FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-22340
PALOMAR MEDICAL TECHNOLOGIES, INC.
-------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 04-3128178
- ---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
66 Cherry Hill Drive, Beverly, MA 01915
(Address of principal executive offices)
(508) 921-9300
------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of during the past 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
-- --
As of November 4, 1996, 28,930,357 shares of Common Stock, $.01 par
value per share, were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
Page 1 of 23
PALOMAR MEDICAL TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - December 31, 1995 and September 30, 1996 P. 3
Consolidated Statements of Operations - For the Three and Nine Months Ended
September 30, 1995 and 1996 P. 4
Consolidated Statements of Stockholders' Equity - For the Nine Months Ended
September 30, 1996 P. 5
Consolidated Statements of Cash Flows - For the Nine Months Ended
September 30, 1995 and 1996 P. 6
Notes to Consolidated Financial Statements P. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS P.16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS P.22
ITEM 2. CHANGES IN SECURITIES P.22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES P.22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS P.22
ITEM 5. OTHER INFORMATION P.22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P.22
SIGNATURES P.23
</TABLE>
-2-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $17,138,178 $20,972,540
Marketable securities 749,410 3,332,799
Accounts receivable, net 4,737,766 19,491,588
Inventories 3,649,884 14,845,433
Current portion of deferred costs 462,787 42,110
Loans to officers 948,198 980,759
Loans to related and non-related parties 3,161,375 3,893,145
Other current assets 352,130 1,452,998
----------------- -----------------
Total current assets 31,199,728 65,011,372
----------------- -----------------
PROPERTY AND EQUIPMENT, AT COST, NET 3,165,015 4,710,207
----------------- -----------------
OTHER ASSETS:
Cost in excess of net assets acquired, net 3,729,508 5,597,022
Intangible assets, net 1,597,745 1,755,394
Deferred costs, net of current portion 346,333 888,753
Long-term investments 500,000 5,672,488
Loans to related party 700,000 --
Other assets 631,831 1,933,398
----------------- -----------------
Total other assets 7,505,417 15,847,055
----------------- -----------------
$41,870,160 $85,568,634
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit $1,296,462 $1,160,709
Short term notes payable 100,000 --
Current portion of long-term debt 2,474,265 2,523,533
Contingent note payable 500,000 --
Accounts payable 4,246,950 14,839,026
Accrued expenses 4,633,557 8,299,397
----------------- -----------------
Total current liabilities 13,251,234 26,822,665
----------------- -----------------
LONG-TERM DEBT, NET OF CURRENT PORTION 3,330,172 8,831,806
----------------- -----------------
COMMITMENTS (NOTE 14)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized - 5,000,000 shares Issued and outstanding -
13,860 shares at December 31, 1995
and 24,565 shares at September 30, 1996 139 246
Common stock, $.01 par value-
Authorized - 100,000,000 shares
Issued - 20,135,406 shares at December 31,
1995 and 28,355,694 shares at September 30, 1996 201,353 283,557
Treasury stock (200,000 shares at cost) (1,211,757) (1,211,757)
Additional paid-in capital 54,152,385 97,830,064
Accumulated deficit (25,864,657) (45,903,951)
Subscriptions receivable from related party (1,988,709) (1,083,996)
----------------- -----------------
Total stockholders' equity 25,288,754 49,914,163
----------------- -----------------
$41,870,160 $85,568,634
================= =================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-3-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $5,868,190 $24,690,970 $15,665,673 $49,153,990
COST OF REVENUES 4,494,123 20,729,923 11,825,719 42,834,703
----------- --------------- ------------- ---------------
Gross profit 1,374,067 3,961,047 3,839,954 6,319,287
----------- --------------- ------------- ---------------
OPERATING EXPENSES
Research and development 1,297,384 1,639,712 2,521,531 5,731,009
Sales and marketing 707,985 2,167,195 1,696,154 6,338,865
General and administrative 1,800,826 5,581,662 4,203,362 13,793,418
Business development and other financing costs 658,314 477,380 1,354,080 2,419,476
Pooling-of-interest expenses -- -- -- 443,780
------------ --------------- ------------- ---------------
Total operating expenses 4,464,509 9,865,949 9,775,127 28,726,548
------------ --------------- ------------- ---------------
Loss from operations (3,090,442) (5,904,902) (5,935,173) (22,407,261)
INTEREST EXPENSE (416,889) (510,107) (899,394) (1,248,986)
INTEREST INCOME 688,709 643,898 734,456 1,847,345
OTHER INCOME 160,597 1,820,311 (7,950) 2,548,629
MINORITY INTEREST IN LOSS OF SUBSIDIARY 18,177 1,388 76,322 47,059
------------- -------------- -------------- ----------------
Net loss $(2,639,848) $(3,949,412) $(6,031,739) $(19,213,214)
============= ============== ============== ================
NET LOSS PER COMMON SHARE $(0.17) $(0.15) $(0.45) $(0.80)
============== ============= ============== ================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,293,971 27,681,158 13,261,752 25,194,388
============= ============== ============== ================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-4-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock
--------------------------------------------------------------------
Number $0.01 Number $0.01 Number
of Shares Par Value of Shares Par Value of Shares Cost
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 13,860 $139 20,135,406 $201,353 (200,000) $(1,211,757)
Sale of common stock pursuant to warrants -- -- 2,049,039 20,490 -- --
Sale of common stock pursuant to Regulation S -- -- 531,343 5,314 -- --
Sale of common stock pursuant to Regulation D -- -- 44,821 448 -- --
Payments received on subscriptions receivable -- -- -- -- -- --
Issuance of preferred stock, including common stock
issued as a placement fee, net of issuance
costs 32,000 320 115,000 1,150 -- --
Issuance of common stock pursuant to stock options -- -- 524,902 5,249 -- --
Issuance of common stock for 1995 employer 401(k)
matching contribution -- -- 45,885 459 -- --
Conversion of preferred stock (18,795) (188) 3,317,507 33,176 -- --
Conversion of convertible debentures -- -- 34,615 346 -- --
Redemption of convertible debentures -- -- -- -- -- --
Redemption of preferred stock (2,500) (25) -- -- -- --
Exercise of underwriter's warrants -- -- 500,000 5,000 -- --
Exercise of stock options in majority controlled
subsidiary -- -- -- -- -- --
Interest accrued on subscription receivable -- -- -- -- -- --
Issuance of common stock for conversion of debentures
at Tissue Technologies, Inc. -- -- 813,431 8,135 -- --
Issuance of common stock for minority interest in Star
Medical subsidiary -- -- 217,943 2,179 -- --
Issuance of common stock for Dermascan, Inc. -- -- 35,000 350 -- --
Issuance of common stock for investment banking and
merger and acquisition consulting services -- -- 36,802 368 -- --
Compensation expense related to warrants issued to
non-employees under Statement of Financial
Accounting Standards No. 123 -- -- -- -- -- --
Return of escrowed shares -- -- (46,000) (460) -- --
Amortization of deferred financing costs -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996 24,565 $246 28,355,694 $283,557 (200,000) $(1,211,757)
======================================================================
Additional Total
Paid-in Accumulated Subscriptions Stockholders'
Capital Deficit Receivable Equity
-----------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $54,152,385 $(25,864,657) $(1,988,709) $25,288,754
Sale of common stock pursuant to warrants 6,314,817 -- -- 6,335,307
Sale of common stock pursuant to Regulation S 2,854,816 -- -- 2,860,130
Sale of common stock pursuant to Regulation D 415,802 -- -- 416,250
Payments received on subscriptions receivable -- -- 2,009,591 2,009,591
Issuance of preferred stock, including common stock
issued as a placement fee, net of issuance
costs 30,911,927 -- -- 30,913,397
Issuance of common stock pursuant to stock options 481,274 -- -- 486,523
Issuance of common stock for 1995 employer 401(k)
matching contribution 160,139 -- -- 160,598
Conversion of preferred stock 384,799 -- -- 417,787
Conversion of convertible debentures 145,260 -- -- 145,606
Redemption of convertible debentures (41,530) -- -- (41,530)
Redemption of preferred stock (3,123,127) -- -- (3,123,152)
Exercise of underwriter's warrants 1,057,500 -- (1,057,500) 5,000
Exercise of stock options in majority controlled
subsidiary 50,000 -- -- 50,000
Interest accrued on subscription receivable -- -- (47,378) (47,378)
Issuance of common stock for conversion of debentures
at Tissue Technologies, Inc. 1,019,022 -- -- 1,027,157
Issuance of common stock for minority interest in Star
Medical subsidiary 1,707,821 -- -- 1,710,000
Issuance of common stock for Dermascan, Inc. 489,650 -- -- 490,000
Issuance of common stock for investment banking and
merger and acquisition consulting services 303,856 -- -- 304,224
Compensation expense related to warrants issued to
non-employees under Statement of Financial
Accounting Standards No. 123 599,360 -- -- 599,360
Return of escrowed shares 460 -- -- --
Amortization of deferred financing costs (54,167) -- -- (54,167)
Preferred stock dividends -- (826,080) -- (826,080)
Net loss -- (19,213,214) -- (19,213,214)
----------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996 $97,830,064 $(45,903,951) $(1,083,996) $49,914,163
==========================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-5-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1995 1996
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(6,031,739) $(19,213,214)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 1,122,007 2,380,297
Write-off of in-process research and development -- 57,212
Write-off of deferred financing costs associated with
redemption of convertible debentures -- 201,500
Minority interest in loss of subsidiary 109,702 (30,572)
Accrued interest receivable on trading securities
and subscription receivable -- (698,378)
Noncash interest expense related to debt (76,322) 117,105
Noncash compensation related to common stock and warrants 95,370 903,584
Realized gain on trading securities (877,632)
Unrealized gain on trading securities -- (1,670,187)
Changes in assets and liabilities, net of effects
from business combinations;
Purchases of trading securities (298,158) (10,112,596)
Sale of trading securities and
interest received on trading securities -- 10,077,026
Accounts receivable (785,570) (14,990,154)
Inventories (893,464) (11,030,375)
Other current assets and loans to officers (439,624) (1,124,646)
Accounts payable 1,493,015 10,436,765
Accrued expenses 733,080 3,606,692
------------- --------------
Net cash used in operating activities (4,971,703) (31,967,573)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for purchase of Comtel Electronics, Inc., net of cash acquired -- (146,586)
Cash acquired from purchase of Spectrum Medical Technologies, Inc.,
net of cash paid 75,087 --
Cash Acquired from purchase of CD Titles, Inc., net of cash paid 26,420 --
Cash paid for purchase of Inter-connecting Products, Inc. (397,199) --
Purchases of property and equipment (587,898) (2,198,017)
Increase in intangible assets -- (450,005)
Increase in other assets (835,003) (1,331,652)
Loans to related parties -- (7,433,625)
Payments received on loans from related parties -- 8,052,855
Investments in non-marketable securities (20,000) (5,172,488)
------------- --------------
Net cash used in investing activities (1,738,593) (8,679,518)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures 2,102,699 7,669,441
Proceeds from notes payable 1,040,000 --
Payments of notes payable and capital lease obligations (1,239,073) (515,368)
Net (payments) proceeds on revolving lines of credit (607,539) (135,753)
Payment of contingent note payable -- (500,000)
Proceeds from sale of common stock 7,664,142 3,276,380
Proceeds from the exercise of warrants -- 6,340,307
Issuance of preferred stock -- 30,913,397
Redemption of preferred stock, including accrued dividends of $71,223 -- (3,194,375)
Redemption of convertible debentures (1,048,666) (930,000)
Proceeds from exercise of stock options -- 536,523
Deferred Financing Costs -- (988,690)
Payments received on subscription receivable -- 2,009,591
Financing costs related to warrant call (69,317) --
------------- --------------
Net cash provided by financing activities 7,842,246 44,481,453
------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,131,950 3,834,362
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,263,203 17,138,178
------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $4,395,153 $20,972,540
============= ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-6-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1995 1996
------------- --------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $207,946 $324,041
============= ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Conversion of convertible debt and related accrued interest,
net of financing fees $1,315,000 $1,172,763
============= ==============
Unrealized holding gain on available for sale securities $227,500 $--
============= ==============
Subscriptions received in connection with warrant call $5,683,549 $--
============= ==============
Amortization of deferred financing costs $-- $54,167
============= ==============
Officer loan paid by transferring personal investment
in another company's stock in lieu of cash payment $175,000 $--
============= ==============
Issuance of common stock for 1995 employer 410(k)
matching contribution $-- $160,598
============= ==============
Value ascribed to warrants issued in connection with
license agreement $100,000 $--
============= ==============
Common stock issued in exchange for license rights
and convertible note payable $300,000 $--
============= ==============
Conversion of preferred stock $-- $417,975
============= ==============
Common stock issued for repurchase of minority interest $-- $1,710,000
============= ==============
Dividends payable $-- $826,080
============= ==============
ACQUISITION OF COMTEL ELECTRONICS, INC.
Liabilities assumed $-- $(258,144)
Fair value of assets acquired -- 72,661
Cash paid, net of cash acquired -- (146,586)
------------- --------------
COST IN EXCESS OF NET ASSETS ACQUIRED $-- $(332,069)
============= ==============
ACQUISITION OF SPECTRUM MEDICAL TECHNOLOGIES, INC.
Liabilities assumed $(1,128,139) $--
Fair value of assets acquired 1,456,920 --
Fair Value of 364,178 shares of common stock issued (1,000,000) --
Promissory note issued (700,000) --
Cash Paid (300,000) --
Acquisition cost incurred (161,138) --
------------- --------------
COST IN EXCESS OF NET ASSETS ACQUIRED $(1,832,357) $--
============= ==============
ACQUISITION OF INTER-CONNECTING PRODUCTS, INC.
Liabilities assumed $(201,761) $--
Fair value of assets acquired 598,960 --
Cash Paid (397,199) --
Acquisition costs incurred -- --
------------- --------------
COST IN EXCESS OF NET ASSETS ACQUIRED $-- $--
============= ==============
ACQUISITION OF CD TITLES, INC.
Liabilities assumed ($1,271,345) $--
Fair value of assets acquired 1,271,345 --
============= ==============
COST IN EXCESS OF NET ASSETS ACQUIRED $-- $--
============= ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-7-
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The results of operations for the interim periods shown in
this report are not necessarily indicative of expected results for any future
interim period or for the entire fiscal year. Palomar Medical Technologies, Inc.
(the "Company" or "Palomar") believes that the quarterly information presented
includes all adjustments (consisting only of normal, recurring adjustments)
necessary for a fair presentation in accordance with generally accepted
accounting principles. The accompanying financial statements and notes should be
read in conjunction with the Company's Form 10-KSB/A-1 of and for the year ended
December 31, 1995.
2. ACQUISITION OF COMTEL ELECTRONICS, INC.
---------------------------------------
On January 1, 1996, Dynaco Corp. ("Dynaco"), a wholly-owned subsidiary
of Palomar, converted a $100,000 note receivable from Comtel Electronics, Inc.
("Comtel") into 11,100 shares of Comtel stock (par value $.05), giving Dynaco a
10% interest in Comtel. Effective March 20, 1996, Dynaco purchased an additional
500,000 shares of Comtel for $27,500, resulting in 80.32% ownership by Dynaco.
The remaining 19.68% ownership is held by two principals of Comtel. This
acquisition has been accounted for as a purchase in accordance with Accounting
Principles Board (APB) Opinion No. 16. Accordingly, the Company has allocated
the purchase price based on the fair market value of assets acquired and
liabilities assumed. The results of Comtel have been included with those of the
Company since March 20, 1996.
Comtel has entered into a 5 year agreement with New Media, Inc. ("New
Media") whereby New Media subcontracted to Comtel all of its manufacturing and
assembly business over the contract term. Comtel is compensated by New Media to
achieve a guaranteed 15% gross margin to Comtel. Management estimates this
contract will generate $80 million in revenues for Comtel over the life of the
agreement. On April 5, 1996, Palomar invested $2,345,000 in New Media preferred
and common stock and loaned New Media an additional $1,000,000. The note
receivable is subordinated and nonrecourse, bears interest at 9% and is due in
April of 1999 or earlier under certain conditions. Palomar also received a
warrant to purchase 200,000 shares of common stock in New Media, Inc. at $1.20
per share. Palomar has accounted for this investment under the cost method.
During the nine months ended September 30, 1996, Comtel had sales to
New Media of $13,192,986. At September 30, 1996, $7,284,527 of accounts
receivable was due from New Media. The Company's management believes that this
asset will be realized in the near term.
3. ACQUISITION OF TISSUE TECHNOLOGIES, INC.
----------------------------------------
On May 3, 1996, the Company acquired 100% of the outstanding stock of
Tissue Technologies, Inc. ("Tissue") in exchange for 3,200,000 shares of
Palomar's common stock. The Company is accounting for this acquisition as a
pooling-of-interest in accordance with APB No. 16. The Company has retroactively
restated its consolidated financial statements to reflect this acquisition as a
pooling-of-interest. The Company incurred $443,780 of various legal, accounting
and consulting services costs related to the acquisition during the nine months
ended September 30, 1996, which are included in pooling-of-interest expenses in
the accompanying consolidated statement of operations. Tissue is engaged in the
manufacture, marketing and sale of C02 laser systems used in skin resurfacing.
