brown Simpson L.P. Warrant,
each registered in the name of Brown Simpson L.P., (2) a Tranche 2 Opinion, and
(3) all other documents, instruments and writings required to have been
delivered at or prior to the Tranche 1 Closing by the Company to Brown Simpson
L.P. pursuant to this Agreement; and (b) each Purchaser shall deliver to the
Company (1) the purchase price for the Tranche 1 Debentures being purchased by
it at the Tranche 1 Closing, determined in accordance with Section 1.2(a)(i), in
United States dollars in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose on or prior to the
Tranche 1 Closing Date, and (2) all documents, instruments and writings required
to have been delivered at or prior to the Tranche 1 Closing by such Purchaser
pursuant to this Agreement.
(b) THE TRANCHE 2 CLOSING. (i) Subject to the terms and conditions
set forth in this Agreement, the Company shall have the right by delivery of
written notice to the Purchasers (a "SUBSEQUENT TRANCHE NOTICE") to require the
Purchasers, severally and not jointly, to purchase Convertible Debentures in
such aggregate principal amount not to exceed $5,000,000 (subject to reduction
as hereinafter provided) as the Company may designate in such notice (the
"TRANCHE 2 DEBENTURES"), each Purchaser being obligated (subject to the terms
and conditions hereof) to purchase such portion of the aggregate principal
amount of such Convertible Debentures as equals such Purchaser's pro rata
portion of the aggregate principal amount of Tranche 1 Debentures issued and
sold at the Tranche 1 Closing. The Company may deliver a Subsequent Tranche
Notice no earlier than the expiration of the 30th Trading Day after the date
that a registration statement (an "UNDERLYING SECURITIES REGISTRATION
STATEMENT") contemplated by the Registration Rights Agreement, dated the date
hereof, among the Purchasers and the Company substantially in the form of
EXHIBIT B attached hereto (the "REGISTRATION RIGHTS AGREEMENT") covering, among
other things, the shares of Common Stock issuable upon conversion of the Tranche
1 Debentures and the shares of Common Stock issuable upon exercise of the
Tranche 1 Warrants has been declared effective by the Securities and Exchange
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Commission (the "COMMISSION") (provided, that Trading Days during which any
Purchaser (or its successors, permitted assigns or other successors in interest)
is unable to resell securities under such Underlying Securities Registration
Statement shall be added to such 30 Trading Day period), and no later than
December 31, 1998 (the "TRANCHE 2 CLOSING EXPIRATION DATE"). The closing of the
purchase and sale of the Tranche 2 Debentures (the "TRANCHE 2 CLOSING") shall
take place at the offices of Robinson Silverman on such date (which may not be
prior to the fifteenth Trading Day after receipt by the Purchasers of the
Subsequent Tranche Notice); PROVIDED that in no case shall the Tranche 2 Closing
take place unless and until the conditions listed in Section 4.1 have been
satisfied or waived by the appropriate party. The date of the Tranche 2 Closing
is hereinafter referred to as the "TRANCHE 2 CLOSING DATE." Notwithstanding
anything to the contrary contained herein, the Company may, by written notice to
each Purchaser provided prior to the Tranche 2 Closing Date, revoke such
Subsequent Tranche Notice in the event that the closing sale price of the Common
Stock, as reported by the American Stock Exchange or any other exchange or
market on which the Common Stock is then traded, decreases by more than 20% from
the date of the delivery of the Subsequent Tranche Notice and prior to the
Tranche 2 Closing Date.
(ii) At the Tranche 2 Closing, (a) the Company
shall deliver (A) to each Purchaser (1) a pro rata portion of the principal
amount (determined by reference to the principal amount of Tranche 1 Debentures
issued and sold at the Tranche 1 Closing) of the Tranche 2 Debentures to be
issued and sold thereat (or such other principal amount upon which the parties
may agree) and the applicable Tranche 2 Warrant, each registered in the name of
the appropriate Purchaser, (2) the legal opinions referenced in Section 4.1(k),
substantially in the forms attached hereto as EXHIBIT E-1 and EXHIBIT E-2,
respectively, and (3) all other documents, instruments and writings required to
have been delivered at or prior to the Tranche 2 Closing by the Company to the
Purchasers pursuant to this Agreement; and (b) each Purchaser shall, severally
and not jointly, deliver to the Company (1) the purchase price for the Tranche 2
Debentures being purchased by it at the Tranche 2 Closing, determined in
accordance with Section 1.2(a)(i), in United States dollars in immediately
available funds by wire transfer to an account designated in writing by the
Company for such purpose on or prior to the Tranche 2 Closing Date and (2) all
documents, instruments and writings required to have been delivered at or prior
to the Tranche 2 Closing by such Purchaser pursuant to this Agreement. In the
event that a Purchaser ("DEFAULTING PURCHASER") fails to purchase Tranche 2
Debentures in accordance with this Section 1.2(b)(ii) despite the performance by
the Company of its obligations under this Section and the satisfaction by the
Company of the conditions set forth in Section 4.1, the Company shall notify the
non-Defaulting Purchaser or Purchasers of such failure whereby the
non-Defaulting Purchaser or Purchasers shall have the option to purchase all or
any portion of the remaining Tranche 2 Debentures within 5 Business Days from
the later of the date it receives notice of such option and the Tranche 2
Closing Date. If no non-Defaulting Purchaser elects to purchase the remaining
Tranche 2 Debentures, the Company may then assign the Defaulting Purchaser's
rights hereunder to a third party, which party shall be reasonably acceptable to
the non-Defaulting Purchaser or Purchasers, without further obligation to the
Defaulting Purchaser to
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purchase the Tranche 2 Debentures. Failure by any Purchaser to buy Tranche 2
Debentures shall not affect the Company's obligations with respect to the
Tranche 1 Debentures acquired by such Purchaser, which shall remain unaffected
thereby.
1.3 FORM OF DEBENTURES. The Tranche 1 Debentures shall be in the form of
EXHIBIT A attached hereto. The Tranche 2 Debentures shall be identical to the
Tranche 1 Debentures, mutatis mutandis, except that the Conversion Price (as
defined below) for the Tranche 2 Debentures shall be reset as of the Original
Issue Date (as defined below) for the Tranche 2 Debentures.
For purposes of this Agreement, "CONVERSION PRICE," "ORIGINAL ISSUE
DATE," "TRADING DAY" and "PER SHARE MARKET VALUE" shall have the meanings set
forth in EXHIBIT A.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of British Columbia, Canada, 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 a corporation, duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate reasonably be
expected to (x) adversely affect the legality, validity or enforceability of
this Agreement, the Convertible Debentures, the Warrants (as defined in Section
3.17), or the Registration Rights Agreement (collectively, the "TRANSACTION
DOCUMENTS"), (y) have or result in a material adverse effect on the results of
operations, assets, prospects, or financial condition of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under the Transaction Documents
(any of the foregoing, a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by the
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Transaction Documents and otherwise to carry out its obligations thereunder. The
execution and delivery of each of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company. Each of the
Transaction Documents has been duly executed by the Company and when delivered
in accordance with the terms hereof shall constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, articles, by-laws or other charter documents (or
their foreign equivalents).
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is set forth in SCHEDULE 2.1(C). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in SCHEDULE 2.1(C), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Convertible Debentures and Warrants hereunder, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock. To
the knowledge of the Company, except as specifically disclosed in the SEC
Documents (as defined below) or SCHEDULE 2.1(C), no Person (as defined below)
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) or has the
right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock. 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 CONVERTIBLE DEBENTURES AND WARRANTS. The
Convertible Debentures and the Warrants are duly authorized, and, when issued
and paid for in accordance with the terms hereof, shall be validly issued, fully
paid and nonassessable. The Company, as at the Tranche 1 Closing Date and
Tranche 2 Closing Date, as the case may be (each, a "CLOSING DATE" and,
collectively, the "CLOSING DATES"), has and at all times while the Convertible
Debentures and the Warrants are outstanding will maintain an adequate reserve of
duly authorized shares of Common Stock to enable it to perform its conversion,
exercise and other obligations under this Agreement, the Warrants and the
Convertible Debentures, and in no
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circumstances shall such reserved and available shares of Common Stock be less
than the sum of (i) 1,311,422 shares of Common Stock for issuance upon
conversion of the Tranche 1 Debentures and Tranche 2 Debentures and (ii) the
number of shares of Common Stock which would be issuable upon exercise in full
of the Tranche 1 Warrants and Tranche 2 Warrants. The Company and the Purchasers
agree that all liquidated damages and early redemption or repayment amounts
payable pursuant to any Transaction Documents shall be paid in cash unless
otherwise consented to by the Purchasers. The shares of Common Stock issuable
upon conversion of Convertible Debentures and upon exercise of the Warrants are
collectively referred to herein as the "Underlying Shares." When issued in
accordance with the terms of the Convertible Debentures and the Warrants, the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable. The Convertible Debentures, Warrants and Underlying Shares are
collectively referred to herein as the "SECURITIES."
(e) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its Certificate of Incorporation or Articles (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 of, any agreement, indenture or instrument to which the Company is
a party, or (iii) to the knowledge of the Company, 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, state and foreign securities laws and regulations), or by
which any material property or asset of the Company is bound or affected, except
in the case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as could
not, individually or in the aggregate, have or result in a Material Adverse
Effect. Neither the business of the Company nor any Subsidiary is being
conducted in violation of any applicable law, ordinance or regulation of any
governmental authority which could, individually or in the aggregate, have a
Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
or make any filing or registration with, any court or other Federal, state,
local, foreign or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the Transaction
Documents other than (i) the filing of the Underlying Securities Registration
Statements with the Commission, which shall be filed in the time periods set
forth in the Registration Rights Agreement, (ii) the applications for the
listing of the Underlying Shares with the American Stock Exchange (and with any
other national securities exchange or market on which the Common Stock is then
listed), and (iii) other than, in all other cases, where the failure to obtain
such consent, waiver, authorization or order, or to give or make such notice or
filing, could not reasonably be expected to have or result in, individually or
in the aggregate, a Material
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Adverse Effect and to deliver to the Purchasers the Convertible Debentures or
the Warrant (and, upon conversion or exercise thereof, the Underlying Shares) in
the manner contemplated hereby and by the Registration Rights Agreement free and
clear of all liens and encumbrances of any nature whatsoever (the "REQUIRED
APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed
in the Disclosure Materials (as defined below), there is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against, or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
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 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 (Federal, state, local or
foreign), or (iii) is in violation of any statute, rule or regulation of any
governmental authority, except in each case as could not reasonably be expected
to individually or in the aggregate have or result in, individually or in the
aggregate, a Material Adverse Effect.
(i) PRIVATE OFFERING. Neither the Company nor any Person
acting on its behalf has taken or will take any action which might subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT").
(j) SEC DOCUMENTS. The Company has filed all reports required
to be filed by it under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), including pursuant to Section 13(a) or 15(d) thereof, for the
two 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 and any other information furnished by or on behalf
of the Company in connection with the offer and sale of the Securities to the
Purchasers, the "DISCLOSURE MATERIALS") on a timely basis, or has received a
valid extension of such time of filing. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the rules
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<PAGE> 9
and regulations of the Commission with respect thereto. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and the Subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods shown, subject, in the
case of unaudited statements, to normal year-end audit adjustments. Since the
date of the financial statements included in the Company's last filed Quarterly
Report on Form 10-Q, there has been no event, occurrence or development that has
had or that could have or result in a Material Adverse Effect which has not been
specifically disclosed in writing to the Purchasers by the Company. The Company
last filed audited financial statements with the Commission on March 31, 1998
and has not received any comments from the Commission in respect thereof.
(k) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(l) CERTAIN FEES. Other than fees due and payable to Smith
Barney, Inc. as set forth in the engagement letter previously furnished to the
Purchasers, no fees or commissions will be payable by the Company to any broker,
financial or investment advisor, placement agent finder, investment banker, bank
or any other Person acting in a similar capacity with respect to the
transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to such fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement. The
Company shall indemnify and hold harmless each of the Purchasers, their
respective employees, officers, directors, agents, and partners, and their
respective Affiliates (as such term is defined under Rule 405 promulgated under
the Securities Act), from and against all claims, losses, damages, costs
(including the costs of preparation and reasonable attorney's fees) and expenses
suffered in respect of any such claimed or existing fees.
(m) SOLICITATION MATERIALS. The Company has not (i)
distributed any offering materials in connection with the offering and sale of
the Securities other than the Disclosure Materials or (ii) 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, and at each Closing
Date will be, 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
Convertible Debentures to any Person other than the Purchasers and their
respective Affiliates and managed funds, if any, other than with the specific
prior written consent of the Purchasers.