-8-
4. ACQUISITION OF MINORITY INTEREST OF STAR MEDICAL TECHNOLOGIES, INC.
-------------------------------------------------------------------
In April 1996, the Company purchased 15% of the outstanding common
stock of Star Medical Technologies, Inc. ("Star Medical"), bringing its
ownership to 100%, in exchange for 217,943 shares of Palomar's common stock
valued at $7.85 per share. This agreement restricts for a period of two years
the sale of the Company's common stock issued in connection with this agreement.
The purchase price has been recorded as additional goodwill and is being
amortized over a period of five years. In connection with this agreement the
original founders of Star Medical have agreed to rescind all royalties due to
them under a Rights Agreement dated July 1, 1993.
5. ACQUISITION OF DERMASCAN, INC.
------------------------------
On July 18, 1996, the Company purchased 80 shares of common stock (80%
of total issued and outstanding capital stock) of Dermascan, Inc. ("Dermascan")
from a Dermascan stockholder in exchange for 35,000 shares of common stock of
Palomar. The Company has agreed to include these 35,000 shares in a future
registration statement to be filed by the Company for the resale of these
shares. In addition, the Company has agreed to pay the Dermascan stockholder an
amount equal to the difference between $14.00 and the closing bid price, if
lower, on the day the registration statement is declared effective by the
Securities and Exchange Commission. The agreement also includes a put right by
the remaining 20% stockholder of Dermascan, which provides that, at any time
after three years from the date of the agreement, the Company, will be required
to purchase the stockholders' 20% interest for $130,000 in cash. In connection
with the agreement, the Company entered into a five year employment agreement
with the selling stockholder which guarantees annual payments of up to $125,000.
Dermascans operations prior to acquisition were not material. The Company has
recorded the acquisition at the guaranteed stock price of $490,000 in total.
6. INVESTMENTS
-----------
(a) Marketable Securities
The fair values for the Company's marketable equity securities are
based on quoted market prices. The fair values of nonmarketable equity
securities, which represent equity investments in early stage technology
companies, are based on the financial information provided by these ventures and
the amount of the Company's investment. The amount that the Company realizes
from these investments may differ significantly from the amounts recorded in the
accompanying consolidated financial statements.
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under SFAS No. 115, securities that
the Company has the intention and ability to hold to maturity will be reported
at the amortized cost and are classified as held-to-maturity. Securities that
are bought and held principally for the purpose of selling them in the near term
are classified as trading securities. Realized and unrealized gains and losses
relating to trading securities are currently included in the accompanying
consolidated statements of operations.
During the nine months ended September 30, 1996, the Company sold a
portion of its trading securities in three publicly-traded companies, realizing
a gain of $908,605 which is reflected in the accompanying consolidated
statements of operations.
<TABLE>
<CAPTION>
As of September 30, 1996
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Costs Gain Loss Value
------------ ------------- ------------ -------------
Trading Securities:
<S> <C> <C> <C> <C>
Investments in publicly-
traded companies $1,662,613 $1,836,843 $(166,657) $3,332,799
============ ============= ============ =============
</TABLE>
-9-
(b) Non-Marketable Securities
In addition to non-marketable equity securities held by the Company at
September 30, 1996, the Company has invested $500,000 in Clinic Holdings Inc. (a
Delaware corporation), in exchange for 1,000 shares of common stock (50% of
total issued and outstanding common stock). Under the terms of this investment,
the Company has exercised its option to terminate its investment in Clinic
Holdings, Inc. and it will receive an amount equal to its initial cash capital
contribution plus interest at the rate of 10% per annum.
7. INVENTORIES
-----------
Inventories are stated at lower of cost (first-in, first-out) or
market. Work in process and finished goods inventories consist of material,
labor and manufacturing overhead and consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
--------------- ---------------
<S> <C> <C>
Raw materials $1,949,288 $8,434,893
Work in process and finished goods 2,008,389 6,410,540
Less -- progress billings 307,793 --
=============== ---------------
$3,649,884 $14,845,433
=============== ===============
</TABLE>
8. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
--------------- ----------------
<S> <C> <C>
Equipment under capital leases $1,214,950 $1,215,810
Machinery and equipment 1,992,157 3,371,401
Furniture and fixtures 806,252 1,456,618
Leasehold improvements 308,158 628,972
--------------- ----------------
4,321,517 6,672,801
Less: Accumulated depreciation
and amortization 1,156,502 1,962,594
--------------- ----------------
$3,165,015 $4,710,207
=============== ================
</TABLE>
9. NET LOSS PER COMMON SHARE
-------------------------
For the three and nine months ended September 30, 1995, net loss per
common share has been computed by dividing the net loss by the weighted average
number of shares of common stock outstanding during the period. For the three
and nine months ended September 30, 1996, net loss per common share has been
computed by dividing net loss, as adjusted for preferred stock dividends, by the
weighted average number of shares of common stock outstanding during the period.
Common stock equivalents are not considered as outstanding, as the result would
be antidilutive.
[This space intentionally left blank]
-10-
10. NOTES PAYABLE
-------------
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---------------- ---------------
<C> <C> <C>
7% Note payable $244,782 $244,782
8% Convertible debentures, $1,000,000 face amount, principal and interest due October
26, 1997. $775,000 face amount of the debentures were repaid in May 1996. $225,000
face amount of the debentures were converted into 34,615 shares of common stock 819,359 --
8% Convertible debentures issued by Tissue, converted into 813,431 shares of common stock
in May 1996 950,000 --
4.5% Swiss Franc convertible debentures, 9,675,000 SF face amount, principal and interest
due July 3, 2003 7,712,236
7.4% to 21% Capital lease obligations, monthly principal and interest payments ranging from
$144 to $51,235, maturities ranging from August 1997 to January 1999 1,393,612 1,262,267
Present value of notes payable, discounted at 8% and due in annual installments of principal
and interest payments of $100,000, $200,000, $200,000 and $100,000 in fiscal 1995, 1996,
1997 and 1998 respectively 468,012 285,368
Note payable in connection with the acquisition of Spectrum Medical Technologies, Inc.,
("Spectrum") interest at the prime rate (8.25% at September 30, 1996) plus
1%, principal payments of $200,000, $150,000, $200,000 and $150,000 plus
interest due in October 1995, April 1996, October 1996 and April 1997, respectively 500,000 352,572
Bridge notes payable, interest accruing at prime (8.25% at September 30, 1996) plus 2% 1,350,000 1,200,000
Other notes payable 78,672 298,114
---------------- ---------------
5,804,437 11,355,339
Less -- current maturities 2,474,265 2,523,533
================ ---------------
$3,330,172 $8,831,806
================ ===============
</TABLE>
On July 3, 1996, the Company raised approximately $7.6 million, net of
offering costs, through the issuance of 9,675 units in a convertible debenture
financing. These units are traded on the Luxembourg Stock Exchange. Each unit
consisted of a convertible debenture denominated in 1,000 Swiss Francs and a
warrant to purchase 24 shares of the Company's common stock at $16.50 per share.
The warrants are non-detachable and may be exercised only if the related
debentures are simultaneously converted, redeemed or purchased. Interest on the
convertible debentures accrues at a rate of 4.5% per annum and is payable
quarterly in Swiss Francs. The convertible debentures may be converted by the
holder or the Company commencing 90 days after July 3, 1996, at a conversion
price equal to 100% to 77.5% of the price per share of the Company's common
stock, calculated as defined. This conversion price decreases from the third
anniversary to the seventh anniversary of the convertible debentures but in no
event is less than $12.00 per share. In addition, the Company has the option to
redeem these debentures after the third anniversary of there issuances.
The Company is required to set up a mandatory sinking fund beginning on
July 3, 2000 through July 3, 2004, for 25% of the aggregate principal amount of
the convertible debentures..
11. STOCKHOLDERS' EQUITY
--------------------
(a) Stock Options
During the nine months ended September 30, 1996, the Company issued
options to purchase 1,140,000 shares of common stock at prices ranging from
$6.75 to $10.50 per share to several employees. Certain individuals also
exercised stock options to purchase 524,902 shares of common stock at prices
ranging from $0.40 to $3.50. The total proceeds received by the Company were
$486,523.
-11-
(b) Warrants
During the nine months ended September 30, 1996, the Company issued
warrants to purchase a total of 5,197,577 shares of the Company's common stock
to certain officers, employees, consultants and preferred stock investors at
prices ranging from $5.00 to $16.50 per share. In addition, certain
warrantholders exercised warrants to purchase 2,549,039 shares of common stock
at prices ranging from $0.60 to $7.69. The Company received total proceeds of
$6,340,307 and a note receivable for $1,057,500 related to the exercise of the
warrants.
(c) Reserved Shares
At September 30, 1996, the Company has reserved shares of its common
stock for the following:
Stock option plans 3,924,400
Warrants 7,654,055
Employee 401(k) plan 254,115
Preferred stock 3,806,092
Convertible debentures 867,800
---------------
Total 16,506,462
===============
(d) Preferred Stock
During the nine months ended September 30, 1996 the Company completed
the following issuances of Convertible Preferred Stock
<TABLE>
<CAPTION>
Number of Net
Date Shares Series Proceeds
------------------------------------ -------------------------------------------------------
<S> <C> <C> <C>
February 14, 1996 6,000 Series D Convertible Preferred Stock $5,999,940
April 17, 1996 10,000 Series E Convertible Preferred Stock $9,488,200
July 12, 1996 6,000 Series F Convertible Preferred Stock $5,999,940
September 27, 1996 10,000 Series G Convertible Preferred Stock $9,425,317
</TABLE>
In connection with the issuance of the Series D, E ,F and G Convertible
Preferred Stock (the "Preferred Stock") the Company has issued warrants to
purchase 1,928,058 shares of common stock at prices ranging from $7.50 to $16.00
per share. The conversion price for the Preferred Stock is equal to rates
ranging from 80% to 85% of the average closing price of the common stock on ten
consecutive preceding trading days, and subject to certain minimum and maximum
conversion prices ranging from $4.50 to $16.00 per share. The Preferred
stockholders are entitled to dividends at rates ranging from 4% to 8%, as
defined in each of the Preferred Stock agreements. The Preferred stockholders
also have preference in liquidation equal to $1,000 plus accrued but unpaid
dividends and accrued but unpaid interest. Under certain circumstances, the
Company has the option to redeem these shares at the redemption price defined in
the agreement. During the three months ended September 30, 1996, 7,435 shares of
Preferred Stock had been converted into 1,001,554 shares of common stock and the
remaining Preferred Stock is convertible into 3,806,092 shares of common stock.
(e) Dividends
In certain circumstances the Company is prohibited from declaring or
paying dividends other than stock dividends under the terms of the convertible
debentures
The Company is also prohibited from paying any dividends to the holders
of common stock until all accrued and unpaid dividends have been paid or
declared.
-12-
(f) Adoption of Statement of Financial Accounting Standards No. 123
SFAS No. 123 "Accounting for Stock Based Compensation" applies to all
transactions in and reporting standards for stock based compensation plans as
well as transactions in which an entity issues its equity instruments to acquire
goods or services from non-employees. As of January 1, 1996, the Company adopted
the provisions of SFAS No. 123 related to warrants issued to non-employees and
the Company charged approximately $600,000 to operations for the nine months
ended September 30, 1996, related to these warrants. In accordance with SFAS No.
123, the Company will continue to account for employee stock options or similar
equity instruments as prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees". The Company does not currently expect to adopt the
accounting prescribed by SFAS No. 123; however, the Company will include the
disclosures required by SFAS No. 123 as required in future consolidated
financial statements.
12. RELATED PARTY TRANSACTIONS
--------------------------
(a) Loans
The Board of Directors have established a corporate loan policy under
which loans may be granted to certain officers/stockholders/directors of the
Company for amounts up to an aggregate of $800,000. All such loans must be
collateralized by certain stockholdings of these individuals, as defined. At
December 31, 1995 and September 30, 1996, $383,198 and $312,500, respectively,
with accrued interest at the rate of 7% per annum, was outstanding to certain
officers/stockholders/directors under the corporate loan policy.
At December 31, 1995 and September 30, 1996, the Company had loans
receivable in aggregate of $565,000 and $668,259, (including accrued interest of
$59,259 at September 30, 1996), respectively, from two officers of Dynaco, which
are evidenced by three promissory notes due on demand or by December 31, 1996,
bearing interest at the rates ranging from prime (8.25% at September 30, 1996)
to 8%. These loans receivable are collateralized with vested stock options in
the Company owned by the officers with a market price in excess of the exercise
price. As defined in the agreement, 100% of the then outstanding principal and
accrued but unpaid interest must never be below the sum of the excess of the
market price over the exercise price of the unexercised vested stock options.
In connection with a loan receivable to an affiliated company that was
paid during the third quarter of 1996, the Company received a warrant to
purchase 289,790 shares of the affiliated company's common stock at $1.294 per
share. The affiliated company completed its initial public offering and the
Company exercised the above warrant and recognized an unrealized gain of
$952,238, which is included in the consolidated statements of operations for the
nine months ended September 30, 1996.
At September 30, 1996, the Company had a note receivable of $1,267,338,
(including accrued interest of $67,339) from a publicly-traded company of which
certain directors of the publicly-traded company are also directors of the
Company. This note bears interest at 10%. The Company expects this loan to be
repaid in full in the next twelve months and has classified this note as current
in the consolidated balance sheet at September 30, 1996.
During the nine months ended September 30, 1996, the Company loaned a
director of one of the Company's investment banks $1,057,500, represented by an
unsecured note receivable, in connection with the exercise of stock warrants.
This note bears interest at 7.75% per annum and is due on demand. The Company
also has a note receivable from this director of $445,792, (including accrued
interest of $10,896) at September 30, 1996, under the same terms as the notes
described above.
During the nine months ended September 30, 1996, the Company loaned
$250,000, in the form of a note receivable, bearing interest at 10% per annum,
to a company of which a director of Palomar is the chairman.
It is reasonably possible that the Company's estimate that it will
collect these loans within one year will change in the near term.
-13-
(b) Investments
In September 1996, the Company invested $500,000 in a limited
partnership. A director of the limited partnership is also a director of the
Company. The purpose of the general limited partnership is to invest and provide
services to small and emerging growth companies. It is management's intention to
attempt to sell the limited partnership investment over the next year, although
there can be no assurance that this objective will be accomplished.
The Company has a $500,000 equity investment in a privately-held
technology company. A director of one of the Company's investment banks is also
a director of this investee company.
The Company has a consulting agreement with one director of the
Company.
13. PRO FORMA INFORMATION
---------------------
The results of operations related to Spectrum have been included with
those of the Company since April 5, 1995.
The results of operations related to Inter-Connecting Products, Inc.
("ICP") have been included with those of the Company since September 5, 1995.
The results of operations related to Intelligent Computer Technologies,
Inc. ("ICT") have been included with those of the Company since September 18,
1995.
The results of operations related to Comtel have been included with
those of the Company since March 20, 1996.
The operations of Dermascan were immaterial. Unaudited pro forma
operating results for the Company, assuming the acquisitions of ICT, ICP,
Spectrum and Comtel had been made as of January 1, 1995, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ -----------------------------------
1995 1996 1995 1996
---------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenue $9,145,742 $25,070,970 $25,904,007 $49,533,990
Net loss $(4,067,336) $(3,979,412) $(10,491,165) $(19,243,214)
Net loss per common share $(0.27) $(0.16) $(0.77) $(0.80)
</TABLE>
14. COMMITMENTS
-----------
The Company has issued guarantees on behalf of several of its
subsidiaries for payment of trade payables. The total amount guaranteed at
September 30, 1996, was $5,160,970.
15. REVENUE AGREEMENTS
------------------
On July 19, 1996, the Company, through a wholly-owned subsidiary,
signed a master services agreement with EquiMed. This exclusive agreement calls
for the installation of certain of the Company's cosmetic lasers at all of
EquiMed's wholly-owned centers. Revenues will be shared between the two
companies.
On June 14, 1996, the Company, through a wholly-owned subsidiary,
signed a master services agreement with Medical Alliance, Inc. ("MAI"). This
exclusive agreement calls for the use of the Company's cosmetic lasers in MAI's
Mobile Medical Services business. Revenues will be shared between the two
companies.
16. SUBSEQUENT EVENTS
-----------------
Subsequent to September 30, 1996, the Company raised approximately $4.6
million, net of offering costs, through the issuance of 4.5% convertible
subordinated promissory notes.
-14-
On October 11, 1996, the Company loaned $500,000 to a privately-held
medical company. A director of the privately-held medical company is also an
employee of Palomar. The note bears interest at a rate of 8% per annum and is
due on the earlier of the completion of a private placement by the
privately-held company or October 11, 1997. In connection with this loan, the
Company received 500,000 shares of common stock in the medical company.
On October 24, 1996, the Company loaned $150,000 to a director of the
Company under the Company's corporate loan policy. The note is due on demand and
bears interest at the rate of 7% per annum. The loan is collateralized with
vested warrants in the Company.
On October 25, 1996, the Company loaned $1,000,000 to a privately-held
company. A director of one of the Company's investment bankers is also a
director of the privately-held company. The loan is due in November 1996 and
bears interest at the rate of 18% per annum. The Company received a 5%
origination fee which has been paid.
[This space intentionally left blank]
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
For the three months ended September 30, 1996, the Company had revenues
of $24,690,970 as compared to $5,868,190 for the three months ended September
30, 1995. The 321% increase in revenues from 1995 to 1996 is primarily the
result of acquisitions, additional product lines and the transition of certain
subsidiaries from the development stage to commercialization in both the medical
and electronic business segments. Net revenues by the Company's business
segments are as follows:
Three months ended
September 30,
---------------------------------------
1995 1996
----------------- ---------------
Medical $1,544,293 $5,155,052
Electronic 4,323,897 19,535,918
----------------- ---------------
Total $5,868,190 $24,690,970
================= ===============
The increase in revenues for the Company's medical segment was
principally attributable to $3.3 million of revenues generated by the Company's
Tissue Technologies subsidiary during the three months ended September 30,1996,
as compared to almost no revenues for the three months ended September 30, 1995,
Tissue began commercial shipments of its product in the fourth quarter of 1995.
Approximately $1.5 million of medical revenues were generated by the Company's
Spectrum Medical Technologies, Inc. subsidiary in the three months ended
September 30, 1996 as compared to only approximately $1.1 million of revenues
for the three months ended September 30, 1995. This increase in revenues at
Spectrum was due to the introduction and initial shipments of its EpilaserTM
during the third quarter of 1996.
The increase in revenues for the Company's electronics segment was
attributable to approximately $9.2 million of revenues generated from the
Company's Nexar subsidiary, which introduced its proprietary upgradeable PC in
April of 1996, as compared to only approximately $51,300 of revenues generated
from the sale of non-proprietary PC's during the three months ended September
30, 1995. The remaining increase in the electronics segment was due to $5.4
million of sales by Dynaco's Comtel subsidiary acquired in the first quarter of
1996.
Gross margin for the three months ended September 30, 1996, was
$3,961,047 (16% of revenues) versus $1,374,067 (23% of revenues) for the three
months ended September 30, 1995. The increase in gross dollars was a result of
the additional revenues generated from new products introduced during the three
months ended September 30,1996 as discussed above. The decrease in gross profit
percent is directly attributable to two factors: 1.) a decrease in yields at
Dynaco due to an increase in production costs attributable to a change in
Dynaco's product mix and 2.) underutilization of increased production capacity
at Spectrum in preparation for the increased demand of its EpilaserTM in the
fourth quarter of 1996 and in 1997. A portion of this decrease in gross margin
percent was offset by an increase in gross margins attributed to the acquisition
of Tissue which introduced its skin resurfacing laser to the commercial
marketplace in the first quarter of 1996.
Research and development costs increased to $1,639,712 (7% of revenues)
for the three months ended September 30, 1996, from $1,297,384 (23% of revenues)
for the three months ended September 30, 1995. This 26% increase in research and
development reflects the Company's continuing commitment to research and
development for both its medical and electronic business segments. In the
Company's medical segment, the Company continues to focus its efforts to obtain
FDA approval for hair prevention using the EpilaserTM, previously FDA approved
for other dermatological applications, and to concentrate on the development of
additional products for medical laser applications. In the electronics segment
the Company's Nexar subsidiary continues to enhance and further develop its
current proprietary upgradeable PC product in order to stay competitive in a
rapidly changing high technology industry. In addition, the Company's Dynaco
subsidiary began funding new process engineering and materials development, and
has filed several patents for this process. Management believes that research
and development expenditures will increase over the next few years as the
Company continues clinical trials of its medical products, develops additional
applications for its lasers and delivery systems and develops commercial
applications for unique electronic interconnect packaging.
-16-
General and Administrative expenses increased to $5,581,662 (23% of
revenues) for the three months ended September 30, 1996, from $1,800,826 (31% of
revenues) for the three months ended September 30, 1995. This 210% increase is
primarily attributable to acquisitions, and the transition of certain
subsidiaries from the development stage to commercialization. Also, the
Company's growth through acquisitions has required increased administrative
resources at the Company's corporate offices to oversee the growth of the
Company's medical and electronic business segments. In the medical segment, the
Company expanded its general and administrative support staff at Spectrum to
accommodate the forecasted growth for the fourth quarter of 1996 and for 1997.
In the electronics segment, the Company's Nexar subsidiary has expanded its
executive, administrative and finance staffs to support Nexar's growing
operations. The Company has continued to increase its support staffs in
anticipation of several new product introductions in 1996. All of the Company's
subsidiaries maintain their own general and administrative support staffs.
Selling and Marketing expenses increased to $2,167,195 (9% of revenues)
for the three months ended September 30, 1996, from $707,985 (12% of revenues)
for the three months ended September 30, 1995. This 206% increase reflects
expansion through acquisitions and new product lines. In the medical segment,
this increase is attributable to the Company's Spectrum subsidiary increasing
its sales and marketing expenditures to coincide with the addition of two new
product lines. In the electronics segment, this increase reflects the change in
focus of the Company's Nexar subsidiary from product development to selling and
marketing proprietary upgradeable PC.
Business Development and Other Financing Costs decreased to $477,380
(2% of revenues) for the three months ended September 30, 1996, from $658,314
(11% of revenues) for the three months ended September 30, 1995. This 27%
decrease is attributable to the Company's focus on operations, product
development and enhancements during the third quarter of 1996. The Company
anticipates that it will continue to expend funds to raise additional sources of
financing and to focus its efforts to acquire other technologies to broaden its
scope of product applications and services in both the medical and electronic
business segments.
Interest expense increased to $510,107 for the three months ended
September 30, 1996, from $416,889 for the three months ended September 30, 1995.
This 22% increase is primarily the result of interest on convertible debentures
redeemed in May 1996 and the issuance of the 4.5% Swiss Franc convertible
debentures in July 1996.
Interest income decreased to $643,898 for the three months ended
September 30, 1996, from $688,709 for the three months ended September 30, 1995.
This decrease is primarily the result of the interest income received from the
collection of approximately $3.8 million of subscription receivables in the
third quarter of 1995 partially offset by other investments made as a result of
the Company's improved cash position during the third quarter of 1996.
Other Income represents realized and unrealized trading gains of
$1,820,311 for the three months ended September 30, 1996 and $160,597 for the
three months ended September 30, 1995 . These gains resulted from the sale of
certain marketable securities during the quarter. It is the Company's intention
to continue to invest in trading securities, which may result in additional
trading gains or losses in the future.
Minority interest in loss of subsidiary decreased to $1,388 for the
three months ended September 30, 1996, from $18,177 for the three months ended
September 30, 1995.
The Company has not recorded a deferred tax benefit for net operating
losses as the utilization of such losses is uncertain.
[This space intentionally left blank]
-17-
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
For the nine months ended September 30, 1996, the Company had revenues
of $49,153,990 as compared to $15,665,673 for the nine months ended September
30, 1995. The 214% increase in revenues from 1995 to 1996 is primarily the
result of acquisitions, additional product lines and the transition of certain
subsidiaries from the development stage to commercialization in both the medical
and electronic business segments. Net revenues by the Company's business
segments are as follows:
Nine months ended
September 30,
---------------------------------------
1995 1996
----------------- ---------------
Medical $ 3,490,579 $ 12,780,664
Electronic 12,175,094 36,373,326
----------------- ---------------
Total $ 15,665,673 $ 49,153,990
================= ===============
The increase in revenues for the Company's medical segment was
principally attributable to $8.8 million of revenues generated from the
Company's Tissue subsidiary during the nine months ended September 30,1996 as
compared to only $19,000 for the nine months ended September 30, 1995. Tissue
Technologies began commercial shipment of its product in the fourth quarter of
1995. Approximately $2.9 million of medical revenues were generated by the
Company's Spectrum subsidiary during the nine months ended September 30, 1996,
as compared to approximately $2.2 million of revenues for the nine months ended
September 30, 1995. This increase in revenues at Spectrum was due to the
introduction and initial shipments of its EpilaserTM during the third quarter of
1996.
The increase in revenues for the Company's electronics segment was
partially attributable to approximately $11.3 million of revenues generated from
the Company's Nexar subsidiary which introduced its proprietary upgradeable PC
in April of 1996, as compared to only approximately $264,000 of revenues
generated from the sale of non-proprietary PCs during the nine months ended
September 30, 1995. The remaining increase in the electronics segment was due to
$11.6 million of sales by Dynaco's Comtel subsidiary acquired in the first
quarter of 1996
Gross margin for the nine months ended September 30, 1996, was
$6,319,287 (13% of revenues) versus $3,839,954 (25% of revenues) for the nine
months ended September 30, 1995. The increase in gross profit dollars was a
result of the additional revenues generated from new products introduced during
the nine months ended September 30,1996 as discussed above. The decrease in
gross profit percent is attributed to a decrease in yields at Dynaco due to an
increase in production costs attributable to a change in Dynaco's product mix
combined with underutilization of increased production capacity at Spectrum in
preparation for the anticipated increase in demand of its EpilaserTM in the
fourth quarter of 1996 and for fiscal 1997. A portion of this decrease in gross
margin percent was offset by an increase in gross margins attributed to the
acquisition of Tissue which introduced its skin resurfacing laser to the
commercial marketplace in the first quarter of 1996.
Research and development costs increased to $5,731,009 (12% of
revenues) for the nine months ended September 30, 1996, from $2,521,531 (16% of
revenues) for the nine months ended September 30, 1995. This 127% increase in
research and development reflects the Company's continuing commitment to
research and development for both its medical and electronic business segments.
In the Company's medical segment the Company continues to focus its efforts to
obtain FDA approval for hair prevention using the EpilaserTM, previously FDA
approved for other dermatological applications, and concentrate on the
development of additional products for medical laser applications. In the
electronics segment, the Company's Nexar subsidiary continues to enhance and
further develop its current proprietary upgradeable PC product in order to stay
competitive in a rapidly changing high technology industry. In addition, Dynaco
began funding a new process engineering and materials development, and has filed
several patents. Management believes that research and development expenditures
will increase over the next few years as the Company continues clinical trials
of its medical products, develops additional applications for its lasers and
delivery systems and develops commercial applications for unique electronic
interconnect packaging.
General and Administrative expenses increased to $13,793,418 (28% of
revenues) for the nine months ended September 30, 1996, from $4,203,362 (27% of
revenues) for the nine months ended September 30, 1995. This 228% increase is
primarily attributable to acquisitions and the transition of certain
subsidiaries from the development stage to
-18-
commercialization combined with the increased administrative resources required
at the Company's corporate offices to oversee the growth of the Company's
medical and electronic business segments. In the medical segment, the Company
acquired Tissue and expanded it general and administrative support staff at
Spectrum to accommodate the forecasted growth in the fourth quarter of 1996 and
in 1997. In the electronics segment, the Company's Dynaco subsidiary acquired
Comtel and formed Dynamem, Inc. Additionally, the Company's Nexar subsidiary has
expanded its executive, administrative and finance staffs to support Nexar's
growing operations. The Company has continued to increase its support staffs in
anticipation of several new product introductions in 1996. All the Company's
subsidiaries maintain their own general and administrative support staffs.
Selling and Marketing expenses increased to $6,338,865 (13% of
revenues) for the nine months ended September 30, 1996, from $1,696,154 (11% of
revenues) for the nine months ended September 30, 1995. This 274% increase
reflects expansion through acquisitions and new product lines. In the medical
segment, this increase is attributable to the Company's Spectrum subsidiary
increasing its sales and marketing expenditures to coincide with the addition of
two new product lines. In the electronics segment, this increase reflects the
change in focus of the Company's Nexar subsidiary from product development to
selling and marketing its proprietary upgradeable PC.
Business Development and Financing Costs increased to $2,419,476 (5% of
revenues) for the nine months ended September 30, 1996, from $1,354,080 (9% of
revenues) for the nine months ended September 30, 1995. This 79% increase is
attributable to the Company's continuing acquisitions and financing activities.
The Company anticipates that it will continue to expend funds to raise
additional sources of financing and to focus its efforts to acquire other
technologies to broaden its scope of product applications and services in both
the medical and electronic business segments.
Pooling-of-Interest expenses totaled $443,780 for the nine months ended
September 30, 1996 and are comprised of professional fees associated with the
merger of Tissue and the Company.
Interest expense increased to $1,248,986 for the nine months ended
September 30, 1996, from $899,394 for the nine months ended September 30, 1995.
This 39% increase is primarily the result of the issuance of acquisition debt in
April 1995 to purchase Spectrum, the issuance of 8% convertible debentures and
the issuance of the 4.5% Swiss Franc convertible debentures in July 1996.
Interest income increased to $1,847,345 for the nine months ended
September 30, 1996, from $734,456 for the nine months ended September 30, 1995.
This increase is primarily the result of interest received from subscriptions
receivable and other loans and investments made as a result of the Company's
improved cash position.
Other Income represents realized and unrealized trading gains of
$2,548,629 for the nine months ended September 30, 1996 and net realized and
unrealized trading losses of $7,950 for the nine months ended September 30, 1995
. The realized gains resulted from the sale of certain marketable securities
during the year. It is the Company's intention to continue to invest in trading
securities, which may result in additional trading gains or losses in the
future.
Minority interest in loss of subsidiary decreased to $47,059 for the
nine months ended September 30, 1996, from $76,322 for the nine months ended
September 30, 1995.
The Company has not recorded a deferred tax benefit for net operating
losses as the utilization of such losses is uncertain.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had $24,305,339 in cash, cash
equivalents and trading securities. During the nine months ended September 30,
1996, the Company generated approximately $3,276,380, $30,913,397, $7,669,441
and $6,876,830 in net proceeds from the sale of its common stock, the sale of
its preferred stock, the issuance of 4.5% convertible debentures and the
exercise of stock options and warrants, respectively.
-19-
The Company's net loss for the nine months ended September 30, 1996,
included the following noncash items: $2,380,297 of depreciation and
amortization expense; $117,105 of interest expense relating to the amortization
of the discounts on the convertible debentures; and $903,584 related to common
stock and warrants issued to non-employees and consultants of which
approximately $600,000 results from the issuance of warrants for services in
accordance with SFAS No. 123.
The Company anticipates that capital expenditures for the remaining
three months of 1996 will total approximately $1,000,000. The Company will
finance these expenditures with cash on hand or the Company will seek to raise
additional funds. However, there can be no assurance that the Company will be
able to raise the funds.
Dynaco has a three-year revolving credit and security agreement with a
financial institution. The agreement provides for the revolving sale of
acceptable accounts receivable, as defined in the agreement, with recourse up to
a maximum commitment of $3,000,000. As of September 30, 1996, the amount of
accounts receivable sold that remained uncollected totaled $1,160,709 net of
related reserves and fees, as defined in the agreement. This amount is
classified as a revolving line of credit in the accompanying consolidated
balance sheet as of September 30, 1996. The interest rate on such outstanding
amounts is the bank's prime rate (8.25% at September 30, 1996) plus 1.5%, and
interest is payable monthly in arrears. The financing is collateralized by the
purchased accounts receivable and substantially all of Dynaco's assets.
Some of the Company's medical products businesses are still in the
development stage, with significant research and development costs and
regulatory constraints that currently limit sales of its medical products. These
activities are an important part of the Company's business plan. Due to the
nature of clinical trials and research and development activities, it is not
possible to predict with any certainty the timetable for completion of these
research activities or the total amount of funding required to commercialize
products developed as a result of such research and development. The rate of
research and the number of research projects underway are dependent to some
extent upon external funding. While the Company is regularly reviewing potential
funding sources in relation to these ongoing and proposed research projects,
there can be no assurance that the current levels of funding or additional
funding will be available, or, if available, on terms satisfactory to the
Company.
The Company also makes early stage investments in core technologies and
companies that management feels are strategic to the Company's business or will
yield a higher than average financial return to support the Company's core
business. Some of these investments are with companies that are related to some
of the directors and officers of the Company. In addition, the Company has made
loans to various affiliated parties. See "Related Party Transactions". At
September 30, 1996, the Company had $5,001,389 of such related party investments
and loans.
The Company has had significant losses to date and expects these losses
to continue for the near future. Therefore, the Company must continue to secure
additional financing to complete its research and development activities,
commercialize its current and proposed medical products segment, expand its
electronic products segment, execute its acquisition business plan and fund
ongoing operations. The Company believes that the cash generated to date from
its financing activities and amounts available under its credit agreement will
be sufficient to satisfy its working capital requirements through at least the
next twelve months. However, there can be no assurance that events in the future
will not require the Company to seek additional financing sooner. The Company
continues to investigate several financing alternatives, strategic partnerships,
additional bank financing, private debt and equity financing and other sources.