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(p) LISTING MAINTENANCE REQUIREMENTS COMPLIANCE. The Company
has not in the two years preceding the date hereof received written notice from
any stock exchange or market 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.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) ORGANIZATON; AUTHORITY. Such Purchaser is a corporation
duly incorporated or a limited partnership duly formed, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
formation with the requisite power and authority to enter into and to consummate
the transactions contemplated hereby and by the Registration Rights Agreement
and otherwise to carry out its obligations hereunder and thereunder. The
purchase by such Purchaser of the Securities to be purchased by it hereunder has
been duly authorized by all necessary action on the part of such Purchaser. Each
of this Agreement and the Registration Rights Agreement has been duly executed
and delivered by such Purchaser and constitutes the valid and legally binding
obligation of such Purchaser, enforceable against such Purchaser, in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the
Securities to be purchased by it hereunder 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.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Convertible Debentures and the Tranche 1 Warrant to be purchased by it
hereunder, it was, and at the date hereof, it is, and at each Closing Date (and
on the Tranche 2 Closing Expiration Date, if applicable), it will be, an
"accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF 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 PURCHASER TO BEAR RISK OF INVESTMENT. Such
Purchaser is able to
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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. Each Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it 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 such
Purchaser believes 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.
(g) RELIANCE. Each Purchaser understands and acknowledges that
(i) the Convertible Debentures and the Warrants to be sold to it hereunder are
being offered and sold to it in a private placement that is exempt from the
registration requirements 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 the Purchasers make
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) If any Purchaser should decide to
dispose of any portion of the Securities held by it, each such Purchaser
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from or in a transaction not subject to, the registration
requirements thereof. In connection with any transfer of any portion of the
Securities other than pursuant to an effective registration statement or to the
Company, the transferor shall provide notice thereof to the Company who may
require the transferor thereof to provide to the Company an opinion of counsel
experienced in the area of United States securities laws 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.
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(b) Each Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE AND/OR EXERCISABLE HAVE BEEN REGISTERED WITH
THE UNITED STATES 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.
[FOR CONVERTIBLE DEBENTURES ONLY] THIS CONVERTIBLE DEBENTURE IS SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN A CONVERTIBLE
DEBENTURE PURCHASE AGREEMENT, DATED AS OF APRIL 23, 1998, EXECUTED BY
THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF PLC SYSTEMS INC.
The Underlying Shares shall not contain the legend set forth
above (or any other legend) if the conversion of Convertible Debentures or
exercise of Warrants, as the case may be, pursuant to which such Underlying
Shares are to be issued occurs at any time while the Underlying Securities
Registration Statement is effective under the Securities Act or in the event
there is not an effective Underlying Securities Registration Statement at such
time, if in the opinion of counsel to the Company experienced in the area of
United States securities laws such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). The Company agrees that
it will provide the Purchaser, upon request, with a certificate or certificates
representing Underlying Shares, free from any legend at such time as such
legends are no longer required pursuant to this Section.
3.2 STOP TRANSFER INSTRUCTION. 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 Section 3.1.
3.3 FURNISHING OF INFORMATION. As long as any Purchaser owns Underlying
Shares, the Company covenants to timely file (or obtain extensions in respect
thereof) all reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or 15(d) of the Exchange Act. If the Company is not at
the time required to file reports pursuant to such sections, it will prepare and
furnish to the Purchasers and make publicly available in accordance
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with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act.
3.4 COPIES AND USE OF DISCLOSURE MATERIALS. The Company consents to the
use of the Disclosure Materials, and any amendments and supplements thereto, by
the Purchasers in connection with resales of Securities other than pursuant to
an effective Underlying Securities Registration Statement.
3.5 BLUE SKY LAWS. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares under the securities
or Blue Sky laws of such jurisdictions as any Purchaser may reasonably request
and shall continue such qualification at all times through the third anniversary
of the last Closing Date; PROVIDED, HOWEVER, that neither the Company nor its
Subsidiaries shall be required in connection therewith to qualify as a foreign
corporation where they are not now so qualified or to take any action that would
subject the Company to general service of process in any such jurisdiction where
it is not then so subject.
3.6 INTEGRATION. The Company shall not and shall use its best efforts
to ensure that no Affiliate 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 issue or sale of any of the Securities to any Purchaser.
3.7 PURCHASER OWNERSHIP OF COMMON STOCK. Each of the Purchasers agrees
not to use its ability to convert Debentures and exercise Warrants to the extent
such conversion or exercise would result in it beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 4.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of the Debentures and
exercise of the Warrants held by it after application of this Section. To the
extent that the limitation contained in this Section applies, the determination
of whether Debentures are convertible by a Purchaser (in relation to other
securities owned by it) and of what portion thereof are convertible shall be in
the sole discretion of such Purchaser, and the submission of Debentures for
conversion shall be deemed to be such Purchaser's determination of whether such
Debentures are convertible (in relation to other securities owned by it) and of
which portion of its Debentures are convertible, in each case subject to such
aggregate percentage limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. Nothing contained herein
shall be deemed to restrict the right of a Purchaser to convert Debentures at
such time as such conversion will not violate the provisions of this Section.
The provisions of this Section may be waived by a Purchaser (but only as to
itself) upon not less than
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75 days prior notice to the Company, and the provisions of this Section shall
continue to apply until such 75th day (or later, if stated in the notice of
waiver).
3.8 LISTING AND RESERVATION OF UNDERLYING SHARES. The Company shall (a)
not later than the fifth Business Day following the Tranche 1 Closing Date
prepare and file with the American Stock Exchange (as well as any other national
securities exchange or market on which the Common Stock is then listed or
traded) an additional shares listing application covering all of the Underlying
Shares that are issuable in respect of conversions of Debentures, and exercise
of Warrants which number shall initially not be less than the sum of 640,000
Underlying Shares reserved for issuance upon conversion of Tranche 1 Debentures
and 4,864 shares reserved for issuance upon exercise of Tranche 1 Warrants and
Tranche 2 Warrants); (b) take all steps necessary to cause such shares to be
approved for listing in the American Stock Exchange (as well as on any other
national securities exchange or market on which the Common Stock is then listed)
as soon as possible thereafter; and (c) provide to the Purchasers evidence of
such listing, and the Company shall maintain the listing of its Common Stock on
such exchange. If the Tranche 2 Warrants are issued and delivered on or after
the Tranche 2 Closing Expiration Date, the Company shall (not later than five
Business Days thereafter) prepare and file with the American Stock Exchange (as
well as any other national securities exchange or market on which the Common
Stock is then listed or traded) an additional shares listing application
covering the number of Underlying Shares issuable upon exercise in full of the
Tranche 2 Warrants, and take all steps necessary to cause such shares to be
approved for listing thereon as soon as possible thereafter.
(b) The Company shall reserve for issuance upon conversion of the
Convertible Debentures and upon exercise of the Warrants in accordance with
their terms the number of shares to be listed on the American Stock Exchange
(and such other national securities exchange or market on which the Common Stock
is then listed or traded) as set forth in Section 3.8(a). Shares of Common Stock
reserved for issuance upon the conversion of the Convertible Debentures as set
forth in Section 3.8(a)(i)(1) and Section 3.8(a)(ii)(1), as the case may be,
shall be allocated pro rata to each of the Purchasers in accordance with the
principal amount of Convertible Debentures issued and delivered to such
Purchaser at the Tranche 1 Closing or the Trance 2 Closing, as applicable.
3.9 CONVERSION PROCEEDURES. EXHIBIT D attached hereto sets forth the
procedures with respect to the conversion of the Convertible Debentures,
including the forms of conversion notice to be provided upon conversion,
instructions as to the procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered by or on behalf of the Company to the
Company's transfer agent and such other information and instructions as may be
reasonably necessary to enable the Purchasers to exercise their right of
conversion smoothly and expeditiously.
3.10 PURCHASERS' RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED OR
DELISTED. If at
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any time while any Purchaser (or any assignee thereof) owns any Securities
trading in the shares of the Common Stock is suspended on or delisted from the
American Stock Exchange or any other principal market or exchange for such
shares (other than as a result of the suspension of trading in securities on
such market or exchange generally or temporary suspensions pending the release
of material information) for more than three Trading Days, at the option of any
Purchaser exercisable by written notice to the Company delivered within 60 days
of notice of such suspension or delisting, the Company shall repay in cash the
entire principal amount of then outstanding Convertible Debentures held by such
Purchaser and redeem all then outstanding Underlying Shares then held by such
Purchaser in cash, at an aggregate purchase price equal to the sum of (I) the
aggregate outstanding principal amount of Convertible Debentures then held by
such Purchaser multiplied by (1) the average Per Share Market Value for the five
(5) Trading Days immediately preceding (a) the day of such notice or (b) the
date of payment in full of the repurchase price calculated under this Section,
whichever is greater, divided by (2) the Conversion Price on the date of the
repurchase notice, (II) the aggregate of all non-principal amounts then payable
in respect of all Convertible Debentures to be repaid, (III) the number of
Underlying Shares then held by such Purchaser multiplied by the average Per
Share Market Value for the five (5) Trading Days immediately preceding (A) the
date of the notice or (B) the date of payment in full by the Company of the
repurchase price calculated under this Section, whichever is greater, and (IV)
interest on the amounts set forth in I - III above accruing from the 5th day
after such notice until the repurchase price under this Section is paid in full
at the rate of 15% per annum. The Company shall provide written notice of any
prepayment demand made pursuant to this Section to each other holder of
Securities within 24 hours of its receipt thereof.
3.11 NO VIOLATION OF APPLICABLE LAW. Notwithstanding any provision of
this Agreement to the contrary, if the repurchase of Convertible Debentures
and/or redemption of Underlying Shares otherwise required under this Agreement
would be prohibited by applicable law, such repurchase shall be effected as soon
as it is permitted under such law; PROVIDED, HOWEVER, that interest payable by
the Company with respect to any such repurchase and/or redemption shall continue
to accrue in accordance with Section 3.10.
3.12 USE OF PROCEEDS. The Company shall use all of the net proceeds
from the placement of the Securities for working capital purposes, which may
include the acquisition of complementary businesses or products, and not for the
satisfaction of any portion of Company or Subsidiary debt, or to redeem Company
equity or equity-equivalent securities in excess of, in the aggregate (for all
such satisfactions and redemptions) $1,000,000. Pending application of the
proceeds of this placement in the manner permitted hereby the Company will
invest such proceeds in interest bearing accounts and short-term, investment
grade interest bearing securities.
3.13 NOTICE OF BREACHES. (a) Each of the Company and each Purchaser
shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in this Agreement or in
the Registration Rights Agreement, as well as any events or occurrences arising
after the date hereof and prior to, with respect to the Tranche 1
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<PAGE> 16
Closing, the Tranche 1 Closing Date, with respect to the Tranche 2 Closing, the
Tranche 2 Closing Date which would reasonably be likely to cause any
representation or warranty or other agreement of such party, as the case may be,
contained herein to be incorrect or breached as of such Closing Date. The
Company shall give such notice to each Purchaser. 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 herein or in the
Registration Rights Agreement, and no such disclosure by any Purchaser shall
affect the rights of and obligations owing to the nondisclosing Purchasers under
the Transaction Documents.
(b) Notwithstanding the generality of Section 3.14(a), the Company
shall promptly notify each Purchaser of any notice or claim (written or oral)
that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated hereby and by the Registration
Rights Agreement violates or would violate any written agreement or
understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to the holders of the Convertible Debentures a
copy of any written statement in support of or relating to such claim or notice.
(c) The default by any Purchaser of any of its obligations,
representations or warranties under any Transaction Document shall not be
imputed to, and shall have no effect upon, any other Purchaser or affect the
Company's obligations under the Transaction Documents to any non-defaulting
Purchaser.
3.14 CONVERSION OBLIGATIONS OF THE COMPANY. The Company covenants to
honor conversions of Convertible Debentures and exercise of Warrants and to
deliver Underlying Shares in accordance with the terms and conditions and time
period set forth in the respective Convertible Debentures and Warrants.