The Company believes that it has adequate cash reserves or will be successful in
obtaining additional financing in order to fund current operations in the near
future.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements
made by its employees may contain "forward-looking" information, as that term is
defined in the Private Securities Litigation Reform Act of 1995 (the "Act").
This report may also contain information that is deemed to be forward looking
information under the Act. The Company cautions investors that there can be no
assurance that actual results or business conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors, including but not limited to the following:
-20-
The Company's future operating results are dependent on its ability to
develop, produce and achieve FDA approval for certain medical products
and market new and innovative products and services. There are numerous
risks inherent in this complex process, including rapid technological
change and the requirement that the Company bring to market in a timely
fashion new products and services which meet customers' changing needs.
The Company and certain of its subsidiaries have a history of losses,
and the Company expects its losses to continue. The Company must secure
additional financing to complete its research and development
activities, commercialize its current and proposed medical products,
expand its current non-medical business, execute its acquisition
business plan and fund ongoing operations.
The Company's business segments operate in a highly competitive
environment and in highly competitive industries, which include
significant competitive pricing pressures and intense competition for
skilled employees.
The market price of the Company's securities could be subject to
fluctuations in response to quarter to quarter variations in operating
results, changes in analysts' earnings estimates, market conditions in
the information technology industry, as well as general economic
conditions and other factors external to the Company.
[This space intentionally left blank]
-21-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On March 14, 1996, the Company was served with a summons and complaint
with respect to Commonwealth Associates v. Palomar Medical Technologies, Inc., a
purported breach of contract action brought in the United States District Court
for the Southern District of New York. The complaint alleges violations of a
letter agreement pursuant to which Commonwealth Associates was to render certain
services to the Company and the Company was to pay certain dollar amounts and
issue a warrant to purchase shares of the Company's Common Stock to Commonwealth
Associates. The Company intends to assert defenses vigorously. The extent of
exposure of the Company cannot be determined at this time.
ITEM 2. CHANGES IN SECURITIES
---------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On July 19, 1996, the Company held a Special Meeting of Stockholders.
At the Special Meeting the Stockholders (i) ratified and approved an amendment
to increase the number of authorized shares of the Company from 45,000,000 to
105,000,000 shares, of which 100,000,000 are common stock with a par value of
$.01 per share and 5,000,000 are preferred stock with a par value of $.01 per
share; (ii) ratified and approved the Company's 1996 Stock Option Plan; and
(iii) ratified and approved the Company's 1996 Employee Stock Purchase Plan.
ITEM 5. OTHER INFORMATION
-----------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Title
--------------- ----------------------------------------------------------------------------------------
<S> <C> <C>
10(ss) Key Employment Agreement dated as of May 1, 1996, between the Company
and Ronald G. Wheeland
10(tt) Certificate of Designation of Series F Convertible Preferred Stock dated, July 12, 1996
10(uu) Securities Purchase Agreement between the Company and The Travelers Insurance
Company, dated July 12, 1996
10(vv) Warrant to purchase Common Stock of the Company, dated July 12, 1996
10(ww) Certificate of Designation of Series G Convertible Preferred Stock, dated
September 26, 1996
10(xx) Subscription Agreement between the Company and Genesee Fund Limited, dated
September 26, 1996
10(yy) Registration Rights Agreement between the Company and Genesee Fund Limited,
dated September 26, 1996
10(zz) Warrant to purchase Common Stock of the Company, dated September 27, 1996
10(aaa) Warrant Agreement between Palomar Medical Technologies, Inc. and American
Stock Transfer & Trust Co. as warrant agent, dated June 24, 1996
10(bbb) Palomar Medical Technologies, Inc. and American Stock Transfer & Trust
Company as trustee, Indenture dated as of June 24, 1996, SF 25,000,000,
4.5% Convertible Subordinated Debentures due 2003
</TABLE>
(b) Reports on Form 8-K.
None
-22-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant certifies that it has caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Beverly in the
Commonwealth of Massachusetts on November 13, 1996.
PALOMAR MEDICAL TECHNOLOGIES, INC.
----------------------------------
(Registrant)
DATE: November 13, 1996 By: /s/ Steven Georgiev
-------------------------------------
Steven Georgiev
Chief Executive Officer and Chairman
of the Board
DATE: November 13, 1996 /s/ Joseph P. Caruso
--------------------------------------
Joseph P. Caruso
Vice President, Chief Financial Officer
(Principal Financial Officer)
-23-
EXHIBIT 10(ss)
DRAFT DATED 4/26/96
- -------------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") made as of May 1, 1996,
between Palomar Medical Technologies, Inc., a Delaware corporation (the
"Company"), and Ronald G. Wheeland, M.D., F.A.C.P., an individual residing at
8406 Ruggles Court, Fair Oaks, California 95628 (the "Employee"),
W I T N E S S E T H T H A T:
WHEREAS, the Company desires to employ Employee as one of its senior
executive officers for the period and upon and subject to the terms herein
provided; and
WHEREAS, the Company desires to be assured that Employee will not
compete with the Company for the period and within the geographical areas
hereinafter specified; and
WHEREAS, Employee is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided; and
WHEREAS, Employee does not desire to work for the Company in a position
lower than that of a managerial capacity and is willing to agree not to compete
with the Company;
NOW, THEREFORE, in consideration of the premises, the parties hereto
covenant and agree as follows:
Section 1. Term of Employment; Compensation. The Company agrees to
employ Employee from the date hereof until May 31, 2001 in a senior managerial
capacity, initially as Vice President and Medical Director. The Company will pay
Employee for his services during the term of his employment hereunder at an
annual rate of Three Hundred Fifty Thousand Dollars ($350,000), payable in
arrears, in equal installments, in accordance with standard Company practice,
but in any event not less often than monthly, subject only to such payroll and
withholding deductions as are required by law or requested by the Employee (the
"Base Salary"). The Base Salary shall be increased 10% per year on each
anniversary of this Agreement. Employee shall also be entitled to an annual
bonus of not less than 10% and not more than 30% of his Base Salary to be
granted based upon the achievement of mutually agreed upon performance criteria.
Upon execution of this Agreement, Employee will be paid a signing bonus
of Two Hundred Fifty Thousand Dollars ($250,000) and will be granted options to
purchase 400,000 shares of the common stock, $.01 par value per share, of the
Company at a purchase price of $9.50 per share such option to vest at the rate
of 150,000 on the first anniversary hereof, 150,000 on the second anniversary
hereof, and 100,000 on the third anniversary hereof. The Options shall vest
immediately upon a
change in control of the Company, as defined in the option agreement or upon
termination of Employee's employment under Section 6(e) of this Agreement.
The Company will also pay Employee's costs to maintain his personal and
family health insurance from his current employer under provisions of C.O.B.R.A.
(Continuation of Benefits Reconciliation Act) for a period not to exceed
eighteen months from the date hereof, and provide continuously during the term
of this Agreement coverage for the Employee under the Company's directors and
officers liability insurance policy and shall maintain such other medical
malpractice and liability insurance coverage for the Employee as shall be
sufficient to cover the Employee's activities on behalf of the Company. In the
event that Employee is sued by ThermoLase Corporation during the term of this
Agreement and such suit is based upon either (i) previous employment-related
negotiations between ThermoLase and Employee, or (ii) wrongful disclosure of
proprietary information to the Company, the Company shall defend and indemnify
Employee against any loss, cost or liability arising out of any such lawsuit
including, but not limited to reasonable retainers, expert witness fees,
attorney's fees, settlement costs, judgments and litigation costs (herein
referred to as "Defense Costs"). Employee may retain independent counsel of
Employee's choosing to represent Employee is any such litigation. Any insurance
policy required to be carried by the Company for the benefit of Employee under
this Agreement shall provide as follows: (i) that Defense Costs related to any
covered claim, shall be advanced and paid to, or on behalf of, Employee as and
when any such Defense Costs are incurred, and (ii) that Employee shall have the
right to retain independent counsel of Employee's choosing to defend Employee
with respect to any such covered claim. To the extent nor covered by insurance
carried by the Company, the Company agrees to defend and indemnify Employee
against any loss, costs or liability, including Defense Costs, arising out of
Employee's employment with the Company except liability resulting from
Employee's willful misconduct. In defending Employee under this paragraph, the
Company shall advance and pay Employee's Defense Costs as and when they are
incurred, and Employee shall have the right to retain independent counsel of
Employee's choosing.
Section 2. Office and Duties. Employee's principal responsibilities
shall include (1) assisting the Company in developing its strategy to achieve a
dominant position in the cosmetic laser markets, including transitioning from a
capital equipment supplier to a broad service provider, (2) providing product
development and product application guidance for medical and cosmetic laser
procedures, (3) directing clinical trials for laser applications, (4) assisting
and directing training and educational programs, (5) serving as the Company's
spokesman with the medical research, clinician and practitioner communities as
well as with the investor community to increase awareness of promising and
effective laser treatments, (6) assisting in the evaluation of new technologies,
products and procedures which may be of interest to the Company, and (7)
operating and managing a Company facility in Sacramento, California, staffed and
equipped to do product, procedure and clinical evaluations. The Company shall
provide at its expense for Employee the standard level of medical malpractice
insurance to protect his medical license from litigation related to the practice
of medicine within the scope of employment by the Company as well as continuing
"tail" coverage for a period of three (3) years in the event of termination of
employment. Employee shall devote substantially all of his business time, labor,
skill, undivided attention and best ability to the performance of his duties
hereunder in a manner which will faithfully and diligently further the business
and interests of the Company. During the term of his employment, Employee shall
not directly or indirectly pursue any other business activity, except personal
investments not related to the Company or its business, and those professional
medical
-2-
activities related to service to professional medical publications as editor or
reviewer or professional medical societies as elected officer, elected board
member or appointed committee member or chair, without the Company's prior
written consent. Employee agrees that he will travel to whatever extent is
reasonably necessary in the conduct of the Company's business. The Employee's
principal office shall be located in Sacramento, California, and Employee shall
not be required to move from that location without his consent. The Company
agrees to fully fund the operations and overhead of Employee's Principal office
for the duration of this Agreement in amounts sufficient to fully support
Employee's duties as set forth herein.
Nothing in this Agreement shall affect in any way the Company's right
to manage its business, and the Company retains its full management prerogatives
and discretion to manage and direct its business affairs, including, without
limitation, the adoption, amendment or modification of advisory, research,
development, production or marketing decisions as it sees fit, notwithstanding
any interest in or expectation which Employee may have regarding a particular
position, business program or product.
Section 3. Expenses. Employee shall be entitled to reimbursement for
expenses incurred by him in connection with the performance of his duties
hereunder upon receipt of vouchers therefor in accordance with such procedures
as the Company has heretofore or may hereafter establish. In addition, Employee
shall be reimbursed for moving expenses of personal and professional belongings
from Albuquerque, New Mexico, to Sacramento, California.
Section 4. Employee Leave During Employment. (a) Employee shall be
entitled to such reasonable vacations as may be allowed by the Company in
accordance with general practices to be established, but in any event not less
than four (4) weeks during each twelve (12) month period.
(b) In addition, Employee shall also be entitled to a minimum
of at least three (3) weeks of paid educational leave per year, to attend
approved professional medical society meetings as necessary to maintain
professional credentials and qualifications for medical licensure. This leave
will be taken, whenever possible, at times as may be approved by the President
of the Company.
Section 5. Additional Benefits. If otherwise eligible, Employee shall
not be excluded, without his prior written consent, from participation in all
group insurance programs or other fringe benefit plans which the Company may
hereafter in its sole and absolute discretion make available generally to its
employees, but the Company shall not be required to establish or maintain any
such program or plan.
Section 6. Termination of Employment. Notwithstanding any other
provision of this Agreement, Employee's employment may be terminated:
(a) By the Company in the event of his wilful misconduct in
the performance of his duties hereunder, or his conviction of a crime involving
moral turpitude.
(b) By the Company upon ninety (90) days' notice to Employee
if he should be prevented by illness, accident or other disability (mental or
physical) from discharging
-3-
his duties hereunder for one or more periods totaling six (6) months during any
consecutive twelve (12) month period.
(c) By either the Company or Employee for any material breach
by the other of the terms hereof, but only if such breach continues for ten (10)
days (or such longer period as is reasonably required to cure such breach with
diligent and good faith effort) after written notice to the other specifying the
breach relied on for such termination.
(d) In the event of Employee's death during the term of his
employment, the Company's obligation to pay further compensation hereunder shall
cease forthwith, except that Employee's legal representative shall be entitled
to receive his fixed compensation for the period up to the last day of third
month after the month in which such death shall have occurred.
(e) By the Company without cause, after the second anniversary
hereof, upon not less than thirty (30) days' written notice in which event the
Company shall pay to Employee an amount equal to eighteen months salary based on
then applicable Base Salary and all non-salary benefits shall continue for a
period of eighteen (18) months at Company expense.
Section 7. Disclosure and Assignment of Intellectual Property. Employee
shall promptly disclose to the Company and any successor or assign, and grant to
the Company, and its successors and assigns (without any separate remuneration
or compensation other than that received by him from time to time in the course
of his employment) his entire right, title and interest throughout the world in
and to all research, information, inventions, designs, procedures, developments,
discoveries, improvements, patents and applications therefor, trademarks and
applications therefor, copyrights and applications therefor, trade secrets,
drawings, plans, systems, methods, specifications, and all other manufacturing,
engineering, technical, research and development data and know-how made,
conceived, developed and/or acquired by him solely or jointly with others during
the period of his employment with the Company or within one year thereafter,
which relate to the manufacture, production or processing of any products
developed or sold by the Company during the term of this Agreement or which are
within the scope of or usable in connection with the Company's business as it
may, from time to time, hereafter be conducted or proposed to be conducted
(herein sometimes "Intellectual Property"). (It is understood and agreed that
Employee has heretofore disclosed to the Company, and assigned to it, all
Intellectual Property now known to him over which he has any control and the
disclosure of which will not subject the Employee to liability for breach of
contract, breach of a confidentiality agreement or violation of any law or
resolution.) Employee agrees to execute all appropriate patent applications
securing all United States and foreign patents on all Intellectual Property, and
to do, execute and deliver any and all acts and instruments that may be
necessary or proper to vest all Intellectual Property in the Company or its
nominee or designee and to enable the Company, or its nominee or designee, to
obtain all such patents; and Employee agrees to render to the Company, or its
nominee or designee, all such assistance as it may require in the prosecution of
all such patent applications and applications for the re-issue of such patents,
and in the prosecution or defense of all interferences which may be declared
involving any of said patent applications or patents, but the expense of all
such assignments and patent applications, or all other proceedings referred to
herein above, shall be borne by the Company. Employee shall be entitled to fair
and reasonable compensation for any such assistance requested by the Company or
its nominee or designee and furnished by him
-4-
after the termination of his employment. Employee shall make and maintain
adequate and current written records of all Intellectual Property, and Employee
shall disclose all Intellectual Property promptly, fully and in writing to the
Company immediately upon development of the same and at any time upon request.
Section 8. Confidentiality. Employee shall not, either during the
period of his employment with the Company or thereafter, reveal or disclose to
any person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any Confidential Information, as
hereinafter defined. The term "Confidential Information" as used throughout this
Agreement shall mean all trade secrets, proprietary information and other data
or information (and any tangible evidence, record or representation thereof),
whether prepared, conceived or developed by an employee of the Company or
received by the Company from an outside source, which is in the possession of
the Company (whether or not the property of the Company), which in any way
relates to the present or future business of the Company, which is maintained in
confidence by the Company, or which might permit the Company or its customers to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. All
originals and copies of any of the foregoing, relating to the business of the
Company, however and whenever produced, shall be the sole property of the
Company, not to be removed from the premises or custody of the Company without
in each instance first obtaining written consent or authorization of the
Company. Upon the termination of Employee's employment in any manner or for any
reason, Employee shall promptly surrender to the Company all copies of any of
the foregoing, together with any other documents, materials, data, information
and equipment belonging to or relating to the Company's business and in his
possession, custody or control, and Employee shall not thereafter retain or
deliver to any other person, any of the foregoing or any summary or memorandum
thereof.
Section 9. Restriction. The Company has invested and may in the future
be required to invest substantial sums of money, directly or indirectly, to
continue and expand the business heretofore conducted by it and in connection
therewith, and as Employee recognizes that the Company would be substantially
injured by Employee disclosing to others, or by Employee using for his own
benefit, any Intellectual Property or any of the other types of information
referred to in Section 8 or Confidential Information, Employee agrees that
during the period of his employment hereunder and for a period ending two (2)
years after the term of this Agreement:
(a) Neither he nor any member of his immediate family will be
interested, directly or indirectly, as an investor in any other business or
enterprise similar to that of the Company or in competition with the Company
(except as an investor in securities listed on a national securities exchange or
actively traded over the counter so long as such investments are in amounts not
significant as compared to his total investments or to the aggregate of the
outstanding securities of the issuer of the same class or issue); and
(b) He will not, directly or indirectly, for his own account
or as employee, officer, director, partner, joint venturer or otherwise, engage
anywhere in the world, in any phase of the business of developing,
manufacturing, distributing or selling lasers for medical or cosmetic use or
-5-
otherwise compete with the Company in such geographic area in any other business
in which the Company is engaged and for which he has responsibility.
(c) During Employee's employment with the Company and for a
period of three years after the termination thereof for any reason, Employee
shall not solicit, induce, attempt to hire, or hire any employee of the Company
(or any other person who may have been employed by the Company during the term
of his employment with the Company), or assist in such hiring by any other
person or business entity or encourage any such employee to terminate his or her
employment with the Company.
Employee and the Company are of the belief that the period of time and
the area herein specified are reasonable, in view of the nature of the business
in which the Company is engaged and proposes to engage, the state of its product
development and Employee's knowledge of this business. However, if such period
or such area should be adjudged unreasonable in any judicial proceeding, then
the period of time shall be reduced by such number of months or such area shall
be reduced by elimination of such portion of such area, or both, as are deemed
unreasonable, so that this covenant may be enforced in such area and during such
period of time as is adjudged to be reasonable.
Section 10. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered or
three (3) days after mailing if mailed by first-class, registered or certified
mail, postage prepaid, addressed (a) if to Employee, at 8406 Ruggles Court, Four
Oaks, California 95628, with a copy to
___________________________________________________, Attn:___________________,
Esq., or to such other person(s) or address(es) as Employee shall have furnished
to the Company in writing; and (b) if to the Company, at 66 Cherry Hill Drive,
Beverly, Massachusetts 01915, with a copy to Foley, Hoag & Eliot, One Post
Office Square, Boston, Massachusetts 02109, Attn: David A. Broadwin, Esq. or to
such other person(s) or address(es) as the Company shall have furnished to
Employee in writing.
Section 11. Assignability. In the event that the Company shall be
merged with, or consolidated into, any other corporation, or in the event that
it shall sell and transfer substantially all of its assets to another
corporation (a "Transaction"), the terms of this Agreement shall inure to the
benefit of the Employee and the corporation resulting from such Transaction (the
"Resulting Corporation"), and be assumed by, the Resulting Corporation. This
Agreement shall not be assignable by Employee, but it shall be binding upon, and
to the extent provided in Section 6, shall inure to the benefit of, his heirs,
executors, administrators and legal representatives.
Section 12. Entire Agreement. This Agreement contains the entire
agreement between the Company and Employee with respect to the subject matter
hereof and there have been no oral or other agreements of any kind whatsoever as
a condition precedent or inducement to the signing of this Agreement or
otherwise concerning this Agreement or the subject matter hereof.
Section 13. Expenses. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel for all activities of such counsel undertaken pursuant
to this Agreement, except as otherwise herein specifically provided.
-6-
Section 14. Equitable Relief. Employee recognizes and agrees that the
Company's remedy at law for any breach of the provisions of Sections 7, 8 or 9
hereof would be inadequate, and he agrees that for breach of such provisions,
the Company shall, in addition to such other remedies as may be available to it
at law or in equity or as provided in this Agreement, be entitled to injunctive
relief and to enforce its rights by an action for specific performance to the
extent permitted by law.
Section 15. Waivers and Further Agreements. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; provided, however, that no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
Section 16. Amendments. This Agreement may not be amended, nor shall
any waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
Section 17. Severability. If any provision of this Agreement shall be
held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
as applied to any particular case in any jurisdiction or jurisdictions, or in
all jurisdictions or in all cases, because of the conflicting of any provision
with any constitution or statute or rule of public policy or for any other
reason, such circumstance shall not have the effect of rendering the provision
or provisions in question, invalid, inoperative or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to the extent that such other provisions are not themselves actually in conflict
with such constitution, statute or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
Section 18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
Section 19. Section Headings. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 20. General Provisions.
-7-
(a) Employee further agrees that his obligations under
Sections 7, 8 and 9 of this Agreement shall be binding upon him irrespective of
the duration of his employment by the Company, the reasons for any cessation of
his employment by the Company, or the amount of his compensation and subject to
the time limits set forth in Sections 7, 8 and 9, shall survive the termination
of this Agreement (whether such termination is by the Company, by Employee, upon
expiration of this Agreement or otherwise).
(b) Employee represents and warrants to the Company that he is
not now under any obligations to any person, firm or corporation, and has no
other interest which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair, in any way, the performance by him of any
of the covenants or his duties in his said employment.
Section 21. Gender. Whenever used herein, the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
Section 22. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Steven Georgiev
-------------------------
Name: Steven Georgiev
-------------------------
Title: Chairman & CEO
-------------------------
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE READ ALL
THE PROVISIONS OF THIS AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
EMPLOYEE:
/s/ Ronald G. Wheeland, M.D.
---------------------------------------
Ronald G. Wheeland, M.D., F.A.C.P.
Dated: 5/1/96
-8-
EXHIBIT 10(tt)
CERTIFICATE OF DESIGNATION
OF
PALOMAR MEDICAL TECHNOLOGIES, INC.
CERTIFICATE OF DESIGNATION
OF
SERIES F CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation Law
of the State of Delaware)
------
Palomar Medical Technologies, Inc., a Delaware corporation
(the "Corporation"), in accordance with the provisions of Section 103 of the
General Corporation Law of the State of Delaware (the "DGCL") DOES HEREBY
CERTIFY:
That pursuant to authority vested in the Board of Directors of
the Corporation by the Certificate of Incorporation, as amended, of the
Corporation, the Board of Directors of the Corporation, pursuant to a unanimous
written consent of Directors dated July 12, 1996, adopted a resolution providing
for the creation of a series of the Corporation's Preferred Stock, $.01 par
value per share, which series is designated "Series F Convertible Preferred
Stock", which resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, as amended,
the Board of Directors does hereby provide for the creation of a series of the
Preferred Stock, $.01 par value per share (hereafter called the "Preferred
Stock"), of the Corporation, and to the extent that the voting powers and the
designations, preferences and relative, participating, optional or other special
rights thereof and the qualifications, limitations or restrictions of such
rights have not been set forth in the Certificate of Incorporation, as amended,
of the Corporation, does hereby fix the same as follows:
SERIES F CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series F Convertible Preferred Stock" (the "Series F
Convertible Preferred Stock"), and the number of shares constituting the Series
F Convertible Preferred Stock shall be 6,000.
SECTION 2. STATED CAPITAL. The amount to be represented in
stated capital at all times for each share of Series F Convertible Preferred
Stock shall be the sum of (i) $60.00, (ii) to the extent legally available, the
accrued but unpaid dividends on such share of Series F Convertible Preferred
Stock, and (iii) to be determined on at least a quarterly basis, an amount equal
to the accrued and unpaid interest on dividends in arrears through the date of
determination (as provided in Section 4).
SECTION 3. RANK. All Series F Convertible Preferred Stock
shall rank (i) senior to the Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation, now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and (ii) on a parity with the
Series A Convertible Preferred Stock, $.01 par value per share, the Series B
Convertible Preferred Stock, $.01 par value per share, the Series C Convertible
Preferred Stock, $.01 par value per share, the Series D Convertible Preferred
Stock, $.01 par value per share, the Series E Convertible Preferred Stock, $.01
par value per share, the Series I Class A Preference Shares, $.01 par value per
share, and the Series II Class A Preference Shares, $.01 par value per share, of
the Corporation, both as to payment of dividends and as to distributions of
assets upon liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. The holders of shares
of Series F Convertible Preferred Stock shall be entitled to receive, when, as,
and if declared by the Board of Directors of the Corporation (the "Board of
Directors" or the "Board") out of funds legally available for such purpose,
dividends at the rate of 8% of the Per Share Price (as defined in Section 5) per
annum per share during the first twelve (12) months after the date of original
issuance, 6% of the Per Share Price per annum during the second twelve months
after the date of original issuance and 4% of the Per Share Price per annum
thereafter, and no more, which shall be fully cumulative, shall accrue without
interest from the date of original issuance and shall be payable in cash
quarterly on March 31, June 30, September 30 and December 31 of each year
commencing September 30, 1996 (except that if any such date is a Saturday,
Sunday, or legal holiday, then such dividend shall be payable on the next
succeeding day that is not a Saturday, Sunday, or legal holiday) to holders of
record as they appear on the stock books of the Corporation on such record
dates, not more than 20 nor less than 10 days preceding the payment dates for
such dividends, as shall be fixed by the Board. The amount of the dividends
payable per share of Series F Convertible Preferred Stock for each quarterly
dividend period shall be computed by dividing the annual dividend amount by
four. The amount of dividends payable for the initial dividend period and any
period shorter than a full quarterly dividend period shall be computed on the
basis of a 360-day year of twelve 30-day months. Dividends not paid on a payment
date, whether or not such dividends have been declared, will bear interest at
the rate of 10% per annum until paid. No dividends or other distributions, other
than dividends payable solely in shares of Common Stock or other capital stock
of the Corporation ranking junior as to dividends to the Series F
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Convertible Preferred Stock (collectively, the "Junior Dividend Stock"), shall
be paid or set apart for payment on, and, except for the use of Common Stock to
pay for the exercise price of stock options issued pursuant to the stock option
plans of the Corporation and its subsidiaries, no purchase, redemption, or other
acquisition shall be made by the Corporation of, any shares of Junior Dividend
Stock unless and until all accrued and unpaid dividends on the Series F
Convertible Preferred Stock and interest on dividends in arrears at the rate
specified herein shall have been paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the
Corporation ranking senior as to dividends to the Series F Convertible Preferred
Stock (the "Senior Dividend Stock") shall be in default, in whole or in part, no
dividend shall be paid or declared and set apart for payment on the Series F
Convertible Preferred Stock unless and until all accrued and unpaid dividends
with respect to the Senior Dividend Stock, including the full dividends for the
then current dividend period, shall have been paid or declared and set apart for
payment, without interest. No dividends shall be paid or declared and set apart
for payment on any class or series or the Corporation's capital stock ranking,
as to dividends, on a parity with the Series F Convertible Preferred Stock (the
"Parity Dividend Stock") for any period unless all accrued but unpaid dividends
(and interest on dividends in arrears at the rate specified herein) have been,
or contemporaneously are, paid or declared and set apart for such payment on the
Series F Convertible Preferred Stock. No dividends shall be paid or declared and
set apart for payment on the Series F Convertible Preferred Stock for any period
unless all accrued but unpaid dividends have been, or contemporaneously are,
paid or declared and set apart for payment on the Parity Dividend Stock for all
dividend periods terminating on or prior to the date of payment of such full
dividends. When dividends are not paid in full upon the Series F Convertible
Preferred Stock and the Parity Dividend Stock, all dividends paid or declared
and set apart for payment upon shares of Series F Convertible Preferred Stock
(and interest on dividends in arrears at the rate specified herein) and the
Parity Dividend Stock shall be paid or declared and set apart for payment pro
rata, so that the amount of dividends paid or declared and set apart for payment
per share on the Series F Convertible Preferred Stock and the Parity Dividend
Stock shall in all cases bear to each other the same ratio that accrued and
unpaid dividends per share on the shares of Series F Convertible Preferred Stock
and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series F Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount per share of
Series F Convertible Preferred Stock equal to the sum of (i) all dividends
accrued and unpaid thereon to the date of final distribution to such holders,
(ii) accrued and unpaid interest on dividends in arrears to the date of
distribution, and (iii) $1,000.00 (the "Per Share Price" and collectively with
the amounts described in clauses (i) and (ii) above, the "Liquidation
Preference"), and no more, before any payment shall be made or any assets
distributed to the holders of Common Stock or any other class or series of the
Corporation's capital stock ranking junior as to liquidation rights to the
Series F Convertible Preferred Stock (collectively,
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the "Junior Liquidation Stock"); provided, however, that such rights shall
accrue to the holders of Series F Convertible Preferred Stock only in the event
that the Corporation's payments with respect to the liquidation preference of
the holders of capital stock of the Corporation ranking senior as to liquidation
rights to the Series F Convertible Preferred Stock (the "Senior Liquidation
Stock") are fully met. After the liquidation preferences of the Senior
Liquidation Stock are fully met, the entire assets of the Corporation available
for distribution shall be distributed ratably among the holders of the Series F
Convertible Preferred Stock and any other class or series of the Corporation's
capital stock having parity as to liquidation rights with the Series F
Convertible Preferred Stock (the "Parity Liquidation Stock") in proportion to
the respective preferential amounts to which each is entitled (but only to the
extent of such preferential amounts). After payment in full of the liquidation
price of the shares of the Series F Convertible Preferred Stock and the Parity
Liquidation Stock, the holders of such shares shall not be entitled to any
further participation in any distribution of assets by the Corporation. Neither
a consolidation or merger of the Corporation with another corporation nor a sale
or transfer of all or part of the Corporation's assets for cash, securities, or
other property in and of itself will be considered a liquidation, dissolution,
or winding up of the Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series F
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
SECTION 7. NO SINKING FUND. The shares of Series F Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is
in compliance in all material respects with its obligations to the holders of
shares of Series F Convertible Preferred Stock, the Corporation shall have the
right, exercisable on not less than 10 days or more than 30 days written notice
to the holders of record of the shares of Series F Convertible Preferred Stock
to be redeemed, at any time after the sooner to occur of (i) three (3) years
after the date of original issuance or (ii) such time as the closing bid price
of the Common Stock shall exceed $16.80 per share (the "Alternative Minimum
Redemption Price") for 60 or more consecutive trading days (provided that for
purposes of this clause (ii), the closing bid price of the Common Stock shall
exceed 16.80 on the day that the shares of Series F Convertible Preferred Stock
are called for redemption) to redeem all of the shares or any part thereof not
less than 1,000 shares (or such lesser number of shares of Series F Convertible
Preferred Stock as shall remain outstanding at the time of exercise of such
redemption right) of Series F Convertible Preferred Stock in accordance with
this Section 8; provided that (i) the Corporation shall not exercise its right
to redeem shares of Series F Convertible Preferred Stock prior to the
Registration Effective Date (as hereinafter defined) and (ii) if within five (5)
days of receipt of a Notice of Redemption (as hereinafter defined) Travelers (as
hereinafter defined) shall notify the Corporation in writing that Travelers
cannot exercise its right of conversion by reason of the operation of the
proviso to the first sentence of Section 9(a) the Notice of Redemption shall not
be effective as to any shares of Series F Preferred Stock owned by Travelers and
the such shares shall no longer be entitled to the accrual and cumulation of
dividends under Section 4. The Alternative Minimum Redemption Price shall be
subject to equitable adjustments for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events. Any
notice of redemption (a "Notice of Redemption") under this Section shall be
delivered to the holders of the shares of Series F Convertible Preferred Stock
at their addresses appearing on the records of the Corporation; provided,
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however, that any failure or defect in the giving of notice to any such holder
shall not affect the validity of notice to or the redemption of shares of Series
F Convertible Preferred Stock of any other holder. Any Notice of Redemption
shall state (1) that the Corporation is exercising its right to redeem all or a
portion of the outstanding shares of Series F Convertible Preferred Stock
pursuant to this Section 8, (2) the number of shares of Series F Convertible
Preferred Stock held by such holder which are to be redeemed, (3) the Redemption
Price (as hereinafter defined) per share of Series F Convertible Preferred Stock
to be redeemed, determined in accordance with this Section and (4) the date of
redemption of such shares of Series F Convertible Preferred Stock, determined in
accordance with this Section (the "Redemption Date"). On the Redemption Date,
the Corporation shall make payment in immediately available funds of the
applicable Redemption Price (as hereinafter defined) to each holder of shares of
Series F Convertible Preferred Stock to be redeemed to or upon the order of such
holder as specified by such holder in writing to the Corporation at least one
business day prior to the Redemption Date. If the Corporation exercises its
right to redeem all or a portion of the outstanding shares of Series F
Convertible Preferred Stock, the Corporation shall make payment to the holders
of the shares of Series F Convertible Preferred Stock to be redeemed in respect
of each share of Series F Convertible Preferred Stock to be redeemed of an
amount equal to the amount of the Liquidation Preference determined as of the
applicable Redemption Date (the "Redemption Price"). Upon redemption of less
than all of the shares of Series F Convertible Preferred Stock evidenced by a
particular certificate, promptly, but in no event later than three business days
after surrender of such certificate to the Corporation, the Corporation shall
issue a replacement certificate for the shares of Series F Convertible Preferred
Stock which have not been redeemed. Only whole shares of Series F Convertible
Preferred Stock may be redeemed. If the Corporation exercises its right to
redeem less than all outstanding shares of Series F Convertible Preferred Stock,
then such redemption shall be made, as nearly as practical, pro rata among the
holders of record of the Series F Convertible Preferred Stock. Notwithstanding
any other provision of this Certificate of Designations, no share of Series F
Convertible Preferred Stock as to which the holder has exercised the right of
conversion pursuant to Section 9 hereof may be redeemed by the Corporation on or
after the date of exercise of such conversion right.