3.15 RIGHT OF FIRST REFUSAL; SUBSEQUENT REGISTRATIONS; CERTAIN COMPANY
ACTIONS. (a) The Company shall not, directly or indirectly, without the prior
written consent of Southbrook and, on behalf of Brown Simpson Limited and Brown
Simpson LP, Brown Simpson Asset Management, LLC ("BROWN SIMPSON MANAGEMENT"),
offer, sell, grant any option to purchase, or otherwise dispose (or announce any
offer, sale, grant or any option to purchase or other disposition) of any of its
or its Affiliates equity or equity-equivalent securities at a price which is on
the face thereof or implied therein, less than either the market price or fair
market value for such securities (a "SUBSEQUENT FINANCING") for a period of 100
days after the last to occur of the Tranche 1 Closing Date or the Tranche 2
Closing Date (or, if later, the Tranche 2 Closing Expiration Date), except (i)
the granting of options to employees, officers and directors, and the issuance
of shares upon exercise of options granted, under any stock option plan
heretofore or hereinafter duly adopted by the Company, (ii) shares issued upon
exercise of any currently outstanding options and to the extent disclosed in
SCHEDULE 2.1(A), (iii) shares of Common Stock issued upon conversion of
Convertible Debentures and exercise of Warrants, (iv) shares issued or issuable
in connection with any registered primary public offering of the Company's
securities or
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in any private financing under which gross proceeds to the Company is at least
$25,000,000 (provided, that Southbrook and Brown Simpson Management shall have
the option to purchase up to 33% of any such private financing), (v) any
securities issued or issuable to any entity (or its stockholders) acquired by
the Company in a merger, stock or asset acquisition or similar transaction, or
(vi) any securities issued by the Company in connection with any technology
transfer or license agreement or marketing or similar joint venture agreement,
unless (A) the Company delivers to each of Southbrook and Brown Simpson
Management a written notice (the "SUBSEQUENT FINANCING NOTICE") of its intention
to effect such Subsequent Financing, which Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing shall be affected, and a term sheet or similar
document relating thereto (which shall be attached to such Subsequent Financing
Notice) and (B) neither Southbrook nor Brown Simpson Management shall have
notified the Company by 5:00 p.m. (Eastern Time) on the fifth Business Day after
its receipt of the Subsequent Financing Notice of its willingness to provide (or
to cause its sole designee to provide) such Subsequent Financing, subject to
completion and negotiation of definitive documentation therefor, on
substantially the terms set forth in the Subsequent Financing Notice. If neither
Southbrook nor Brown Simpson Management notifies the Company of its intention to
provide such Subsequent Financing within such time period, the Company may
effect the Subsequent Financing substantially upon the terms and to the Persons
(or Affiliates of such Persons) set forth in the Subsequent Financing Notice;
PROVIDED, that the Company shall provide each of Southbrook and Brown Simpson
Management with a second Subsequent Financing Notice, and each of Southbrook and
Brown Simpson Management shall again have the right of first refusal set forth
above in this Section 3.15(a), if the Subsequent Financing subject to the
initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within 60
Business Days after the date of the initial Subsequent Financing Notice with the
Person (or an Affiliate of such Person) identified in the Subsequent Financing
Notice. If Southbrook and Brown Simpson Management indicate a willingness to
provide Subsequent Financing in an amount that, in the aggregate, exceeds the
amount indicated in the Subsequent Financing Notice, then Southbrook (or its
designee) shall have the right to provide up to 80% and Brown Simpson (or its
designee) shall have the right to provide up to 20% of such Subsequent
Financing.
(b) Other than Underlying Shares and other "Registrable
Securities" (as defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement, the Company shall, for a
period of not less than 90 Trading Days after the date that the Underlying
Shares Registration Statement relating to the securities issued at the last to
occur of the Tranche 1 Closing Date or Tranche 2 Closing Date (or, if later, the
Tranche 2 Closing Expiration Date) is declared effective by the Commission, not,
without the prior written consent of 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 any Purchaser is unable to
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sell Underlying Shares under an Underlying Securities Registration Statement
shall be added to such 90 Trading Day period for the purposes of (i) and (ii)
above.
(c) As long as there are Convertible Debentures outstanding,
the Company shall not and shall cause the Subsidiaries not to, without the
consent of Purchasers, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of the Purchasers;
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares
of its Common Stock (except Underlying Shares and shares repurchased from
employees of the Company upon their termination of employment with the Company
not in excess of $1,000,000 in aggregate); or (iii) enter into any agreement
with respect to any of the foregoing. Any repurchase of Convertible Debentures
or Underlying Shares must be offered pro rata among the Purchasers in accordance
with their then held respective principal amount of Convertible Debentures.
3.16 THE WARRANTS. (a) At the Tranche 1 Closing the Company shall issue
and deliver (i) to Southbrook, a Common Stock purchase warrant (the "TRANCHE 1
SOUTHBROOK WARRANT") entitling Southbrook to purchase, on the terms and
conditions set forth therein, 3,891 shares of Common Stock at a price per share
equal to the Tranche 1 Warrant Exercise Price (as defined below); (ii) to Brown
Simpson LP, a Common Stock purchase warrant (the "TRANCHE 1 BROWN SIMPSON LP
WARRANT") entitling Brown Simpson LP to purchase, on the terms and conditions
set forth therein, 243 shares of Common Stock at a price per share equal to the
Tranche 1 Warrant Exercise Price; and (iii) to Brown Simpson Limited, a Common
Stock purchase warrant (the "TRANCHE 1 BROWN SIMPSON LIMITED WARRANT," and
together with the Southbrook Tranche 1 Warrant and the Brown Simpson LP Tranche
1 Warrant, the "TRANCHE 1 Warrants") entitling Brown Simpson Limited to
purchase, on the terms and conditions set forth therein, 730 shares of Common
Stock at an exercise price per share equal to the Tranche 1 Warrant Exercise
Price. The "TRANCHE 1 WARRANT EXERCISE PRICE" shall be equal to 125% of the
average Per Share Market Value for the five (5) Trading Days immediately
preceding the Tranche 1 Closing Date.
(b) At the earlier to occur of the Tranche 2 Closing Date or
the Tranche 2 Closing Expiration Date, the Company shall issue and deliver (i)
to Southbrook, a Common Stock purchase warrant entitling Southbrook to purchase,
on the terms and conditions set forth therein, a number of shares of Common
Stock equal to (A) if the Tranche 2 Warrants are issued on the Tranche 2 Closing
Date, 1% of the purchase price to be paid by Southbrook for the Tranche 2
Debentures to be issued and sold to it at the Tranche 2 Closing or (B) if the
Tranche 2 Warrants are to be issued and delivered on the Tranche 2 Closing
Expiration Date, the number of shares to which the Tranche 1 Southbrook Warrant
entitled Southbrook to purchase, at a price per share equal to the Tranche 2
Warrant Exercise Price (as defined below); (ii) to Brown Simpson LP, a Common
Stock purchase warrant entitling Brown Simpson LP to purchase, on the terms and
conditions set forth therein, a number of shares of Common Stock equal to (A) if
the Tranche 2 Warrants are issued and delivered on the Tranche 2 Closing Date,
1% of the purchase price to be paid by Brown Simpson LP for the Tranche 2
Debentures to be issued and sold to it at
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the Tranche 2 Closing or (B) if the Tranche 2 Warrants are to be issued and
delivered on the Tranche 2 Closing Expiration Date, the number of Shares to
which the Tranche 1 Brown Simpson LP Warrant entitled Brown Simpson LP to
purchase, at a price per share equal to the Tranche 2 Warrant Exercise Price;
and (iii) to Brown Simpson Limited, a Common Stock purchase warrant entitling
Brown Simpson Limited to purchase, on the terms and conditions set forth
therein, a number of shares of Common Stock equal to (A) if the Tranche 2
Warrants are issued on the Tranche 2 Closing Date, 1% of the purchase price to
be paid by Brown Simpson Limited for the Tranche 2 Debentures to be issued and
sold to it at the Tranche 2 Closing or (B) if the Tranche 2 Warrants are to be
issued and delivered on the Tranche 2 Closing Expiration Date, the number to
which the Tranche 1 Brown Simpson Limited Warrant entitled Brown Simpson Limited
to purchase, at a price per share equal to the Tranche 2 Warrant Exercise Price.
The "TRANCHE 2 WARRANT EXERCISE PRICE" shall equal (a) if the Tranche 2 Warrants
are issued and delivered on the Tranche 2 Closing Date, 125% of the average Per
Share Market Value for the five (5) Trading Days immediately preceding such date
or (b) if the Tranche 2 Warrants are to be issued and delivered on the Tranche 2
Closing Expiration Date, 125% of the average Per Share Market Value for the five
(5) Trading Days immediately preceding such date. The Common stock purchase
Warrants described in this paragraph are collectively referred to herein as the
"TRANCHE 2 WARRANTS, and the Tranche 1 Warrants and the Tranche 2 Warrants are
collectively referred to herein as the "WARRANTS." In each case of determining
the number of shares issuable on exercise of the Tranche 2 Warrants if such
warrants are issued on the Tranche 2 Closing Date, such number shall be
determined by Smith Barney, Inc. using the Black-Scholes pricing model.
(c) The Warrants shall be substantially in the form of EXHIBIT
C. The failure of a Tranche 2 Closing with respect to any Purchaser due to a
failure by the Company to timely deliver a Subsequent Tranche Notice or to
satisfy all of the conditions set forth in section 4.1 shall not affect the
Company's obligation to issue and deliver Tranche 2 Warrants on the Tranche 2
Closing Expiration Date.
3.17 TRANSACTIONS IN THE COMMON STOCK. The Purchasers will not
establish a short position in the Common Stock during the fifteen (15) Trading
Days after receipt of a Subsequent Funding Notice and prior to the Tranche 2
Closing Date. Any existing short position may be maintained.
3.18 LIMITING AGREEMENTS. So long as Convertible Debentures are
outstanding, the Company will not enter into a contract, agreement or
understanding that would restrict the Company's ability to pay principal,
liquidated damages or penalty interest pursuant to any Transaction Documents.
3.19 LIMITATION ON AMOUNT OF TRANCHE 2 FINANCING. Notwithstanding
anything to the contrary contained herein, if the Company shall not have
previously obtained Stockholder Approval as contemplated under Section 4(a)(ii)
of EXHIBIT A, then the Company may not require the Purchasers to acquire, and
the amount of financing indicated on any Subsequent Tranche
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Notice shall be reduced as necessary so that the Purchasers shall be required to
acquire a principal amount of Tranche 2 Debentures equal to no more than the
Maximum Amount. The Maximum Amount shall be a principal amount of Tranche 2
Debentures that, if converted in full in accordance with their terms as at the
Tranche 2 Closing Date, would result in the issuance to the Purchasers of a
number of Underlying Shares equal to one half of the amount by which (i) the
Issuable Maximum (as defined in Section 4(a)(ii) of EXHIBIT A), exceeds (ii) the
sum of (A) any Underlying Shares theretofore issued on conversion of the Tranche
1 Debentures, plus (B) 200% of the number of Underlying Shares as would be
issuable upon conversion in full of any principal amount of Tranche 1 Debentures
then outstanding (assuming such conversions occurred in full on the Tranche 2
Closing Date), plus (C) 1,979,572 shares of Common Stock.