SECTION 9. CONVERSION.
(a) Conversion at Option of Holder. The holders of the Series
F Convertible Preferred Stock may, upon surrender of the certificates therefor,
convert any or all of their shares of Series F Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. Commencing on the date which is 20 days
after the Registration Effective Date (as hereinafter defined) and at any time
thereafter, each share of Series F Convertible Preferred Stock initially may be
converted at the office of any transfer agent for the Series F Convertible
Preferred Stock, if any, the office of any transfer agent for the Common Stock
or at such other office or offices, if any, as the Board of Directors may
designate, into whole shares of Common Stock at the rate equal to the number of
fully paid and nonassessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) determined by dividing (y) the sum
of (i) the Conversion Amount, (ii) accrued but unpaid dividends to the
Conversion Date, and (iii) accrued but unpaid interest on the dividends in
arrears to the Conversion Date by (z) 80% of the daily mean average of the
Closing Price of the Common Stock on the ten consecutive trading days
immediately preceding the Conversion Date (but in no event shall the amount
determined pursuant to
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this clause (z) be less than $10.00 (subject to equitable adjustments for stock
splits, stock dividends, combinations, recapitalizations, reclassifications and
similar events) regardless of the actual amount otherwise determined pursuant to
this clause (z)) or more than $16.00 (subject to equitable adjustments for stock
splits, stock dividends, combinations, recapitalizations, reclassifications and
similar events) regardless of the actual amount otherwise determined pursuant to
this clause (z), in each case subject to adjustment as hereinafter provided (the
"Conversion Rate"); provided, however, that The Travelers Life Insurance Company
("Travelers") and any Travelers Person (as defined herein) shall only be
entitled to convert any shares of Series F Convertible Preferred Stock from time
to time to the extent that Travelers or such Travelers Person will, through such
conversion, obtain that number of shares of Common Stock (the "Conversion
Shares") that, together with shares of Common Stock directly or indirectly
beneficially owned by Travelers, its subsidiaries and affiliated persons
including persons serving as exclusive full time advisors of Travelers (each a
"Travelers Person" and, collectively, "Travelers Persons"), would not result in
direct and indirect beneficial ownership by all Travelers Persons that would
exceed 10% of the outstanding shares of Common Stock, as calculated in
accordance with Rule 16a-1(a)(1). For purposes of calculating the number of
Conversion Shares, Travelers shall be entitled to use the outstanding number
contained in the Company's most recent Quarterly Report on Form 10-QSB or Annual
Report on Form 10-KSB in accordance with Rule 13D-1(e). For purposes of
determining the number of Conversion Shares, the Company shall be entitled to
rely, and shall be fully protected in relying, on any statement or
representation made by Travelers to the Company without any obligation on the
part of the Company to make any inquiry or investigation or to examine its
records or the records of any transfer agent for the Common Stock to confirm
such calculation. The "Conversion Price" shall be equal to the Conversion Amount
divided by the Conversion Rate.
Notwithstanding any other provision of this Section, the Corporation
shall not be required to permit a conversion of shares of Series F Convertible
Preferred Stock on any Conversion Date unless the aggregate number of shares of
Series F Convertible Preferred Stock to be converted by all holders on such
Conversion Date is 1,000 shares (or such lesser number of shares of Series F
Convertible Preferred Stock as shall remain outstanding at the time of exercise
of such conversion right).
(b) Certain Definitions.
As used herein, the "Closing Price" of any security on any
date shall mean the closing bid price of such security on such date on the
principal securities exchange on which such security is traded.
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As used herein, the "Conversion Amount" initially shall be
equal to $1,000, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which
the notice of conversion is actually received by the Corporation, in case of a
conversion at the option of the holder pursuant to Section 9(a).
As used herein, "Registration Effective Date" shall mean, with
respect to any share of Series F Convertible Preferred Stock, the date on which
the Registration Statement required to be filed by the Corporation pursuant to
Section 8 of the Securities Purchase Agreement, dated as of July 12, 1996, by
and between the Corporation and The Travelers Insurance Company is first
declared effective by the Securities and Exchange Commission.
(c) Other Provisions. Notwithstanding anything in this Section
9 to the contrary, no change in the Conversion Amount shall actually be made
until the cumulative effect of the adjustments called for by this Section 9
since the date of the last change in the Conversion Amount would change the
Conversion Amount by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall actually be changed to
reflect all adjustments called for by this Section 9 and not previously made.
Notwithstanding anything in this Section 9, no change in the Conversion Amount
shall be made that would result in a Conversion Price of less than the par value
of the Common Stock into which shares of Series F Convertible Preferred Stock
are at the time convertible.
The holders of shares of Series F Convertible Preferred Stock
at the close of business on the record date for any dividend payment to holders
of Series F Convertible Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that shares of Series F Convertible Preferred
Stock surrendered for conversion during the period between the close of business
on any record date for a dividend payment and the opening of business on the
corresponding dividend payment date must be accompanied by payment of an amount
equal to the dividend payable on such shares on such dividend payment date. A
holder of shares of Series F Convertible Preferred Stock on a record date for a
dividend payment who (or whose transferee) tenders any of such shares for
conversion into shares of Common Stock on or after such dividend payment date
will receive the dividend payable by the Corporation on such shares of Series F
Convertible Preferred Stock on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender of shares of
Series F Convertible Preferred Stock for conversion. Except as provided above,
no adjustment shall be made in respect of cash dividends on Common Stock or
Series F Convertible Preferred Stock that may be accrued and unpaid at the date
of surrender for conversion.
The right of the holders of Series F Convertible Preferred
Stock to convert their shares shall be exercised by delivering to the
Corporation or its agent, as provided above, a written notice, duly signed by or
on behalf of the holder, stating the number of shares of Series F Convertible
Preferred Stock to be converted. Promptly, but in no event later than 10
business days after delivery of
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a notice of conversion, such holder shall surrender for such purpose to the
Corporation or its agent, as provided above, certificates representing shares to
be converted, duly endorsed in blank or accompanied by proper instruments of
transfer. If such holder shall fail to deliver certificates representing shares
to be converted in such form on or prior to such tenth business day, such notice
of conversion shall not be effective, unless otherwise agreed by the
Corporation, but such failure shall not affect such holder's right to convert
such shares at a date after the date such notice of conversion was given. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery upon conversion of
shares of Common Stock or other securities or property in a name other than that
of the holder of the shares of the Series F Convertible Preferred Stock being
converted, and the Corporation shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series F Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series F Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series F Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series F Convertible Preferred Stock, the Corporation promptly shall
seek such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the Corporation)
in which the Corporation is not the surviving corporation, or in case of any
sale or transfer of all or substantially all of the assets of the Corporation,
or in the case of any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, the
Corporation shall make appropriate provision or cause appropriate provision to
be made so that each holder of shares of Series F Convertible Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series F Convertible Preferred Stock into the kind and amount of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer, or share exchange by a holder of the number of shares of Common
Stock into which such shares of Series F Convertible Preferred Stock could have
been converted immediately prior to the effective date of such consolidation,
merger, sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder of shares
of Common Stock is entitled to elect to receive either securities, cash, or
other assets upon completion of such transaction, the Corporation shall provide
or cause to be provided to each holder of Series F Convertible Preferred Stock
the right to elect the
8
securities, cash, or other assets into which the Series F Convertible Preferred
Stock held by such holder shall be convertible after completion of any such
transaction on the same terms and subject to the same conditions applicable to
holders of the Common Stock (including, without limitation, notice of the right
to elect, limitations on the period in which such election shall be made, and
the effect of failing to exercise the election). The Corporation shall not
effect any such transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.
Upon surrender of certificates representing shares of Series F
Convertible Preferred Stock for conversion, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three business days after such surrender and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided.
No fractional shares of Common Stock shall be issued upon
conversion of Series F Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in respect of the
aggregate number of such shares surrendered for conversion at one time by the
same holder, the Corporation at its option (a) may pay in cash an amount equal
to the product of (i) the daily mean average of the Closing Price of a share of
Common Stock on the ten consecutive trading days before the Conversion Date and
(ii) such fraction of a share or (b) may issue an additional share of Common
Stock.
The "Closing Price" for each day shall be the closing price
regular way on such day as reported on the New York Stock Exchange Composite
Tape, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which Common Stock is
listed or admitted to trading, or, if not listed or admitted to trading on any
national securities exchange, the closing bid price as reported on the Nasdaq
Stock Market (or, if not so reported, the closing price), or, if not admitted
for quotation on the Nasdaq Stock Market, the average of the high bid and low
asked prices on such day as recorded by the National Association of Securities
Dealers, Inc. through the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), or if the National Association of Securities
Dealers, Inc. through NASDAQ shall not have reported any bid and asked prices
for the Common Stock on such day, the average of the bid and asked prices for
such day as furnished by any New York Stock Exchange member firm selected from
time to time by the Corporation for such purposes, or, if no such bid and asked
prices can be obtained from any such firm, the fair market value of one share of
Common Stock on such day as determined in good faith by the Board of Directors.
Such determination by the Board of Directors shall be conclusive.
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The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of the first three
sentences of the first paragraph of this Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants to
all holders of the Common Stock entitling such holders to subscribe for or
purchase Common Stock on the record date referred to below at a price per share
less than the average daily Closing Prices of the Common Stock on the 30
consecutive business days commencing 45 business days before the record date
(the "Current Market Price"), then in each such case the Conversion Amount in
effect on such record date shall be adjusted in accordance with the formula
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants).
M = the Current Market Price per share of Common Stock on the
record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
C1 = C x M
----
M - F
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
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M = the Current Market Price per share of Common Stock on the
record date mentioned below.
F = the aggregate amount of such cash dividend and/or the fair
market value on the record date of the assets or securities
to be distributed divided by the number of shares of Common
Stock outstanding on the record date. The Board of Directors
shall determine such fair market value, which determination
shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series F Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant
to the fifth paragraph of this Section 9(c), the holder of any Series F
Convertible Preferred Stock thereafter surrendered for conversion shall become
entitled to receive securities, cash, or assets other than Common Stock, the
number or amount of such securities or property so receivable upon conversion
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 9, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
Whenever the Conversion Amount is adjusted, (i) the
Corporation shall send to each transfer agent, if any, for the Series F
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series F Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq Stock Market if the Series F
Convertible Preferred Stock or the Common Stock is admitted for a quotation
thereon, a statement signed by the Chairman of the Board, the President or any
Vice-President of the Corporation and by its Treasurer or its Secretary or
Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 9, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation and (ii)
the Corporation will give notice by mail to the holders of record of Series F
Convertible Preferred Stock, which notice shall be made within 45 days after the
effective date of such adjustment and shall state the adjustment and the
Conversion Amount. Notwithstanding the foregoing notice provisions, failure by
the Corporation to give such notice or a defect in such notice shall not affect
the binding nature of such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the
actions specified in the fifth paragraph of this Section 9(c) or in
subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) which
would result in any adjustment in the Conversion Amount under this Section 9(c),
the Corporation shall cause a notice to be mailed at least 30 days prior to the
date on which the books of the Corporation will close or on which a record will
be taken for such action, to the holders of record
11
of the outstanding Series F Convertible Preferred Stock on the date of such
notice. Such notice shall specify the action proposed to be taken by the
Corporation and the date as of which holders of record of the Common Stock shall
participate in any such actions or be entitled to exchange their Common Stock
for securities or other property, as the case may be. Failure by the Corporation
to mail the notice or any defect in such notice shall not affect the validity of
the transaction.
Notwithstanding any other provision of this Section 9, no
adjustment in the Conversion Amount need be made (a) for a transaction referred
to in subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) if
holders of Series F Convertible Preferred Stock are to participate in the
transaction or distribution on a basis and with notice that the Board of
Directors determines to be fair to the holders of the Series F Convertible
Preferred Stock and appropriate in light of the basis on which holders of the
Common Stock or, in the case of a transaction referred to in said subparagraph
(ii), holders of Junior Stock participate in the transaction; (b) for sales of
Common Stock pursuant to a plan for reinvestment of dividends and interest,
provided that the purchase price in any such sale is at least equal to the fair
market value of the Common Stock at the time of such purchase, or pursuant to
any plan adopted by the Corporation for the benefit of its employees, directors,
or consultants; or (c) after the Series F Convertible Preferred Stock becomes
convertible into cash (no interest shall accrue on the cash).
SECTION 10. VOTING RIGHTS. Except as otherwise required by
law, shares of Series F Convertible Preferred Stock shall not be entitled to
vote on any matter.
The affirmative vote or consent of the holders of a majority
of the outstanding shares of the Series F Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences, or special rights of the Series F
Convertible Preferred Stock, or (2) the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock; provided, however, that any increase
in the authorized preferred stock of the Corporation or the creation and
issuance of any stock which is both Junior Dividend Stock and Junior Liquidation
Stock or any other capital stock of the Corporation ranking on a parity with the
Series F Convertible Preferred Stock shall be deemed not to affect materially
and adversely such powers, preferences, or special rights.
SECTION 11. OUTSTANDING SHARES. For purposes of this
Certificate of Designations, all shares of Series F Convertible Preferred Stock
shall be deemed outstanding except (i) from the date of surrender of
certificates representing shares of Series F Convertible Preferred Stock for
conversion into Common Stock, all shares of Series F Convertible Preferred Stock
converted into Common Stock; and (ii) from the date of registration of transfer,
all shares of Series F Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation. For the purposes of this Certificate of Designations, "Affiliate"
means any person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Corporation. "Control" is the power
to direct the management and policies of a person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract, or otherwise.
12
IN WITNESS WHEREOF, Palomar Medical Technologies, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by David
A. Broadwin, its Assistant Secretary, this 12th day of July, 1996.
By /s/ Dave A. Broadwin
----------------------------
David A. Broadwin
Assistant Secretary
13
EXHIBIT 10(uu)
Execution copy
SECURITIES PURCHASE AGREEMENT
THIS AGREEMENT is by and between Palomar Medical Technologies, Inc. (the
"Company"), a Delaware corporation with an office at 66 Cherry Hill Drive,
Beverly, Massachusetts 01915 U.S.A., and The Travelers Insurance Company, a
Connecticut corporation (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement and
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
SECTION 1. Authorization of Shares. The Company has authorized (a) the
sale of 6,000 shares (the "Shares") of a series of the Company's Preferred
Stock, par value $.01 per share, designated "Series F Convertible Preferred
Stock" and (b) a warrant (the "Warrant" and, together with the Shares, the
"Securities") to purchase 500,000 shares (the "Warrant Shares") of the Company's
Common Stock, $.01 par value (the "Common Stock").
SECTION 2. Agreement to Sell and Purchase the Securities. At the Closing
(as defined below, the Company will sell to the Purchaser, and the Purchaser
will buy from the Company, upon the terms and conditions hereinafter set forth,
the Securities for an aggregate purchase price of $6,000,000 (the "Purchase
Price").
SECTION 3. Payment of Purchase Price. On or prior to the Closing Date, as
defined below, the Purchaser will deliver to the Company the full amount of the
Purchase Price by check or wire transfer.
SECTION 4. The Closing. The consummation of the transactions contemplated
by this Agreement (the "Closing") shall occur on July --, 1996 (the "Closing
Date") or at such other time as shall be agreed by the Company and the
Purchaser. At the Closing, the Company shall deliver to the Purchaser one or
more certificates for the Securities registered in the name of the Purchaser or
its nominee.
SECTION 5. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, the Purchaser as
follows:
SECTION 5.1. Organization. The Company is duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has
full power and authority to own and operate its properties and to conduct its
business as currently conducted and is registered or qualified to do business
and is in good standing in each jurisdiction in which it owns or leases property
or transacts business and where the failure to be so qualified would have a
material adverse effect upon the business, financial condition, properties or
operations of the Company.
SECTION 5.2. Due Authorization. The Company has all requisite power and
authority to execute, deliver and perform its obligations under this Agreement
and the Warrant, and this
Execution copy
Agreement and the Warrant have been duly authorized and validly executed and
delivered by the Company and constitute valid and binding agreements of the
Company enforceable against the Company in accordance with their terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
SECTION 5.3. Non-Contravention. The execution and delivery of this
Agreement and the Warrant, the issuance and sale of the Securities to be sold by
the Company hereunder, and the consummation of the transactions contemplated
hereby will not conflict with or constitute a violation of, or default (with the
passage of time or otherwise) under, any material agreement or instrument to
which the Company is a party or by which it is bound or the Certificate of
Incorporation (the "Charter") or the By-Laws of the Company nor result in the
creation or imposition of any lien, encumbrance, claim, security interest or
restriction whatsoever upon any of the material properties or assets of the
Company or an acceleration of indebtedness pursuant to any obligation, agreement
or condition contained in any material bond, debenture, note or any other
evidence of indebtedness or any material indenture, mortgage, deed of trust or
any other agreement or instrument to which the Company is a party or by which
the Company is bound or to which any of the property or assets of the Company is
subject, nor conflict with, or result in a violation of, any law, administrative
regulation, ordinance or order of any court or governmental agency, arbitration
panel or authority applicable to the Company. No consent, approval,
authorization or other order of, or registration, qualification or filing with,
any regulatory body, administrative agency, or other governmental body in the
United States, other than with respect to "blue sky" laws, is required for the
valid issuance and sale of the Securities to be sold pursuant to this Agreement
(other than such as have been made or obtained).
SECTION 5.4. Capitalization. The authorized and outstanding capital stock
of the Company and rights to acquire capital stock of the Company are as set
forth on Exhibit A hereto. Except as set forth above, there are no outstanding
shares of, or rights to acquire shares of, capital stock of the Company. The
Shares have been duly authorized, and when issued and paid for in accordance
with the terms of this Agreement, will be validly issued, fully paid and
nonassessable. The shares of Common Stock issuable upon conversion of the Shares
(the "Conversion Shares") have been duly authorized, and when issued upon
conversion in accordance with the terms thereof will be validly issued, fully
paid and nonassessable. The Warrant Shares have been duly authorized, and when
issued and paid for in accordance with the terms of the Warrant will be validly
issued, fully paid and nonassessable.
SECTION 5.5. Legal Proceedings. Except as disclosed in the SEC Filings (as
defined below), there is no material legal or governmental proceeding pending
or, to the knowledge of the Company, threatened or contemplated to which the
Company is or may be a party or of which the business or property of the Company
is or may be subject.
SECTION 5.6. No Violations. Except as disclosed in the SEC Filings, the
Company is not in violation of its Charter or By-Laws, in violation of any law,
administrative regulation,
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ordinance or order of any court or governmental agency, arbitration panel or
authority applicable to the Company, which violation, individually or in the
aggregate, would have a material adverse effect on the business or financial
condition of the Company, or in default in any material respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness in any indenture,
mortgage, deed of trust or any other agreement or instrument to which the
Company is a party or by which the Company is bound or by which the properties
of the Company are bound or affected, and there exists no condition which, with
the passage of time or the giving of notice or both, would constitute a material
default under any such document or instrument or result in the imposition of any
material penalty or the acceleration of any indebtedness.
SECTION 5.7. Governmental Permits, Etc. Except as disclosed in the SEC
Filings, the Company has all necessary franchises, licenses, certificates and
other authorizations from any foreign, federal, state or local government or
governmental agency, department, or body that are currently necessary for the
operation of the business of the Company as currently conducted, the absence of
which would have a material adverse effect on the business or operations of the
Company.
SECTION 5.8. Financial Statements. Except as disclosed in the SEC Filings,
the financial statements of the Company and the related notes contained in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995 and its Quarterly Report on Form 10-QSB for the quarter ended March 31,
1996, present fairly the financial position of the Company as of the dates
indicated therein and its results of operations and cash flows for the periods
therein specified. Such financial statements (including the related notes) have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods therein specified and are
true, correct and complete in all respects.
SECTION 5.9. No Material Adverse Change. Except as disclosed in the SEC
Filings, since March 31, 1996, the Company has not incurred any material
liabilities or obligations, direct or contingent, other than in the ordinary
course of business, and there has not been any material adverse change in its
business, financial condition or results of operations.
SECTION 5.10. Additional Information. The Company has filed in a timely
manner all documents that the Company was required to file under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") during the 12 months
preceding the date of this Agreement. The following documents (collectively, the
"SEC Filings") complied in all material respects with the requirements of the
Exchange Act or the Securities Act of 1933 (the "Securities Act"), as the case
may be, as of their respective filing or effective dates, and the information
contained therein was true and correct in all material respects as of the date
or effective date of such documents, and each of the following documents as of
the date thereof did not 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:
(a) The Company's Annual Report on Form 10-K SB for the fiscal
year ended December 31, 1995, its Quarterly Report on Form
10-Q SB for the quarter
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ended March 31, 1996, and its Proxy Statement for the
Annual Meeting of Stockholders held on June 15, 1995;
(b) all other documents, if any, filed by the Company with the
Securities and Exchange Commission (the "SEC") since March
31, 1996pursuant to the reporting requirements of the
Exchange Act; and
(c) the Company's Registration Statements on Form S-3 (Nos.
33-87650, 333-000140, 33-97760, 33-99792, 33-99794,
333-001070, 333-003424, 333-005781 and 333-007097).
SECTION 5.11. Intellectual Property. The Company has the right to use all
intellectual property (the "Intellectual Property") now used by it in its
business. The Company owns all right, title and interest in and to, all of the
intellectual property it owns, free and clear of any liens or encumbrances. In
any case in which the Company does not own the Intellectual Property, it has
good and valid licenses for the same which are in full force and effect. No
claims have been asserted with respect to the use of any such Intellectual
Property or challenging or questioning the validity or effectiveness of any such
license or agreement.
SECTION 5.12. Listing. The Company shall use its best efforts to comply
with all requirements of the National Association of Securities Dealers, Inc.
(the "NASD") with respect to the issuance of the Shares and the listing of the
Shares, the Conversion Shares and the Warrant Shares on the Nasdaq Small-Cap
Market.
SECTION 6. Representations, Warranties and Covenants of the Purchaser.
(a) The Purchaser represents and warrants to, and covenants
with, the Company, as of the date hereof and as of the Closing Date, that: (i)
the Purchaser is an "accredited investor" as defined in Rule 501 of Regulation D
promulgated under the Securities Act; (ii) the Purchaser is acquiring the
Securities for its own account for investment and with no present intention of
distributing any of such Shares other than to any affiliate of the Purchaser;
(iii) the Purchaser will not, directly or indirectly, voluntarily offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) any of the Securities, except in
compliance with the Securities Act and the rules and regulations promulgated
thereunder; (iv) the Purchaser has received and reviewed copies of the SEC
Filings, (v) the Purchaser is an "institutional buyer" within the meaning of
Section 36b-21(b)(8) of the Connecticut Uniform Securities Act, (vi) the
Purchaser has had an opportunity to ask questions and receive answers from the
management of the Company regarding the Company, its business and the offering
of the Securities; and (vii) the Purchaser has, in connection with its decision
to purchase Shares, relied solely upon the documents described in Section 5.10
and the representations and warranties of the Company contained herein.
(b) The Purchaser agrees not to make any sale of the
Securities except pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements thereof.
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(c) The Purchaser further represents and warrants to, and
covenants with, the Company that (i) the Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) The Purchaser represents that it understands and agrees
that, until registered under the Securities Act or transferred pursuant to the
provisions of Rule 144 promulgated thereunder, all certificates evidencing the
Securities, the Warrant Shares and the Conversion Shares, whether upon initial
issuance or upon any transfer thereof, shall bear a legend, prominently stamped
or printed therein, reading substantially as follows:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933 or the securities laws of any state.
These securities have been acquired for investment and not with a view
toward distribution or resale. Such securities may not be offered for
sale, sold, delivered after sale, transferred, pledged or hypothecated in
the absence of an effective registration statement covering such
securities under the Act and any applicable state securities laws, unless
the holder shall have obtained an opinion of counsel satisfactory to the
corporation that such registration is not required."
SECTION 7. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement all
covenants, agreements, representations and warranties made by the Company and
the Purchaser herein shall survive the execution of this Agreement, the delivery
to the Purchaser of the Securities being purchased and payment therefor.
SECTION 8. Registration Statement. On the earlier to occur of (a) the next
filing by the Company of a registration statement on Form S-3 providing for the
resale of its securities by security holders of the Company or (b) 120 days
after the date hereof and, in any event, subject to the receipt of necessary
information from the Purchaser, the Company shall file with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3 (the
"Registration Statement"), which may include other selling stockholders,
providing for the resale of the Warrant Shares and the shares of Common Stock
issuable upon conversion of the Shares (collectively, the "Registrable Shares")
by the Purchaser from time to time in accordance with Rule 415 promulgated under
the Securities Act of 1933, as amended. The Company shall use its best efforts
to cause the Registration Statement to become effective within 180 days after
the date hereof and the Company shall use its best efforts to keep the
Registration Statement
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effective until the earlier of (a) the time all the Registrable Shares have been
sold pursuant to the Registration Statement or (b) the expiration of the
Warrant. The Company shall furnish to the Purchaser such number of copies of the
prospectus contained in the Registration Statement as the Purchaser shall
reasonably require to facilitate the public sale of the Registrable Shares.
SECTION 9. Lockup Agreements with Underwriters. In the event of an
underwritten public offering of the Company's securities, the Purchaser agrees
to enter into an agreement with the Underwriter or Underwriters' Representative
for such offering restricting the sale, transfer or other disposition of the
Securities, the Warrant Shares and the Conversion Shares to the extent that such
agreement is required to be executed by members of senior management of the
Company.
SECTION 10. Legal Fees. The Company agrees to pay the reasonable fees and
expenses of the Purchaser's counsel in connection with the purchase and sale of
the Securities up to a maximum of $5,000.
SECTION 11. Conditions to Closing.
(a) The obligations of the Purchaser to consummate the
transactions contemplated hereby shall be subject to the satisfaction by the
Company of each of the following conditions on or before the Closing Date, any
one or more of which may be waived by the Purchaser:
(i) The representations and warranties of the
Company set forth in this Agreement delivered to the Purchaser by or on behalf
of the Company shall be true and correct as if made on the Closing Date.
(ii) Each of the covenants, agreements and
conditions to be performed and satisfied by the Company pursuant to this
Agreement at or prior to Closing shall have been duly performed and satisfied.
(b) The obligations of the Company to consummate the
transactions contemplated hereby shall be subject to the satisfaction by the
Purchaser of each of the following conditions on or before the Closing Date, any
one or more of which may be waived by the Company:
(i) The representations and warranties of the
Purchaser set forth in this Agreement shall be true and correct as if made on
the Closing Date.
(ii) Each of the covenants, agreements and
conditions to be performed and satisfied by the Purchaser pursuant to this
Agreement at or prior to Closing shall have been duly performed and satisfied.
(iii) The Purchaser shall have paid the Purchase
Price in accordance with Section 3.
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SECTION 12. No Brokers. The parties hereto hereby represent that there are
no brokers or finders entitled to compensation in connection with the
transactions contemplated hereby.
SECTION 13. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified mail, postage prepaid, and shall be deemed given when so
mailed:
(a) if to the Company to:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
Attention: Chief Executive Officer
(b) if to the Purchaser, at its address as set forth at the
end of this Agreement, or at such other address or addresses as may have been
furnished to the Company in writing.
SECTION 14. Termination. Either party to this Agreement may terminate this
Agreement upon written notice to the other at any time prior to the Closing.
SECTION 15. Changes. Any term of the Agreements may be amended or
compliance therewith waived with the written consent of the Company and the
holders of a majority of the Shares purchased pursuant to the Agreements.
SECTION 16. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 17. Severability. If any provision contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts and United States federal law.
SECTION 19. Counterparts. This Agreement may be executed in two
counterparts, each of which shall constitute an original, but both of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
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Execution copy
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be executed by their duly authorized representatives as of
the following date.
Dated: July __, 1996 PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Steven Georgiev
----------------------------
Title: Chairman & CEO
[Purchaser Signature Page Continues on the Following Page]
Execution copy
PURCHASER SIGNATURE PAGE AND QUESTIONNAIRE
The undersigned Purchaser hereby executes the Securities Purchase
Agreement with Palomar Medical Technologies, Inc. (the "Company") and hereby
authorizes this signature page to be attached to a counterpart of such document
executed by a duly authorized officer of the Company.
THE TRAVELERS INSURANCE COMPANY
By: /s/ Craig H. Farnsworth
-------------------------
Title: 2nd Vice President
Name in which Securities are to be ---------------------
registered: TRAL & Co.
Address of registered holder: One Tower Square
Hartford, Connecticut 06183
Social Security or Tax ID Number: 06-0546090
Contact name and telephone number Edward F. Hinchliffe, III
regarding settlement and ______________________________
registration: Name
(203) 277-6113
______________________________
Telephone Number
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EXHIBIT 10(vv)
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on July 12, 2001.
WARRANT TO PURCHASE COMMON STOCK
OF
PALOMAR MEDICAL TECHNOLOGIES, INC.
FOR VALUE RECEIVED, PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), hereby certifies that The Travelers Insurance Company
("Travelers") or its permitted assigns, is entitled to purchase from the
Company, at any time or from time to time commencing 20 days after the date on
which the Registration Statement required to be filed by the Company pursuant to
Section 8 of the Securities Purchase Agreement, dated as of July 12, 1996, by
and between the Company and The Travelers Insurance Company, is first ordered
effective by the Securities and Exchange Commission and prior to 5:00 P.M.,
Eastern Standard Time, on July 12, 2001, a total of 500,000 fully paid and
nonassessable shares of the common stock, par value $.01 per share, of the
Company for an aggregate purchase price of $16.00 per share. (Hereinafter, (i)
said common stock, together with any other equity securities which may be issued
by the Company with respect thereto or in substitution therefor, is referred to
as the "Common Stock", (ii) the shares of the Common Stock purchasable hereunder
are referred to as the "Warrant Shares", (iii) the aggregate purchase price
payable hereunder for the Warrant Shares is referred to as the "Aggregate
Warrant Price", (iv) the price payable hereunder for each of the Warrant Shares
is referred to as the "Exercise Price", (v) this Warrant, and all warrants
hereafter issued in exchange or substitution for this Warrant are referred to as
the "Warrant" and (vi) the holder of this Warrant is referred to as the
"Holder".) The Exercise Price is subject to adjustment as hereinafter provided.
1. Exercise of Warrant. This Warrant may be exercised, in whole at any
time or in part from time to time, commencing 20 days after the date on which
the Registration Statement required to be filed by the Company pursuant to
Section 8 of the Securities Purchase Agreement, dated as of July 12, 1996, by
and between the Company and The Travelers Insurance Company, is first ordered
effective by the Securities and Exchange Commission and prior to 5:00 P.M.,
Eastern Standard Time, on July 12, 2001, by the Holder of this Warrant by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Subsection 9(a) hereof, together with
proper payment
of the Aggregate Warrant Price, or the proportionate part thereof if this
Warrant is exercised in part; provided, however, that The Travelers Life
Insurance Company ("Travelers") shall only be entitled to exercise this Warrant
from time to time to extent that Travelers will, through such exercise, obtain
that number of shares of Common Stock (the "Exercisable Shares") that, together
with shares of Common Stock directly or indirectly beneficially owned by
Travelers, its subsidiaries and affiliated persons including persons serving as
exclusive full time advisors of Travelers (each a "Travelers Person" and,
collectively, "Travelers Persons"), would not result in direct and indirect
beneficial ownership by all Travelers Persons that would exceed 10% of the
outstanding shares of Common Stock, as calculated in accordance with Rule
16a-1(a)(1). For purposes of calculating the number of Exercisable Shares,
Travelers shall be entitled to use the outstanding number contained in the
Company's most recent Quarterly Report on Form 10-QSB or Annual Report on Form
10-KSB in accordance with Rule 13D-1(e). For purposes of determining the number
of Exercisable Shares, the Company shall be entitled to rely and shall be fully
protected in relying, on any statement or representation made by Travelers to
the Company without any obligation on the part of the Company to make any
inquiry or investigation or to examine its records or the records of any
transfer agent for the Common Stock to confirm such calculation. Payment for
Warrant Shares shall be made by certified or official bank check payable to the
order of the Company. If this Warrant is exercised in part, this Warrant must be
exercised for a minimum of 50,000 shares of the Common Stock (or such lesser
number of shares of Common Stock as shall remain available for purchase under
the terms of the Warrant), and the Holder is entitled to receive a new Warrant
covering the number of Warrant Shares in respect of which this Warrant has not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will (a) issue a certificate or certificates in the name of the
Holder for the largest number of whole shares of the Common Stock to which the
Holder shall be entitled if this Warrant is exercised in whole and (b) deliver
the proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of the Warrant. In lieu of any fractional share of the Common
Stock which would otherwise be issuable in respect to the exercise of the
Warrant, the Company at its option (a) may pay in cash an amount equal to the
product of (i) the daily mean average of the Closing Price of a share of Common
Stock on the ten consecutive trading days before the Conversion Date and (ii)
such fraction of a share or (b) may issue an additional share of Common Stock.
Upon exercise of the Warrant, the Company shall issue and deliver to
the Holder certificates for the Common Stock issuable upon such exercise within
ten business days after such exercise and the person exercising shall be deemed
to be the holder of record of the Common Stock issuable upon such exercise.
-2-
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on the fifth anniversary of the date of issuance.