ARTICLE IV
CONDITIONS
4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS
TO PURCHASE THE TRANCHE 2 DEBENTURES. The obligation of each Purchaser hereunder
to acquire and pay for Tranche 2 Debentures is subject to the satisfaction or
waiver by such Purchaser at or before the Tranche 2 Closing of each of the
following conditions:
(a) TRANCHE 1 CLOSING. The Tranche 1 Closing shall have
occurred;
(b) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained herein shall be true
and correct in all material respects as of the date when made and as of the
Tranche 2 Closing Date as though made on and as of such date;
(c) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Tranche 2 Closing
Date;
(d) UNDERLYING SECURITIES REGISTRATION STATEMENTS. The
Underlying Securities Registration Statement with respect to the Underlying
Shares issuable on conversion and exercise of all outstanding Tranche 1
Debentures and Tranche 1 Warrants shall have been declared effective under the
Securities Act by the Commission and such Underlying Registration Statement
shall have remained effective and shall not be subject to any stop order and no
stop order shall be pending or threatened as at the Tranche 2 Closing Date;
(e) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority which prohibits
the consummation of any of the transactions
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contemplated by this Agreement or the Registration Rights Agreement relating to
the issuance or conversion of any of the Securities;
(f) MANAGEMENT. Neither Dr. Robert I. Rudko nor William C. Dow
shall have left the Company or suffered a voluntary or involuntary material
lessening of responsibility as Chairman or Chief Executive Officer (as the case
may be) and, if the Company shall deliver a Subsequent Tranche Notice after
October 23, 1998, the Company shall have previously hired a Chief Financial
Officer;
(g) NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in
the Common Stock shall not have been suspended by the Commission or on the
American Stock Exchange (except for any suspension of trading of limited
duration solely to permit dissemination of material information regarding the
Company and except if, at the time there is any suspension on the American Stock
Exchange, the Common Stock is then listed and approved for trading on the New
York Stock Exchange, Nasdaq National Market or Nasdaq SmallCap Market within one
(1) Trading Day thereof);
(h) LISTING OF COMMON STOCK. The Common Stock shall have been
at all times between the Tranche 1 Closing Date and the Tranche 2 Closing Date,
and on the Tranche 2 Closing Date shall be, listed for trading on the American
Stock Exchange, New York Stock Exchange, Nasdaq National Market or Nasdaq
SmallCap Market;
(i) CHANGE OF CONTROL. No Change of Control in the Company
shall have occurred since the Tranche 1 Closing Date. "Change of Control" means
the occurrence of any of (i) an acquisition after the date hereof by an
individual, group (as defined in Rule 13d-1 promulgated under the Exchange Act),
or legal entity of in excess of 30% 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 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 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);
(j) LEGAL OPINIONS. The Company shall have delivered to such
Purchaser opinions of outside legal counsel to the Company in substantially the
forms attached hereto as EXHIBIT E-1 and EXHIBIT E-2, and dated the Tranche 2
Closing Date;
(k) REQUIRED APPROVALS. All Required Approvals shall have
been obtained;
(l) SHARES OF COMMON STOCK. On the Tranche 2 Closing Date the
Company shall have reserved for issuance to the Purchasers the number of shares
of Common
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Stock specified in Section 3.8(a)(ii);
(m) DELIVERY OF SECURITIES. The Company shall have delivered
to Robinson Silverman (or such other Person acceptable to such Purchaser and the
Company) in escrow pending the Tranche 2 Closing the Tranche 2 Convertible
Debentures and Tranche 2 Warrants being purchased at the Tranche 2 Closing by
such Purchaser, registered in the name of such Purchaser, each in form
satisfactory to Robinson Silverman (or such other Person);
(n) PERFORMANCE OF CONVERSION/EXERCISE OBLIGATIONS. The
Company shall have (a) delivered Underlying Shares upon conversion of Tranche 1
Convertible Debentures and exercise of Tranche 1 Warrants and otherwise
performed its obligations in accordance with the terms, conditions and timing
requirements of the Tranche 1 Convertible Debentures and Tranche 1 Warrants; and
(o) MARKET PRICE OF COMMON STOCK. The closing sale price of
the Common Stock as reported by the American Stock Exchange or any other
exchange or market on which the Common Stock is then listed shall be the greater
of at least $8.00 per share for each of the fifteen (15) Trading Days
immediately preceding each of the date of Subsequent Tranche Notice and the
Tranche 2 Closing Date, provided that, in either case, all material information
regarding the Company has been publicly disseminated on a timely basis, whether
or not the Company has a duty under federal securities laws to disclose such
information.
ARTICLE V
MISCELLANEOUS
5.1 FEES AND EXPENSES. 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, except as set forth in
the Registration Rights Agreement PROVIDED, that the Company shall pay the fees
due and payable to Brown Simpson as set forth in the engagement letter
previously furnished to Purchasers. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of the Shares pursuant
hereto.
5.2 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement, the
Convertible Debentures and the Warrants 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.
5.3 NOTICES. Any and all notices or other communications or deliveries
required or
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<PAGE> 23
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 8:00 p.m. (New York City time) on a Business
Day, (ii) the Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in the Purchase Agreement later than 8:00 p.m. (New York City time) on
any date and earlier than 11:59 p.m. (New York City time) on such date, (iii)
the Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:
If to the Company: PLC Systems Inc.
10 Forge Park
Franklin, MA 02038
Attn: William C. Dow, Chief Executive Officer
Facsimile No.: (508) 541-7990
With copies to: Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Neil H. Aronson
Facsimile No.: (617) 542-2241
If to Southbrook: Southbrook International Investments, Ltd
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Facsimile No.: (212) 32-3256
Attn: Robert L. Miller
If to Brown Simpson LP: Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Facsimile No.: (212) 247-1329
Attn: Mitchell Kaye
If to Brown Simpson
Limited: Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Facsimile No.: (212) 247-1329
Attn: Mitchell Kaye
-22-
<PAGE> 24
With copies
in the case of any
Purchasers to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
5.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and 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 requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
5.5 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.
5.6 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 each of the Purchasers. No Purchaser may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company, except that any Purchaser may assign its rights
hereunder and under the Transaction Documents without the consent of the Company
as long as such assignee demonstrates to the reasonable satisfaction of the
Company its satisfaction of the representations and warranties set forth in
Section 2.2. This provision shall not limit a Purchaser's right to transfer
securities or transfer or assign rights hereunder or under the Registration
Rights Agreement.
5.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, other than with respect to Section 3.15, which is intended in part
for the benefit of and which may be enforced by Brown Simpson Management, and
with respect to permitted assignees under Section 5.6, is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
5.8 GOVERNING. This Agreement shall be governed by and construed and
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<PAGE> 25
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
5.9 SURVIVAL. The agreements and covenants contained in ARTICLE III, IV
and this ARTICLE V shall survive the delivery and conversion of the Convertible
Debentures pursuant to this Agreement and the representations and warranties of
the Company and the Purchasers contained in ARTICLE II shall survive until a
date that is three years after the last Closing Date.
5.10 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.
5.11 PUBLICITY. The Company shall consult with each Purchaser and each
Purchaser shall consult with the Company prior to issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
hereby and the Company shall not issue any such press release or otherwise make
any such public statement without the prior written consent of each Purchaser
and the Purchasers shall not issue any such press release or otherwise make any
public statement without the prior written consent of the Company, 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 parties shall provide the other parties with prior notice of such
public statement.
5.12 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 affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
5.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchasers (severally and
not jointly) agree that monetary damages would 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.
-24-
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Debenture Purchase Agreement to be duly executed as of the date
first indicated above.
Company:
PLC SYSTEMS INC.
By:/s/ Patricia L. Murphy
----------------------
Patricia L. Murphy
Chief Financial Officer
Purchasers:
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
By:/s/ Kenneth L. Henderson
------------------------
Kenneth L. Henderson
Attorney-in-Fact
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By:/s/ Mitchell Kaye
-----------------
Mitchell Kaye
Principal
BROWN SIMPSON STRATEGIC
GROWTH FUND, L.P.
By:/s/ Mitchell Kaye
-----------------
Mitchell Kaye
Principal
-25-
<PAGE> 27
SCHEDULE 2.1(A)
SUBSIDIARIES
<TABLE>
<CAPTION>
- ---------------------------------------------------- ------------------------------ ================================
NAME Jurisdiction Percentage
of of Equity
ORGANIZATION Securities Owned
BY THE COMPANY
<S> <C> <C>
- ---------------------------------------------------- ------------------------------ ================================
PLC Medical Systems, Inc. Delaware 100%
- ---------------------------------------------------- ------------------------------ ================================
PLC Sistemas Medicos Internacionais, Lda Portugal 100%
- ---------------------------------------------------- ------------------------------ ================================
PLC Sistemas Medicos GmbH Germany 100%
- ---------------------------------------------------- ------------------------------ ================================
PLC Medical Systems AG Switzerland 100%
- ---------------------------------------------------- ------------------------------ ================================
PLC Medical Systems Asia/Pacific Pte Ltd. Singapore 100%
- ---------------------------------------------------- ------------------------------ ================================
PLC Medical Systems France France 100%
- ---------------------------------------------------- ------------------------------ ================================
PLC Medical Systems Australia Pty. Ltd. Australia 100%
- ---------------------------------------------------- ------------------------------ ================================
</TABLE>
-26-
<PAGE> 28
EXHIBIT 2.1(c)
PLC SYSTEMS CAPITALIZATION TABLE
Shares Authorized 25,000,000
Shares O/S @ 04/22/98 (18,980,081)
Shares reserved for options outstanding (2,804,983)
Shares reserved for warrants outstanding (150,000)
------------
Balance Remaining 3,064,936
<PAGE> 1
EXHIBIT 10.b
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
CONVERSION SET FORTH IN A CONVERTIBLE DEBENTURE PURCHASE AGREEMENT, DATED AS OF
APRIL 23, 1998, EXECUTED BY THE ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF PLC SYSTEMS INC.
No. [ ] U.S. $500,000
PLC SYSTEMS INC.
CONVERTIBLE DEBENTURE DUE APRIL 23, 2003
THIS DEBENTURE is one of a duly authorized issue of debentures of PLC
Systems Inc. a corporation organized and existing under the laws of British
Columbia, Canada, having a principal place of business at 10 Forge Park,
Franklin, MA 02038 (the "Company"), designated as its Convertible Debentures,
due April 22, 2003, in an aggregate principal amount of up to $10,000,000 (the
"Debentures").
FOR VALUE RECEIVED, the Company promises to pay to [ ], or registered
assigns (the "Holder"), the principal sum of Five Hundred Thousand dollars
($500,000), on or prior to April 23, 2003 or such earlier date as the Debentures
are required to be repaid as provided hereunder (the "Maturity Date"). The
principal of this Debenture is payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
records of the Company regarding registration and transfer of Debentures (the
"Debenture Register"), except that principal paid on April 23, 2003 may, at the
Company's option, be paid in shares of the Common Stock (as defined in Section
6) calculated based upon the average Per Share Market Value for the five (5)
Trading Days immediately preceding the Conversion Date or Maturity
<PAGE> 2
Date, as provided below, as the case may be. All amounts due hereunder shall be
paid in cash or in Common Stock as provided herein. A transfer of the right to
receive principal under this Debenture shall be transferable only through an
appropriate entry in the Debenture Register as provided herein.
This Debenture is subject to the following additional provisions:
Section 1. The Debentures are issuable in denominations of Two
Hundred Fifty Thousand Dollars ($250,000) and integral multiples of Fifty
Thousand Dollars ($50,000) in excess thereof. No service charge will be made for
such registration of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holders set forth in the Convertible
Debenture Purchase Agreement, dated as of April 23, 1998, as amended from time
to time (the "Purchase Agreement"), and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any Federal, state,
local or foreign administrative or governmental body):
(a) any default in the payment of the principal of, or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable on the
Conversion Date or the Maturity Date or by acceleration or otherwise;
(b) the Company shall fail to observe or perform any warranty
contained in, or any representation of the Company shall prove to have
been incorrect when given under, or the Company shall fail to observe
or perform in any material respect any covenant or agreement under, or
otherwise commit any breach of, this Debenture, the Purchase Agreement,
any Warrant (as defined in the Purchase Agreement) or the Registration
Rights Agreement (as defined in Section 6), and such failure or breach
shall not have been remedied within 30 days after the date on which
notice of such failure or breach shall have been given;
(c) the Company or any of its subsidiaries shall commence, or
there shall be commenced against the Company or any such subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or
<PAGE> 3
the Company commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether
now or hereafter in effect relating to the Company or any subsidiary
thereof or there is commenced against the Company or any subsidiary
thereof any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part
of its property which continues undischarged or unstayed for a period
of 60 days; or the Company or any subsidiary thereof makes a general
assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be unable to
pay, its debts generally as they become due; or the Company or any
subsidiary thereof shall call a meeting of its creditors with a view to
arranging a composition or adjustment of its debts; or the Company or
any subsidiary thereof shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Company or any subsidiary
thereof for the purpose of effecting any of the foregoing;
(d) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there is indebtedness of the Company
exceeding Four Hundred Thousand dollars ($400,000) secured by assets of
the Company (or any Subsidiary thereon), whether such indebtedness now
exists or shall hereafter be created and such default shall result in
such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;
(e) the Common Stock shall be delisted from the American Stock
Exchange or any other national securities exchange or market on which
such Common Stock is listed for trading or suspended from trading
thereon without being relisted or having such suspension lifted, as the
case may be, within three Trading Days;
(f) the Company shall be a party to any merger or
consolidation pursuant to which the Company shall not be the surviving
entity or shall dispose of all or substantially all of its assets in
one or more transactions, or shall redeem more than a de minimis number
of shares of Common Stock (other than an aggregate of $1,000,000 of
shares of Common Stock which may be repurchased from employees upon
their termination of employment with the Company, calculated by
reference to the market price of the Common Stock at such time, and
other than redemptions of Underlying Shares (as defined in Section 6));
or
(g) the Company shall fail to deliver certificates to holders
prior to the 15th day after a Conversion Date pursuant to Section 4(b).
-3-
<PAGE> 4
If during the time that any portion of this Debenture remains outstanding, any
Event of Default occurs and is continuing, and in every such case, then the
Holders may, by notice to the Company, declare the full principal amount of this
Debenture, together with all other amounts owing hereunder, to the date of
acceleration, to be, plus the "Adjustment Amount" (as defined in Section 6)
whereupon the same shall become, immediately due and payable in cash
(notwithstanding anything herein contained to the contrary) without presentment,
demand, protest or other notice of any kind, all of which are waived by the
Company, notwithstanding anything herein contained to the contrary, and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
Section 4. Conversion.
(a) (i) This Debenture shall be convertible into shares of the
Common Stock (subject to reduction pursuant to Section 4(a)(ii) below and
Section 3.7 of the Purchase Agreement) at the option of the Holder in whole or
in part at any time and from time to time after the ninetieth (90th) day
following the Original Issue Date and prior to the close of business on the
Maturity Date unless such conversion occurs at the Initial Conversion Price (as
defined below), in which event this Debenture shall be convertible at the option
of the Holder immediately after the Original Issue Date. The Holder shall effect
conversions by surrendering the Debentures (or such portions thereof) to be
converted, together with the form of conversion notice attached hereto as
Exhibit A (the "Conversion Notice") to the Company. Each Conversion Notice shall
specify the principal amount of Debentures to be converted (which may not be
less than $100,000 or such less principal amount of Debentures than held by such
Holder) and the date on which such conversion is to be effected, which date may
not be prior to the date such Conversion Notice is deemed to have been delivered
pursuant to Section 4(h) (the "Conversion Date"). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date that the
Conversion Notice is deemed delivered pursuant to Section 4(h). Subject to
Sections 4(a)(ii) and 4(b) hereof and Section 3.7 of the Purchase Agreement,
each Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by the Debenture(s)
tendered by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 5(b)) a new
Debenture for such principal amount as has not been converted.
(ii) Certain Regulatory Approval. If on the
Conversion Date applicable to any conversion, (A) the Common Stock is then
listed for trading on the American Stock Exchange , (B) the Conversion Price
then in effect is such that the aggregate number of shares of the Common Stock
that would then be issuable upon conversion of the entire outstanding principal
amount of Debentures, together with any shares of the Common Stock previously
issued upon conversion of Debentures would equal or exceed 20% of the number of
shares of the
-4-
<PAGE> 5
Common Stock outstanding on the Original Issue Date (the "Issuable Maximum"),
and (C) the Company has not previously obtained the Stockholder Approval (as
defined below), then the Company shall issue to the Holder requesting such
conversion the Issuable Maximum and, with respect to any shares of the Common
Stock that otherwise would have been issuable to such holder in respect of the
Conversion Notice at issue or in respect of payment of interest hereunder in
excess of the Issuable Maximum, the Holder shall have the option to require the
Company to either (1) as promptly as possible, but in no event later than 90
days after such Conversion Date, convene a meeting of the holders of the Common
Stock and use its reasonable efforts to obtain the Stockholder Approval or (2)
prepay, from funds legally available therefor at the time of such prepayment,
the balance of the principal amount of the Debentures subject to such Conversion
Notice and the remaining aggregate principal amount of Debentures then
outstanding and held by such Holder at a price equal to the sum of (A) the
principal amount of Debentures then outstanding and held by such Holder
multiplied by the product of (i) the average Per Share Market Value for the five
(5) Trading Days immediately preceding (1) the Conversion Date or (2) the date
of payment in full by the Company of such prepayment price, whichever is
greater, divided by (ii) the Conversion Price calculated on the Conversion Date
plus (B) all other amounts then due in respect of such Debentures; provided,
however, that if the Holder has requested that the Company obtain Stockholder
Approval under paragraph (1) above and the Company fails for any reason to
obtain such Stockholder Approval within the time period set forth in (1) above,
the Company shall be obligated to prepay Debentures in accordance with the
provisions of paragraph (2) above, and in such case the interest contemplated by
the immediately succeeding sentence shall be deemed to accrue from the
Conversion Date. If the Holder has requested that the Company prepay Debentures
pursuant to this Section and the Company fails for any reason to pay the
prepayment price under (2) above within seven days after the Conversion Date,
the Company will pay interest on such prepayment price at a rate of 15% per
annum to the converting Holder, accruing from the Conversion Date until the
prepayment price plus any accrued interest thereon is paid in full. The entire
prepayment price, including interest thereon, shall be paid in cash.
"Stockholder Approval" means the approval by a majority of the total votes cast
on the proposal, in person or by proxy, at a meeting of the stockholders of the
Company held in accordance with the Company's Certificate of Incorporation and
by-laws, of the issuance by the Company of shares of the Common Stock exceeding
the Issuable Maximum as a consequence of the conversion of Debentures into the
Common Stock at a price less than the greater of the book or market value on the
Original Issue Date as and to the extent required pursuant to Rule 713 of the
American Stock Exchange (or any successor or replacement provision thereof).
(iii) Maximum Conversion Shares. Notwithstanding
anything to the contrary set forth herein, the Company shall not be obligated to
issue in excess of 816,326 shares of Common Stock upon conversion of Debentures,
which shares shall constitute payment in full of the principal hereunder on
April 23, 2003, which number shall be subject to adjustment pursuant to Section
4 (other than the first sentence of Section 4(c)(i). In accordance with the
Purchase Agreement such number of shares shall be available on a pro rata basis
based upon the pro rata purchase price for the Debentures paid by the original
Holders of Debentures. Shares of Common Stock issued in respect of penalties and
liquidated damages hereunder shall not count
-5-
<PAGE> 6
towards the 816,326 share limit referenced in this paragraph and shall be paid
in cash unless otherwise agreed to by the Holders.
(b) Not later than three Trading Days after the Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1 of the Purchase Agreement) representing the number
of shares of the Common Stock being acquired upon the conversion of Debentures
(subject to reduction pursuant to Section 4(a)(ii) hereof and Section 3.7 of the
Purchase Agreement) and (ii) Debentures in a principal amount equal to the
principal amount of Debentures not converted; provided, however, that the
Company shall not be obligated to issue certificates evidencing the shares of
the Common Stock issuable upon conversion of the principal amount of Debentures
until Debentures are either delivered for conversion to the Company or any
transfer agent for the Debentures or the Common Stock, or the Holder notifies
the Company that such Debenture has been lost, stolen or destroyed and provides
a bond (or other adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith (in
which case the Company shall issue a replacement Debenture in like principal
amount). The Company shall, upon request of the Holder, use its best efforts to
deliver any certificate or certificates required to be delivered by the Company
under this Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. If in the
case of any Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of the Common Stock to be issued on the Conversion
Date on account of accrued but unpaid interest hereunder, are not delivered to
or as directed by the applicable Holder by the third Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the Debentures tendered for conversion. If the Company fails
to deliver to the Holder such certificate or certificates pursuant to this
Section, including for purposes hereof, any shares of the Common Stock to be
issued on the Conversion Date on account of accrued but unpaid interest
hereunder, prior to the fifth Trading Day after the Conversion Date, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
$1,500 for each day after such fifth Trading Day until such certificates are
delivered.
(c) (i) The conversion price (the "Conversion Price") in
effect on any Conversion Date shall be the lesser of (a) 125% of the average Per
Share Market Value of the Common Stock for the five (5) Trading Days immediately
preceding the Original Issue Date (the "Initial Conversion Price") and (b) the
average of the five (5) consecutive lowest Per Share Market Values for the
thirty (30) Trading Days immediately preceding the Conversion Date (which Per
Share Market Value will not include days on which the converting Holder
established a short position in the Common Stock; provided that, if the average
Per Share Market Value for five (5) consecutive Trading Days is equal to or
greater than the Initial Conversion Price, then the Conversion Price may not,
subject to the operation of the immediately succeeding sentence, be less than
85% of the average Per Share Market Value of the Common Stock for the five (5)
Trading Days immediately preceding the Original Issue Date. If a registration
statement
-6-
<PAGE> 7
registering the resale of the shares of Common Stock issuable upon conversion of
the Debentures and naming the Holder as a Selling Stockholder thereunder (the
"Underlying Shares Registration Statement") is not filed on or prior to the 30th
day after the Original Issue Date, or (b) the Company fails to file with the
Securities and Exchange Commission (the "Commission") a request for acceleration
in accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Shares Registration Statement will not be "reviewed" or is not
subject to further review or comment by the Commission, or (c) the Underlying
Shares Registration Statement is not declared effective by the Commission on or
prior to the 90th day after the Original Issue Date, or (d) such Underlying
Shares Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at any
time prior to the expiration of the "Effectiveness Period" (as such term as
defined in the Registration Rights Agreement), without being succeeded by a
subsequent Underlying Shares Registration Statement filed with and declared
effective by the Commission within 10 Business Days (as defined in Section 6),
or (e) trading in the Common Stock shall be suspended for any reason for more
than three Trading Days, or (f) if the conversion rights of the Holders of
Debentures hereunder are suspended for any reason (any such failure being
referred to as an "Event," and for purposes of clauses (a), (c) and (f) the date
on which such Event occurs, or for purposes of clause (b) the date on which such
five (5) days period is exceeded, or for purposes of clause (d) the date which
such 10 Business Day-period is exceeded, or for purposes of clause (e) the date
on which such three Trading Day period is exceeded, being referred to as "Event
Date"), the Conversion Price shall be decreased by 2.5% on the Event Date and
each monthly anniversary thereof until the earlier to occur of the second month
anniversary after the Event Date and such time as the applicable Event is cured
(i.e., the Conversion Price would decrease by 2.5% as of the Event Date and an
additional 2.5% as of the one month anniversary of such Event Date). Commencing
the second month anniversary after the Event Date, at the option of each Holder
for each applicable monthly period either (a) the Company shall pay to the
Holders 2.5% of the product of the principal amount of outstanding Debentures
(each Holder being entitled to receive such portion of such amount as equals its
pro rata portion of Debentures then outstanding), in cash or (b) the Conversion
Price shall be decreased by 2.5% for each additional such month (to be effective
in full on the monthly applicable Event Date) as liquidated damages, and not as
a penalty on the first day of each monthly anniversary of the Event Date in
either case until such time as the applicable Event is cured. Any decrease in
the Conversion Price pursuant to this Section shall not be subject to a
Conversion Price floor and shall remain in effect notwithstanding the fact that
the Event causing such decrease has been subsequently cured and further monthly
decreases have ceased. The provisions of this Section are not exclusive and
shall in no way limit the Company's obligations under the Registration Rights
Agreement.
(ii) If the Company, at any time while any
Debentures are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of the Common Stock, (b)
subdivide outstanding shares of the Common Stock into a larger number of
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<PAGE> 8
shares, (c) combine outstanding shares of the Common Stock into a smaller number
of shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Company, the Initial Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
the Common Stock (excluding treasury shares, if any) outstanding before such
event and of which the denominator shall be the number of shares of the Common
Stock outstanding after such event. Any adjustment made pursuant to this Section
4(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Company, at any time while any
Debentures are outstanding, shall issue rights or warrants to all holders of the
Common Stock (and not to Holders of Debentures) entitling them to subscribe for
or purchase shares of the Common Stock at a price per share less than the Per
Share Market Value of the Common Stock at the record date mentioned below, the
Initial Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of the Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section 4(c)(iii),
if any such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be recomputed
and effective immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the Initial
Conversion Price made pursuant to the provisions of this Section 4 after the
issuance of such rights or warrants) had the adjustment of the Initial
Conversion Price made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that number of shares of
the Common Stock actually purchased upon the exercise of such rights or warrants
actually exercised.
(iv) If the Company, at any time while
Debentures are outstanding, shall distribute to all holders of the Common Stock
(and not to Holders of Debentures) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 4(c)(ii) and (iii) above), then in each such case the
Initial Conversion Price at which Debentures shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of the Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per Share
Market Value
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<PAGE> 9
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of Debentures then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in good faith, in which case the fair market value shall be equal to
the average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Debentures of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(v) All calculations under this Section 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(vi Whenever the Initial Conversion Price is
adjusted pursuant to Section 4(c)(ii),(iii) or (iv), the Company shall promptly
mail to each Holder of Debentures in accordance with Section 5(h), a notice
setting forth the Initial Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(vii) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holder of this Debenture
shall have the right thereafter to, at its option, (A) convert the then
outstanding principal amount, together with any other amounts then owing
hereunder in respect of this Debenture only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
the Common Stock following such reclassification or share exchange, and the
Holders of the Debentures shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount, together with any
other amounts then owing hereunder in respect of this Debenture could have been
converted immediately prior to such reclassification or share exchange would
have been entitled or (B) require the Company to prepay, from funds legally
available therefor at the time of such prepayment, all of its Debentures at a
price equal to the sum of (i) the aggregate of the principal amount of
Debentures then held by the Holder multiplied by (a) the average Per Share
Market Value for the five (5) Trading Days immediately preceding (1) the
effective date of the reclassification or share exchange triggering such
prepayment right or (2) the date of payment in full by the Company of the
prepayment price hereunder, whichever is greater, divided by (b) the Conversion
Price calculated on such effective date, plus (ii) the aggregate of all other
amounts then payable in respect of all Debentures to be repaid hereunder. The
entire redemption price
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<PAGE> 10
shall be paid in cash, and the terms of payment of such redemption price shall
be subject to the provisions set forth in Section 5(b). The terms of any such
reclassification or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities, cash or property set
forth in this Section 4(c)(vii) upon any conversion following such event. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(viii) If:
A. the Company shall declare a
dividend (or any other
distribution) on its Common Stock;
or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption (other than redemptions of
the stock of employees upon their
termination of employment with the
Company in an aggregate amount not to
exceed $1,000,000, calculated by
reference to the market price of the
Common Stock at such time) of its
Common Stock; or
C. the Company shall authorize the
granting to all holders of the Common
Stock rights or warrants to subscribe
for or purchase any shares of capital
stock of any class or of any rights;
or
D. the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company,
any consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially all
of the assets of the Company, of any
compulsory share of exchange whereby
the Common Stock is converted into
other securities, cash or property;
or
E. the Company shall authorize the
voluntary or involuntary
dissolution, liquidation or winding
up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be mailed to the
Holders of Debentures at their last addresses as they shall appear upon the
stock books of the Company, at least 30 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as
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<PAGE> 11
of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to mail
such notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
Holders are entitled to convert Debentures during the 30-day period commencing
the date of such notice to the effective date of the event triggering such
notice.
(d) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially and
adversely affect the rights of the Holders (different than or distinguished from
the effect generally on rights of holders of any class of the Company's capital
stock) or if at any time any such conditions are expected to arise by reason of
any action contemplated by the Company, the Company shall mail a written notice
briefly describing the action contemplated and the material adverse effects of
such action on the rights of the Holders at least 30 calendar days prior to the
effective date of such action, and an Appraiser mutually acceptable to the
Holders of majority in interest of the Debentures and the Company shall give its
opinion as to the adjustment, if any (not inconsistent with the standards
established in this Section 4), of the Conversion Price (including, if
necessary, any adjustment as to the securities into which Debentures may
thereafter be convertible) and any distribution which is or would be required to
preserve without diluting the rights of the Holders. The determination of the
Appraiser shall be final.
(e) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures, as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, the sum of 1,311,422 shares of Common
Stock for issuance (on a pro rata basis as described in Section 4(a)(iii) upon
conversion of Debentures (taking into account the adjustments and restrictions
of Section 4(c)). The Company covenants that all shares of the Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and, if the Underlying Shares Registration
Statement has been declared effective under the Securities Act, freely
tradeable.
(f) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(g) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate,
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<PAGE> 12
provided that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the Holder of such
Debentures so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(h) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
10 Forge Park, Franklin, MA 02038 (facsimile number (508) 581-7990, attention
Chief Executive Officer with copy to Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., attention Neil H. Aronson (facsimile number (617) 542-2241), or
such other address or facsimile number as the Company may specify for such
purposes by notice to the Holders delivered in accordance with this Section. Any
and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to each Holder of the Debentures
at the facsimile telephone number or address of such Holder appearing on the
books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (New York City time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) four days after deposit in the United States mails, (iv) the
Business Day following the date of mailing, if send by nationally recognized
overnight courier service, or (v) upon actual receipt by the party to whom such
notice is required to be given.
Section 5. Company Conversion: Company Prepayment.
(a) Provided that the average Per Share Market Value for any
consecutive 30 Trading Day period commencing on the Original Issue Date exceeds
the Initial Conversion Price by more than 50%, this Debenture shall be
convertible in whole or in part into a number of shares of Common Stock at the
Conversion Price at the option of the Company; provided, however, that the
Company is not permitted to deliver a Company Conversion Notice (as defined
below) within 10 days after issuing any press release or other public statement
relating to such conversion or at any time when the Underlying Securities
Registration Statement is not then effective or shares of Common Stock are not
listed for trading. In addition, provided there is an effective Underlying
Securities Registration Statement at such time or the Holders are eligible to
resell Common Stock without volume restrictions, pursuant to Rule 144(k)
promulgated under the Securities Act, the Company shall have the right to
convert any outstanding principal amount
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<PAGE> 13
of Debentures on April 23, 2003. The Company shall effect any such conversion by
delivering to the Holder a written notice in the form attached hereto as Exhibit
B (the "Company Conversion Notice"), which Company Conversion Notice, once
given, shall be irrevocable. Each Company Conversion Notice shall specify the
principal amount of Debentures to be converted. The Company shall deliver such
Company Conversion Notice at least two (2) Trading Days before the Maturity Date
or the date of conversion (such date is hereinafter referred to as the "Company
Conversion Date"). Upon its receipt of a Company Conversion Notice, the Holder
shall surrender the principal amount of Debentures subject to such notice at the
office of the Company or of any transfer agent for the Debentures or Common
Stock. If the Company is converting less than the aggregate principal amount of
all Debentures, the Company shall, upon conversion of the principal amount of
Debentures subject to such Company Conversion Notice and receipt of the
Debentures surrendered for conversion, deliver to the Holder, a replacement
Debenture for such principal amount of Debentures as have not been converted.
Each of a Holder Conversion Notice and a Company Conversion Notice is sometimes
referred to herein as a "Conversion Notice," and each of a "Holder Conversion
Date" and a "Company Conversion Date" is sometimes referred to herein as a
"Conversion Date."
(b)(i) Provided that the average Per Share Market Value for
any consecutive 30 Trading Day period exceeds the Initial Conversion Price by
more than 50%, the Company shall have the right, exercisable at any time upon 30
Trading Days notice (an "Optional Prepayment Notice") to the Holders to prepay
all or any portion of the principal amount of Debentures then outstanding, at a
price equal to the Optional Prepayment Price (as defined below). The entire
Optional Prepayment Price shall be paid in cash. Holders of Debentures may
convert (and the Company shall honor such conversions in accordance with the
terms hereof) of Debentures, including the portion thereof subject to an
Optional Prepayment Notice, during the period from the date thereof through the
29th Trading Day after the receipt of an Optional Prepayment Notice.
(ii) If any portion of the Optional Prepayment Price shall not
be paid by the Company by the 30th Trading Day after the delivery of an Optional
Prepayment Notice, interest shall accrue thereon at the rate of 15% per annum
until the Optional Prepayment Price plus all such interest is paid in full (any
such amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of the Optional Prepayment Price remains unpaid for
more than seven (7) calendar days after the date due, the Holder of Debentures
subject to such prepayment may elect, by written notice to the Company given at
any time thereafter, to either (a) demand conversion in accordance with the
formula and the time frame therefor set forth herein of all or any portion of
the principal amount of Debentures for which such Optional Prepayment Price,
plus accrued liquidated damages thereof, has not been paid in full (the "Unpaid
Prepayment Amount"), in which event the Per Share Market Value for such Unpaid
Prepayment Amounts shall be the lower of the Per Share Market Value calculated
on the date the Optional Prepayment Price was originally due and the Per Share
Market Value as of the Holder's written demand for conversion, or (b) invalidate
ab initio such prepayment, notwithstanding anything herein contained to the
contrary. If the Holder elects option (a) above, the Company shall within three
(3) Trading Days of its receipt of such election deliver to the Holder the
shares
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<PAGE> 14
of Common Stock issuable upon conversion of the Unpaid Prepayment Amount subject
to such Holder conversion demand and otherwise perform its obligations hereunder
with respect thereto; or, if the Holder elects option (b) above, the Company
shall promptly, and in any event not later than three (3) Trading Days from
receipt of Holder's notice of such election, return to the Holder all of the
Unpaid Prepayment Amount.
(iii) The "Optional Prepayment Price" shall equal the full
principal amount of the Debenture, together with all other amounts owing
thereunder, plus the Adjustment Amount (as defined in Section 6).
Section 6. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Adjustment Amount" is equal to (i) the aggregate principal
amount of Debentures then outstanding multiplied by (A) the average Per Share
Market Value for the five Trading Days immediately preceding (1) the applicable
Trigger Date or (2) the date of payment of all amounts due as a result of such
Event of Default, whichever is greater, divided by (B) the Conversion Price with
respect to the aggregate principal amount of Debentures then outstanding
calculated on the applicable Trigger Date, minus (ii) the aggregate principal
amount of Debentures then outstanding, plus all other amounts due, except for
those referred to in (i) above pursuant to the terms hereof.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in New
York City or in the Province of British Columbia, Canada are authorized or
required by law or other government action to close.
"Common Stock" means the Company's common stock, without par
value, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Original Issue Date" shall mean the date of the first
issuance of any Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the American
Stock Exchange or other stock exchange or quotation system on which the Common
Stock is then listed or if there is no such price on such date, then the closing
bid price on such exchange or quotation system on the date nearest preceding
such date, or (b) if the Common Stock is not listed then on the American Stock
Exchange or any stock exchange or quotation system, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by the Nasdaq
Stock Market or in the National Quotation Bureau Incorporated or similar
organization or
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<PAGE> 15
agency succeeding to its functions of reporting prices) at the close of business
on such date, or (c) if the Common Stock is not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an appraiser selected in good faith by
the Holders of a majority in interest of the Debentures; provided, however, that
the Company, after receipt of the determination by such appraiser, shall have
the right to select an additional appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated April 23, 1998, among the Company and the original holders of
Debentures.
"Trading Day" means (a) a day on which the Common Stock is
traded on the American Stock Exchange or other stock exchange or market on which
the Common Stock has been listed, or (b) if the Common Stock is not listed on
the Nasdaq SmallCap Market or any stock exchange or market, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices).
"Trigger Date" shall mean, (i) with respect to an Event of
Default caused by an event described in Section 3(a), the date the payment of
principal at issue was due, (ii) with respect to an Event of Default caused by
an event described in Section 3(b), the date specified in any other provision of
this Debenture, the Purchase Agreement or the Registration Rights Agreement that
require prepayment of the outstanding principal amount of this Debenture as a
result of an event so contemplated, if not, the date such event becomes an Event
of Default pursuant to Section 3(b), and (iii) with respect to an Event of
Default caused by an event described in Section 3(c), (d), (e) and (f), the date
such event becomes an Event of Default pursuant to such Sections.
"Underlying Shares" means the number of shares of Common Stock
into which the Debentures are convertible in accordance with the terms hereof
and the Purchase Agreement.
Section 7. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed. This Debenture
is a direct obligation of the Company. This Debenture ranks pari passu with all
other Debentures now or hereafter issued under the terms set forth herein. The
Company may only voluntarily prepay the outstanding principal amount on the
Debentures in accordance with Section 5 hereof.
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<PAGE> 16
Section 8. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof.
Section 11. Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Debenture.
Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next calendar month, the preceding Business Day in the appropriate
calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
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<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Convertible
Debenture to be duly executed by an officer thereunto duly authorized as of the
date first above indicated.
PLC SYSTEMS INC.
By:/s/ Patricia L. Murphy
-------------------------
Name: Patricia L. Murphy
Title: Chief Financial Officer
Attest:
By:/s/ Robert J. Rudko
----------------------
Name: Robert J. Rudko
Title: Chairman
<PAGE> 18
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. [ ] into shares of Common
Stock, no par value per share (the "Common Stock"), of PLC Systems Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name
Address
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Common
Stock outstanding on such date and the number of shares of Common Stock which
would be issuable to the holder if the conversion requested in this conversion
notice were effected in full, whereupon, if the Company determines that such
conversion would result in it owning in excess of 4.999% of the outstanding
shares of Common Stock on such date, the Company shall convert up to an amount
equal to 4.999% of the outstanding shares of Common Stock and issue to the
holder one or more certificates representing Debentures which have not been
converted as a result of this provision.
<PAGE> 19
EXHIBIT B
PLC SYSTEMS INC.
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of PLC SYSTEMS INC. (the "Company")
hereby notifies the addressee hereof that the Company hereby elects to exercise
its right to convert the above Debenture No. [ ] into shares of Common Stock, no
par value per share (the ACommon Stock@), of the Company according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any,
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debentures to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name:
Address:
<PAGE> 1
EXHIBIT 10.c
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
PLC SYSTEMS INC.
REDEEMABLE WARRANT
Warrant No. [ ]Dated April 23, 1998
PLC Systems Inc., a corporation organized and existing under the laws
of British Columbia, Canada (the "Company"), hereby certifies that, for value
received, [ ], or its registered assigns ("Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company up to a total of [ ] shares
of Common Stock, no par value (the "Common Stock"), of the Company (each such
share, a "Warrant Share" and all such shares, the "Warrant Shares") at an
exercise price equal to $19.53 per share (as adjusted from time to time as
provided in Section 8, the "Exercise Price"), at any time and from time to time
from and after the date hereof and through and including April 23, 2003 or
earlier as provided herein (the "Expiration Date"), and subject to the following
terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Company at the office specified in or pursuant to Section 3(b). Upon any
such registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a
"New Warrant"),
<PAGE> 2
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the
surrender hereof by the Holder to the office of the Company specified in or
pursuant to Section 3(b) for one or more New Warrants, evidencing in the
aggregate the right to purchase the number of Warrant Shares which may then be
purchased hereunder. Any such New Warrant will be dated the date of such
exchange.
3. Duration, Exercise of Warrants and Redemption.
(a) This Warrant shall be exercisable by the
registered Holder on any business day before 5:30 P.M., New York time, at any
time and from time to time on or after the date hereof to and including the
Expiration Date. At 5:30 P.M., New York time on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of no
value.
(b) Subject to Sections 2(b), 6 and 10, upon
surrender of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its office at 10 Forge Park,
Franklin, MA 02038, Attention: Chief Financial Officer, or at such other address
as the Company may specify in writing to the then registered Holder, and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in lawful money of the United States
of America, in cash or by certified or official bank check or checks, all as
specified by the Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 3 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate for the Warrant Shares issuable upon such exercise,
free of restrictive legends other than as required by the Purchase Agreement of
even date herewith between the Holder and the Company. Any person so designated
by the Holder to receive Warrant Shares shall be deemed to have become holder of
record of such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in
its entirety or, from time to time, for a portion of the number of Warrant
Shares. If less than all of the Warrant Shares which may be purchased under this
Warrant are exercised at any time, the Company shall
2
<PAGE> 3
issue or cause to be issued, at its expense, a New Warrant evidencing the right
to purchase the remaining number of Warrant Shares for which no exercise has
been evidenced by this Warrant.
(d) If the average closing sale price of the Common
Stock for any consecutive 30 Trading Day period commencing April 23, 1999
exceeds the Exercise Price by more than 50%, the Company shall have the right,
exercisable at any time upon 30 days notice to the Holder given at any time
after April 23, 1999, to redeem this Warrant at a price of $.10 per Warrant
Share. Any portion of this Warrant not exercised by 5:00 p.m. (New York time) on
the 30th day following such notice (the "Redemption Date") shall be returned to
the Company and the Company shall issue therefor in full and complete
satisfaction of its obligations under such remaining portion to the Holder an
amount equal to the number of shares of Common Stock then issuable hereunder
multiplied by $.10 per share (the "Redemption Price"). The Redemption Price
shall be payable to the Holder and shall be mailed to such persons at their
address of record, and the Warrant shall be cancelled. The Holder may exercise
this Warrant during the period from the date of such call notice through the
29th day thereafter.
4. Payment of Exercise Price. The Holder may pay the Exercise
Price in cash or, in the event that a registration statement covering the resale
of the Warrant Shares and naming the holder thereof as a selling stockholder
thereunder is not effective for the resale of the Warrant Shares at any time
during the term of this Warrant, pursuant to a cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver
immediately available funds;
(b) Cashless Exercise. The Holder shall
surrender this Warrant to the Company together with a notice of cashless
exercise, in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the closing sale prices of the Common
Stock for the Trading Day immediately prior
to the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
3
<PAGE> 4
5. Piggyback Registration Rights. During the term of this
Warrant the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4 including supplements thereto) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, but not
additionally filed registration statements in respect of such securities), each
as promulgated under the Securities Act of 1933, as amended, pursuant to which
the Company is registering securities pursuant to a Company employee benefit
plan or pursuant to a merger, acquisition or similar transaction) unless the
Company provides the Holder with not less than 20 days notice to each of the
Holder and Robinson Silverman Pearce Aronsohn & Berman LLP, attention Kenneth L.
Henderson, notice of its intention to file such registration statement and
provides the Holder the option to include any or all of the applicable Warrant
Shares therein. The piggyback registration rights granted to the Holder pursuant
to this Section shall continue until all of the Holder's Warrant Shares have
been sold in accordance with an effective registration statement or upon the
expiration of this Warrant. The Company will pay all registration expenses in
connection therewith.
6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder, and the Company shall not be required to issue or cause
to be issued or deliver or cause to be delivered the certificates for Warrant
Shares unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company may in its discretion issue or cause to be
issued in exchange and substitution for and upon cancellation hereof, or in lieu
of and substitution for this Warrant, a New Warrant, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and indemnity, if reasonably satisfactory to it. Applicants for a
New Warrant under such circumstances shall also comply with such other
reasonable regulations and procedures and pay such other reasonable charges as
the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in
4
<PAGE> 5
accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 8. Upon each such adjustment of
the Exercise Price pursuant to this Section 8, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this
Warrant is outstanding, (i) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock (as defined below)
or on any other class of capital stock and not the Common Stock) payable in
shares of Common Stock, (ii) subdivide outstanding shares of Common Stock into a
larger number of shares, or (iii) combine outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision or combination, and shall apply to successive
subdivisions and combinations.
(b) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company in
which the consideration therefor is equity or equity equivalent securities or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 8(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this
Warrant is outstanding, shall distribute to all holders of Common Stock (and not
to holders of this Warrant) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security
5
<PAGE> 6
(excluding those referred to in Sections 8(a), (b) and (d)), then in each such
case the Exercise Price shall be determined by multiplying the Exercise Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Exercise Price determined as of the record date
mentioned above, and of which the numerator shall be such Exercise Price on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by a nationally recognized or
major regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") mutually
selected in good faith by the holders of a majority in interest of the Warrants
then outstanding and the Company. Any determination made by the Appraiser shall
be final.
(d) If, at any time while this Warrant is
outstanding, the Company shall issue or cause to be issued rights or warrants to
acquire or otherwise sell or distribute shares of Common Stock to all holders of
Common Stock for a consideration per share less than the Exercise Price then in
effect, then, forthwith upon such issue or sale, the Exercise Price shall be
reduced to the price (calculated to the nearest cent) determined by dividing (i)
an amount equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the Exercise
Price, and (B) the consideration, if any, received or receivable by the Company
upon such issue or sale by (ii) the total number of shares of Common Stock
outstanding immediately after such issue or sale.
(e) For the purposes of this Section 8, the following
clauses shall also be applicable:
(i) Record Date. In case the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them (A) to receive a dividend or other distribution payable in Common
Stock or in securities convertible or exchangeable into shares of Common Stock,
or (B) to subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
6
<PAGE> 7
(i) the Company shall
declare a dividend (or
any other distribution) on
its Common Stock; or
(ii) the Company shall declare a
special nonrecurring cash
dividend on or a redemption
(other than redemptions of
the stock of employees upon
their termination of
employment with the Company
in an aggregate amount not
to exceed $1,000,000,
calculated by reference to
the market price of the
Common Stock at such time)
of its Common Stock; or
(iii) the Company shall authorize
the granting to all holders
of the Common Stock rights
or warrants to subscribe
for or purchase any shares
of capital stock of any
class or of any rights; or
(iv) the approval of any
stockholders of the Company
shall be required in
connection with any
reclassification of the
Common Stock of the
Company, any consolidation
or merger to which the
Company is a party, any
sale or transfer of all or
substantially all of the
assets of the Company, or
any compulsory share
exchange whereby the Common
Stock is converted into
other securities, cash or
property; or
(v) the Company shall authorize
the voluntary dissolution,
liquidation or winding up
of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
7
<PAGE> 8
10. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 9,
be issuable on the exercise of this Warrant, the Company shall, at its option,
(i) pay an amount in cash equal to the Exercise Price multiplied by such
fraction or (ii) round the number of Warrant Shares issuable, up to the next
whole number.
11. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (Eastern Standard 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
Section later than 8:00 p.m. (Eastern Standard Time) on any date and earlier
than 11:59 p.m. (Eastern Standard 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 addresses for such communications shall be: (1) if to
the Company, to PLC Systems Inc., 10 Forge Park, Franklin, MA 02038, Attention:
Chief Financial Officer, or to facsimile no. (508) 541-7990 with a copy to
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., One Financial Center, Boston,
MA 02111, Attention: Neil H. Aronson or (ii) if to the Holder, to the Holder at
the address or facsimile number appearing on the Warrant Register or such other
address or facsimile number as the Holder may provide to the Company in
accordance with this Section 11.
12. Warrant Agent.
(a) The Company shall serve as warrant agent under
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent.
(b) Any corporation into which the Company or any
new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing signed by the Company and
the Holder.
8
<PAGE> 9
(b) Subject to Section 12(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under
this Warrant; this Warrant shall be for the sole and exclusive benefit
of the Company and the Holder.
(c) This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of
this Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
9
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
PLC SYSTEMS INC.
By:/s/ Patricia L. Murphy
----------------------
Patricia L. Murphy
Chief Financial Officer
10
<PAGE> 11
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To PLC Systems Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), no par value, of PLC Systems Inc. and
encloses herewith $________ in cash or certified or official bank check or
checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) for the number of shares of Common Stock to which this Form of Election
to Purchase relates, together with any applicable taxes payable by the
undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: Name of Holder:
________________________, _____ (Print)
(By:)
(Name:)
(Title:)
------------------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the
Warrant)
11
<PAGE> 12
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of PLC Systems Inc. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of PLC Systems Inc. with full power of
substitution in the premises.
Dated:
- ---------------, ----
---------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
12
<PAGE> 1
EXHIBIT 10.d
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made
and entered into as of April 23, 1998, among PLC Systems Inc., a corporation
organized and existing under the laws of British Columbia, Canada (the
"COMPANY"), Southbrook International Investments, Ltd., a British Virgin Islands
corporation ("SOUTHBROOK"), Brown Simpson Strategic Growth Fund, L.P., a New
York limited partnership ("BROWN SIMPSON LP"), and Brown Simpson Strategic
Growth Fund, Ltd., a Cayman Islands exempt company ("BROWN SIMPSON LIMITED").
Southbrook, Brown Simpson LP and Brown Simpson Limited are each referred to
herein as a "PURCHASER" and collectively as the "PURCHASERS."
This Agreement is made pursuant to the Convertible Debenture
Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "PURCHASE AGREEMENT").
The Company and the Purchasers hereby agree as follows:
1. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"ADVICE" shall have meaning set forth in Section 3(o).
"AFFILIATE" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "CONTROL," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"CLOSING DATE" shall have the meaning set forth in the
Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, without par
value.
<PAGE> 2
"DEBENTURES" means Tranche 1 and Tranche 2 Convertible
Debentures of the Company issued to the Purchasers pursuant to the Purchase
Agreement.
"EFFECTIVENESS DATE" means (i) with respect to the
Registration Statement to be filed with respect to the Tranche 1 Debentures, the
90th day following the Tranche 1 Closing Date and (ii) with respect to the
Registration Statement to be filed with respect to the Tranche 2 Debentures, the
90th day following the Tranche 2 Closing Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in
Section 2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FILING DATE" means (i) with respect to the shares of Common
Stock issuable upon conversion of the Tranche 1 Debentures and exercise of the
Tranche 1 Warrants, the 30th day following the Tranche 1 Closing Date and (ii)
with respect to the shares of Common Stock issuable upon conversion of the
Tranche 2 Debentures and exercise of the Tranche 2 Warrants, the 30th day
following the Tranche 2 Closing Date.
"HOLDER" or "HOLDERS" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in
Section 5(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in
Section 5(c).
"LOSSES" shall have the meaning set forth in Section 5(a).
"PERSON" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
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"REGISTRABLE SECURITIES" means (a) with respect to the
Registration Statement to be filed after the Tranche 1 Closing, the shares of
Common Stock issuable upon (i) conversion of the Tranche 1 Debentures and (ii)
exercise of the Tranche 1 Warrants issued by the Company to the Purchasers, (b)
with respect to the Registration Statement to be filed after the Tranche 2
Closing, the shares of Common Stock issuable upon (i) conversion of the Tranche
2 Debentures and (ii) exercise of the Tranche 2 Warrants issued by the Company
to the Purchasers; PROVIDED, HOWEVER that in order to account for the fact that
the number of shares of Common Stock that are issuable upon conversion of
Debentures is determined in part upon the market price of the Common Stock at
the time of conversion, in the case of each of (a) and (b), Registrable
Securities shall include (but not be limited to) a number of shares of Common
Stock equal to no less than the sum of (1) two times the number of shares of
Common Stock into which the applicable tranche of Debentures are convertible,
assuming such conversion occurred on the particular Closing Date for such
tranches of Debentures and (2) the number of shares of Common Stock issuable
upon exercise in full of the Warrants issued at the applicable Closing Date
described herein, or such other number of shares of Common Stock as agreed to by
the parties to the Purchase Agreement; PROVIDED, FURTHER that the Company shall
not be obligated to register, (A) in respect of the Tranche 1 Closing, in excess
of the sum of (i) 640,000 shares of Common Stock issuable upon conversion of
Tranche 1 Debentures and (ii) 4,864 shares of Common Stock issuable upon
exercise of Tranche 1 Warrants and (B) in respect of the Tranche 2 Closing, in
excess of the sum of (i) 200% of the number of shares of Common Stock issuable
upon conversion in full of the Tranche 2 Debentures and (ii) a number of shares
of Common Stock sufficient to permit exercise in full of the Tranche 2 Warrants
(whether such Warrants are issued on the Tranche 2 Closing Date or the Tranche 2
Closing Expiration Date).
"REGISTRATION STATEMENT" means the registration statements
contemplated by Section 2(a) (and any additional Registration Statements
contemplated in the definition of Registrable Securities), including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be incorporated
by reference in such registration statement.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SPECIAL COUNSEL" means any special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. SHELF REGISTRATION
(a) On or prior to each applicable Filing Date the Company
shall prepare and file with the Commission a "Shelf" Registration Statement
covering all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form S-3
(except if otherwise directed by the Holders of a majority in interest of the
applicable Registrable Securities in accordance herewith or if the Company is
not then eligible to register for resale the Registrable Securities on Form S-3,
in which case such registration shall be on another appropriate form in
accordance herewith). The Company shall (i) not permit any securities other than
the Registrable Securities to be included in the Registration Statement and (ii)
use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and to keep such
Registration Statement continuously effective under the Securities Act until the
date which is two years after the date that such Registration Statement is
declared effective by the Commission or such earlier date when all Registrable
Securities covered by such Registration Statement have been sold or may be sold
without volume restrictions pursuant to Rule 144(k) as determined by the counsel
to the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent to such effect (the "EFFECTIVENESS PERIOD"); PROVIDED, HOWEVER,
that the Company shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holders not being able to
sell the Registrable Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is required under applicable law or
the Company has filed a post-effective amendment to the Registration Statement
and the Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected on one occasions in the form of an Underwritten
Offering. In such event, and if the managing underwriters advise the Company and
such Holders in writing that in their opinion the amount of Registrable
Securities proposed to be sold in such Underwritten Offering exceeds the amount
of Registrable Securities which can be sold in such Underwritten Offering, there
shall be included in such Underwritten Offering the amount of such Registrable
Securities which in the opinion of such managing underwriters can be sold, and
such amount shall be allocated PRO RATA among the Holders proposing to sell
Registrable Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon
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consultation with the Company. No Holder may participate in any Underwritten
Offering hereunder unless such Person (i) agrees to sell its Registrable
Securities on the basis provided in any underwriting agreements approved by the
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such arrangements.
3. REGISTRATION PROCEDURES
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to each
applicable Filing Date, a Registration Statement on Form S-3 (or such other form
if directed by the Holders in connection with an Underwritten Offering hereunder
or if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith) in accordance with the method or
methods of distribution thereof as specified by the Holders (except if otherwise
directed by the Holders), and cause the Registration Statement to become
effective and remain effective as provided herein; PROVIDED, HOWEVER, that not
less than five (5) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be incorporated
therein by reference), the Company shall (i) furnish to the Holders, their
Special Counsel and any managing underwriters, copies of all such documents
proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to the review of such Holders,
their Special Counsel and such managing underwriters, and (ii) cause its
officers and directors, counsel and independent certified public accountants to
respond to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object in writing within three (3) Business Days of their
receipt thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and promptly provide the Holders true and complete copies of
all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply with the provisions of the Securities Act and the
Exchange Act with respect to the
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<PAGE> 6
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters immediately (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement and (C) with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information; (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; provided, HOWEVER, that the
Company shall not be required to take any action pursuant to this Section 3(e)
that would, in the opinion of counsel for the Company, violate applicable law or
be materially detrimental to the business prospects of the Company.
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<PAGE> 7
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any underwriters in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; PROVIDED, HOWEVER, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least two Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the American Stock
Exchange and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not an
underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when requested; (ii) in the case of an Underwritten Offering obtain and
deliver copies thereof to the managing underwriters, if any, of opinions of
counsel to the Company and updates thereof addressed to each such underwriter,
in form, scope and substance reasonably satisfactory to any such managing
underwriters covering the matters customarily covered in opinions requested in
Underwritten Offerings and such other matters as may be reasonably requested by
such underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, obtain and
deliver copies to the Holders and the managing underwriters, if any, of "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data is, or is
required to be, included in the Registration Statement), addressed to each
selling Holder and each of the underwriters, if any, in form and substance as
are customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the underwriters, if
any, than those set forth in Section 6 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering; and (v)
deliver such documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 3(l)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, a
representative of such Holders, an underwriter participating in any disposition
of Registrable Securities, and an attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in
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<PAGE> 9
each case reasonably requested by any such Holder, representative, underwriter,
attorney or accountant in connection with the Registration Statement; PROVIDED,
HOWEVER, that any information that is determined in good faith by the Company in
writing to be of a confidential nature at the time of delivery of such
information shall be kept confidential by such Persons, unless (i) disclosure of
such information is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities; (ii) disclosure of such
information, in the opinion of counsel to such Person, is required by law; (iii)
such information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard by such Person; or (iv) such
information becomes available to such Person from a source other than the
Company and such source is not known by such Person to be bound by a
confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
The Purchaser covenants and agrees that (i) it will not sell
any Registrable Securities under the Registration Statement until it has
received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(c) and (ii) the Purchaser and its officers, directors
or Affiliates, if any, will comply with the prospectus delivery requirements of
the Securities Act as applicable to them in connection with sales of Registrable
Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in
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<PAGE> 10
Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi), such Holder will
forthwith discontinue disposition of such Registrable Securities until such
Holder's receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement contemplated by SECTION 3(j), or until it is advised in
writing (the "ADVICE") by the Company that the use of the applicable Prospectus
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
If (a) there is material non-public information regarding the
Company which the Board reasonably determines not to be in the Company's best
interest to disclose and which the Company is not otherwise required to
disclose, or (b) there is a significant business opportunity (including but not
limited to the acquisition or disposition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or other similar
transaction) available to the Company which the Board reasonably determines not
to be in the Company's best interest to disclose, then the Company may postpone
or suspend filing or effectiveness of a registration statement for a period not
to exceed 20 consecutive days, provided that the Company may not postpone or
suspend its obligation under this Section for more than 60 days in the aggregate
during any 12 month period; PROVIDED, HOWEVER, that no such postponement of
suspension shall be permitted for consecutive 20 day periods, arising out of the
same set as of facts, circumstances or transactions.
4. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(b), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with The American Stock Exchange and each other
securities exchange or market on which Registrable Securities are required
hereunder to be listed and (B) in compliance with state securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel for the
Holders in connection with Blue Sky qualifications of the Registrable Securities
and determination of the eligibility of the Registrable Securities for
investment under the laws of such jurisdictions as the managing underwriters, if
any, or the Holders of a majority of Registrable Securities may designate)),
(ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $5,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company
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shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant
to the terms hereof, the Company shall be responsible for all costs, fees and
expenses in connection therewith, except for the fees and disbursements of the
underwriters (including any underwriting commissions and discounts and other
expenses charged by the underwriters) and their legal counsel and accountants
(which shall be borne by the Holders). Therefore, in such circumstances the
Holder shall bear the expenses of the fees and disbursements of any legal
counsel or accounting firm retained by the underwriters in connection with such
Underwritten Offering and the costs of any determination (but not filing) by the
underwriters of the eligibility of the Registrable Securities for investment
under the applicable state securities laws. By way of illustration which is not
intended to diminish from the provisions of Section 4(a), the Holders shall not
be responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.
5. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "LOSSES"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by or on behalf of such Holder expressly for
use therein, or to the extent that such information relates to such Holder or
such Holder's proposed method of
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<PAGE> 12
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto.
The Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, the directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a
12
<PAGE> 13
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; PROVIDED, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) CONTRIBUTION. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by PRO
RATA allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), the
13
<PAGE> 14
Purchaser shall not be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by the Purchaser
from the sale of the Registrable Securities subject to the Proceeding exceeds
the amount of any damages that the Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. RULE 144
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and, if at any
time the Company is not required to file such reports, they will, upon the
request of any Holder, make publicly available other information so long as
necessary to permit sales of its securities pursuant to Rule 144. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144; PROVIDED,
HOWEVER, that the Company shall not be obligated to provide an opinion to any
Holder regarding the sale of Registrable Securities pursuant to exemptions
provided by Rule 144. Upon the request of any Holder, the Company shall deliver
to such Holder a written certification of a duly authorized officer as to
whether it has complied with such requirements.
7. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any of
its subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person. Without limiting the generality of the foregoing, without the
written consent of the
14
<PAGE> 15
Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict or inconsistent with
the provisions of this Agreement.
(c) NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any
of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) PIGGY-BACK REGISTRATIONS. If at any time when there is not
an effective Registration Statement the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated under
the Securities Act) or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each holder of Registrable Securities
written notice of such determination and, if within twenty (20) days after
receipt of such notice, any such holder shall so request in writing, the Company
shall include in such registration statement all or any part of the Registrable
Securities such holder requests to be registered. No right to registration of
Registrable Securities under this Section shall be construed to limit any
registration otherwise required hereunder.
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; PROVIDED, HOWEVER, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; PROVIDED, HOWEVER, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 8:00
p.m. (New York City
15
<PAGE> 16
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.
If to the Company: PLC Systems Inc.
10 Forge Park
Franklin, MA 02038
Attn: Chief Executive Officer
Facsimile No.: (508) 541-7990
With copies to: Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: Neil H. Aronson
Facsimile No.: (617) 542-2241
If to the Southbrook: Southbrook International Investments, Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Attn: Robert L. Miller
Facsimile No.: (212) 332-3256
If to Brown Simpson LPP Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, NY 10019
Attn: Mitchell Kaye
Facsimile No.: (212) 247-1329
If to Brown Simpson LP: Brown Simpson Strategic
Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, NY 10019
Facsimile No.: (212) 247-1329
of any Purchaser) to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Attn: Kenneth L. Henderson
Fax: (212) 541-4630
If to any other Person who is then the registered Holder:
16
<PAGE> 17
To the address of such Holder as it appears in the stock
transfer books of the Company or such other address as may be
designated in writing hereafter, in the same manner, by such
Person.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The Purchaser may assign its rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement.
(h) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the
Purchaser hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by the Purchasers to any assignee or transferee of all
or a portion of the Debentures, the Warrants or the Registrable Securities if:
(i) the Purchaser agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such securities
by the transferee or assignees restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Purchaser's (and to subsequent)
successors and assigns.
(i) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
(k) CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto
17
<PAGE> 18
shall use their reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(m) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(n) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
18
<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
PLC SYSTEMS INC.
By:/s/ Patricia L. Murphy
----------------------
Patricia L. Murphy
Title:Chief Financial Officer
Purchasers:
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By:/s/ Kenneth L. Henderson
------------------------
Kenneth L. Henderson
Attorney-in-Fact
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
By:/s/ Mitchell Kaye
-----------------
Mitchell Kaye
Principal
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By:/s/ Mitchell Kaye
-----------------
Mitchell Kaye
Principal
19
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 9,952,000
<SECURITIES> 3,005
<RECEIVABLES> 944,000
<ALLOWANCES> (240,000)
<INVENTORY> 3,032,000
<CURRENT-ASSETS> 17,126,000
<PP&E> 10,766
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0
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<COMMON> 75,235,000
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<TOTAL-LIABILITY-AND-EQUITY> 23,759
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