2. Consolidations and Mergers. In case of any consolidation or merger
of the Company with any other corporation (other than a wholly-owned subsidiary
of the Company), or in case of any sale or transfer of all or substantially all
of the assets of the Company, or in the case of any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property, the Company shall make appropriate provision or cause
appropriate provision to be made so that each Holder shall have the right
thereafter to obtain upon exercise of the Warrant the kind and amount of shares
of stock and other securities and property receivable upon such consolidation,
merger, sale, transfer, or share exchange by a holder of the number of shares of
Common Stock for which the Warrant may be exercised prior to the effective date
of such consolidation, merger, sale, transfer, or share exchange. If, in
connection with any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to elect to receive
either securities, cash, or other assets upon completion of such transaction,
the Company shall provide or cause to be provided to each Holder the right to
elect the securities, cash, or other assets for which the Warrant may be
exercised by such Holder subject to the same conditions applicable to holders of
the Common Stock (including, without limitation, notice of the right to elect,
limitations on the period in which such election shall be made, and the effect
of failing to exercise the election). The Company shall not effect any such
transaction unless the provisions of this paragraph have been complied with. The
above provisions shall similarly apply to successive consolidations, mergers,
sales, transfers, or share exchanges.
3. Adjustments to the Exercise Price. Notwithstanding anything in this
Section 3 to the contrary, no change in the exercise price shall actually be
made until the cumulative effect of the adjustments called for by this Section 3
since the date of the last change in the Exercise Price would change the
Exercise Price by more than 1%. However, once the cumulative effect would result
in such a change, then the Exercise Price shall actually be changed to reflect
all adjustments called for by this Section 3 and not previously made.
Notwithstanding anything in this Section 3, no change in the Exercise Price
shall be made that would result in an Exercise Price of less than the par value
of the Common Stock to be issued upon exercise of this Warrant.
The "Closing Price" for each day shall be the closing price regular way
on such day as reported on the New York Stock Exchange Composite Tape, or, if
the Common Stock is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which Common Stock is listed or
admitted to trading, or, if not listed or admitted to trading on any national
securities
-3-
exchange, the closing bid price as reported on the Nasdaq Stock Market (or, if
not so reported, the closing price), or, if not admitted for quotation on the
Nasdaq Stock Market, the average of the high bid and low asked prices on such
day as recorded by the National Association of Securities Dealers, Inc. through
the National Association of Securities Dealers Automated Quotations System
("NASDAQ"), or if the National Association of Securities Dealers, Inc. through
NASDAQ shall not have reported any bid and asked prices for the Common Stock on
such day, the average of the bid and asked prices for such day as furnished by
any New York Stock Exchange member firm selected from time to time by the
Company for such purposes, or, if no such bid and asked prices can be obtained
from any such firm, the fair market value of one share of Common Stock on such
day as determined in good faith by the Board of Directors. Such determination by
the Board of Directors shall be conclusive.
Subject to the provisions of the first paragraph of this Section 3, the
Exercise Price shall be appropriately adjusted from time to time to account for
stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events and under certain circumstances as follows:
(i) In case the Company shall issue rights or warrants to all
holders of the Common Stock entitling such holders to subscribe for or purchase
Common Stock on the record date referred to below at a price per share less than
the average daily Closing Prices of the Common Stock for the 30 consecutive
business days commencing 45 business days before the record date (the "Current
Market Price"), then in each such case the Exercise Price in effect on such
record date shall be adjusted in accordance with the formula
EP1 = EP x O + N x P
-----
M
------------
O + N
where
EP1 = the adjusted Exercise Price.
EP = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
-4-
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation
in respect of the issuance and the exercise of such
rights or warrants).
M = the Current Market Price per share of Common Stock on the
record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Exercise Price then in effect shall be readjusted
appropriately.
(ii) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness or
assets (including securities, but excluding any warrants or subscription rights
referred to in subparagraph (i) above and any dividend or distribution paid in
cash out of the retained earnings of the Company), then in each such case the
Exercise Price then in effect shall be adjusted in accordance with the formula
EP1 = EP x M-F
-----
M
where
EP1 = the adjusted Exercise Price.
EP = the current Exercise Price.
M = the Current Market Price per share of Common Stock on th
record date mentioned below.
F = the aggregate amount of such cash dividend and/or the fair
market value on the record date of the assets or securities
to be distributed divided by the number of shares of
Common Stock outstanding on the record date. The Board of
Directors shall determine such fair market value, which
determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
(iii) If at any time an adjustment to the Exercise Price shall
be made in accordance with subparagraph (i) or (ii) above, the Holder of any
Warrant shall thereafter, on the exercise hereof, be entitled to receive that
number of shares of Common Stock determined by multiplying the number of shares
of Common Stock which would be issuable on such exercise immediately prior to
such issuance by a fraction of which (i) the numerator is the Exercise Price in
effect immediately prior to such issuance and (ii) the denominator is the
Exercise Price in effect on the date of such exercise.
(iv) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
-5-
(v) If at any time as a result of an adjustment made pursuant
to Section 2, the Holder of any Warrant thereafter exercised shall become
entitled to receive securities, cash, or assets other than Common Stock, the
number or amount of such securities or property so receivable upon exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in subparagraphs (i) to (iv) above.
Except as otherwise provided above in this Section 3, no
adjustment in the Exercise Price shall be made in respect of any conversion for
share distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Exercise Price is adjusted, the Company will give
notice by mail to the Holders, which notice shall be made within 45 days after
the effective date of such adjustment and shall state the adjustment and the
Exercise Price. Notwithstanding the foregoing notice provisions, failure by the
Company to give such notice or a defect in such notice shall not affect the
binding nature of such corporate action of the Company.
Whenever the Company shall propose to take any of the actions
specified in Section 2 or in subparagraphs (i) or (ii) of the third paragraph of
this Section 3 which would result in any adjustment in the Exercise Price under
this Section 3, the Company shall cause a notice to be mailed at least 30 days
prior to the date on which the books of the Company will close or on which a
record will be taken for such action, to the Holders. Such notice shall specify
the action proposed to be taken by the Company and the date as of which holders
of record of the Common Stock shall participate in any such actions or be
entitled to exchange their Common Stock for securities or other property, as the
case may be. Failure by the Corporation to mail the notice or any defect in such
notice shall not affect the validity of the transaction.
Notwithstanding any other provision of this Section 3, no
adjustment in the Exercise Price need be made (a) for sales of Common Stock
pursuant to a plan for reinvestment of dividends and interest, provided that the
purchase price in any such sale is at least equal to the fair market value of
the Common Stock at the time of such purchase, or pursuant to any plan adopted
by the Corporation for the benefit of its employees, directors, or consultants;
or (b) after the Common Stock becomes convertible into cash (no interest shall
accrue on the cash).
4. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and
reserved, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the number of shares of the Common Stock as from time
to time shall be receivable upon the exercise of this Warrant.
5. Fully Paid Stock; Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Exercise Price. The
Company
-6-
further covenants and agrees that it will pay, when due and payable, any and all
Federal and state stamp, original issue or similar taxes that may be payable in
respect of the issue of any Warrant Share or certificate therefor.
6. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant Shares
issuable upon the exercise hereof have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or under any state securities laws
and unless so registered may not be transferred, sold, pledged, hypothecated or
otherwise disposed of unless an exemption from such registration is available.
In the event Holder desires to transfer this Warrant or any of the Warrant
Shares issued, the Holder must give the Company prior written notice of such
proposed transfer including the name and address of the proposed transferee.
Such transfer may be made only either (i) upon publication by the Securities and
Exchange Commission (the "Commission") of a ruling, interpretation, opinion or
"no action letter" based upon facts presented to said Commission, or (ii) upon
receipt by the Company of an opinion of counsel to the Company in either case to
the effect that the proposed transfer will not violate the provisions of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the rules and regulations promulgated under either such act, or in the
case of clause (ii) above, to the effect that the Warrant or Warrant Shares to
be sold or transferred has been registered under the Securities Act and that
there is in effect a registration statement in which is included a prospectus
meeting the requirements of Subsection 10 (a) of the Securities Act, which is
being or will be delivered to the purchaser or transferee at or prior to the
time of delivery of the certificates evidencing the Warrant or Warrant Stock to
be sold or transferred.
(b) Conditions to Transfer. Prior to any such proposed transfer, and as
a condition thereto, if such transfer is not made pursuant to an effective
registration statement under the Securities Act, the Holder will, if requested
by the Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place a "stop transfer order"
with its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next succeeding
paragraph.
(c) Indemnity. The Holder acknowledges that the Holder understands the
meaning and legal consequences of this Section 6, and the Holder hereby agrees
to indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss, damage or liability
(including all attorneys' fees and costs incurred in enforcing this indemnity
provision) due to or arising out of (a) the inaccuracy of any representation or
the breach of any warranty of the Holder contained in, or any other breach of,
this warrant, (b) any transfer of the Warrant or any of the Warrant Shares in
violation of the Securities Act, the Exchange Act or the rules and regulations
promulgated under either of such acts, (c) any transfer of the Warrant or any of
the Warrant Shares not in accordance with this Warrant or (d) any
-7-
untrue statement or omission to state any material fact in connection with the
investment representations or with respect to the facts and representations
supplied by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant and the Warrant
Shares issued may be transferred by the Holder in whole or in part at any time
or from time to time. Upon surrender of this Warrant to the Company or at the
office of its stock transfer agent, if any, with assignment documentation duly
executed and funds sufficient to pay any transfer tax, and upon compliance with
the foregoing provisions, the Company shall, without charge, execute and deliver
a new Warrant in the name of the assignee named in such instrument of
assignment, and this Warrant shall promptly be canceled. Any assignment,
transfer, pledge, hypothecation or other disposition of this Warrant attempted
contrary to the provisions of this Warrant, or any levy of execution, attachment
or other process attempted upon the Warrant, shall be null and void and without
effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares have
been registered under the Securities Act, upon exercise of any part of the
Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend, insofar as is consistent with
Delaware law:
"The shares of common stock represented by this certificate
have not been registered under the Securities Act of 1933, as
amended, and may not be sold, offered for sale, assigned,
transferred or otherwise disposed of unless registered
pursuant to the provisions of that Act or an opinion of
counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from
such registration."
7. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of an
unsecured indemnity from the Holder reasonably satisfactory to the Company, if
lost, stolen or destroyed, and upon surrender and cancellation of the Warrant,
if mutilated, the Company shall execute and deliver to the Holder a new Warrant
of like date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
9. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in writing and is mailed by first-class
mail, postage prepaid, addressed to:
(a) the Company at 66 Cherry Hill Drive, Beverly,
Massachusetts 01915, or such other address as the Company has designated in
writing to the Holder, with a copy to
-8-
David A. Broadwin, Foley, Hoag & Eliot LLP, One Post Office Square, Boston,
Massachusetts 02110, or
(b) the Holder at 388 Greenwich Street, New York, New York
10013 or such other address as the Holder has designated in writing to the
Company.
10. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof
11. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
IN WITNESS WHEREOF, PALOMAR MEDICAL TECHNOLOGIES, INC. has caused this
Warrant to be signed by its President and its corporate seal to be hereunto
affixed and attested by its Assistant Secretary this 12th day of July, 1996.
ATTEST: PALOMAR MEDICAL TECHNOLOGIES, INC.
_________________________________ By: /s/ Steven Georgiev
------------------------
Steven Georgiev
Chief Executive Officer
[Corporate Seal]
-9-
SUBSCRIPTION
The undersigned, ______________________________________________,
pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe
for the purchase of ____ shares of the Common Stock of PALOMAR MEDICAL
TECHNOLOGIES, INC. covered by said Warrant, and makes payment therefor in full
at the price per share provided by said Warrant.
Dated: _____________________________ Signature: _______________________
Address: _________________________
_________________________
_________________________
ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto ___________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
________________________________, attorney, to transfer said Warrant on the
books of PALOMAR MEDICAL TECHNOLOGIES, INC.
Dated: _____________________________ Signature: _______________________
Address: _________________________
_________________________
_________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers
unto ___________________________ the right to purchase ____ shares of the Common
Stock of PALOMAR MEDICAL TECHNOLOGIES, INC. by the foregoing Warrant, and a
proportionate part of said Warrant and the rights evidenced hereby, and does
irrevocably constitute and appoint __________________________, attorney, to
transfer that part of said Warrant on the books of PALOMAR MEDICAL TECHNOLOGIES,
INC.
Dated: _____________________________ Signature: _______________________
Address: _________________________
_________________________
_________________________
-10-
EXHIBIT 10(ww)
PALOMAR MEDICAL TECHNOLOGIES, INC.
CERTIFICATE OF DESIGNATIONS
OF
SERIES G CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation Law
of the State of Delaware)
------
Palomar Medical Technologies, Inc., a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 of the General
Corporation Law of the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of
the Corporation by the Certificate of Incorporation, as amended, of the
Corporation, the Board of Directors of the Corporation, pursuant to a unanimous
written consent of Directors, dated September 23, 1996, adopted a resolution
providing for the creation of a series of the Corporation's Preferred Stock,
$.01 par value, which series is designated "Series G Convertible Preferred
Stock," which resolution is as follows:
RESOLVED, that pursuant to the authority expressly vested in the
Board of Directors of this Corporation by Paragraph 4 of the Certificate of
Incorporation of this Corporation, the Board of Directors does hereby adopt a
Resolution providing for the issuance of a series of preferred stock, $.01 par
value per share, of the Corporation to be designated "Series G Convertible
Preferred Stock" (the "Preferred Stock") consisting of 10,000 shares, which
number of shares may be decreased, but not below the number then outstanding,
from time to time by the Board of Directors of this Corporation; and herein
states and expresses that the designations, preferences, qualifications,
privileges, limitations, restrictions, and other special or relative rights of
the shares of Preferred Stock shall be as follows:
SERIES G CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series G Convertible Preferred Stock" (the "Series G
Convertible Preferred Stock"), and the number of shares constituting such series
shall be 10,000 and shall not be
subject to increase. The Series G Convertible Preferred Stock shall be divided
into two tranches, referred to herein as "Tranche 1 Series G Convertible
Preferred Stock" (the "Tranche 1 Series G Convertible Preferred Stock"), which
shall consist of 4,000 shares, and "Tranche 2 Series G Convertible Preferred
Stock" (the "Tranche 2 Series G Convertible Preferred Stock"), which shall
consist of 6,000 shares.
SECTION 2. STATED CAPITAL. The amount to be represented in
stated capital at all times for each share of Series G Convertible Preferred
Stock shall be the sum of (i) $1,000, (ii) to the extent legally available, the
accrued but unpaid dividends on such share of Series G Convertible Preferred
Stock, and (iii) to be determined on at least a quarterly basis, an amount equal
to the accrued and unpaid interest on dividends in arrears through the date of
determination (as provided in Section 4).
SECTION 3. RANK. All Series G Convertible Preferred Stock shall
rank (i) senior to the Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation, now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and (ii) on a parity with the
Series E Convertible Preferred Stock of the Corporation, the Series F
Convertible Preferred Stock of the Corporation and any additional series of
preferred stock of any class which the Board of Directors or the stockholders
may from time to time authorize, both as to payment of dividends and as to
distributions of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of
shares of Series G Convertible Preferred Stock shall be entitled to receive,
when, as, and if declared by the Board of Directors of the Corporation (the
"Board of Directors" or the "Board") out of funds legally available for such
purpose, dividends at the rate of $70.00 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest (except as otherwise
specifically provided herein) from the date of original issuance and shall be
payable in cash quarterly on January 1, April 1, July 1, and October 1 of each
year commencing January 1, 1997 (except that if any such date is a Saturday,
Sunday, or legal holiday, then such dividend shall be payable on the next
succeeding day that is not a Saturday, Sunday, or legal holiday) to holders of
record as they appear on the stock books of the Corporation on such record
dates, not more than 20 nor less than 10 days preceding the payment
-2-
dates for such dividends, as shall be fixed by the Board. Dividends on the
Series G Convertible Preferred Stock shall be paid in cash or, subject to the
limitations in Section 4(b) hereof, shares of Common Stock or any combination of
cash and shares of Common Stock, at the option of the Corporation as hereinafter
provided. The amount of the dividends payable per share of Series G Convertible
Preferred Stock for each quarterly dividend period shall be computed by dividing
the annual dividend amount by four. The amount of dividends payable for the
initial dividend period and any period shorter than a full quarterly dividend
period shall be computed on the basis of a 360-day year of twelve 30-day months.
Dividends not paid on a payment date, whether or not such dividends have been
declared, will bear interest at the rate of 12% per annum until paid. No
dividends or other distributions, other than dividends payable solely in shares
of Common Stock or other capital stock of the Corporation ranking junior as to
dividends to the Series G Convertible Preferred Stock (collectively, the "Junior
Dividend Stock"), shall be paid or set apart for payment on any shares of Junior
Dividend Stock, and no purchase, redemption, or other acquisition shall be made
by the Corporation of any shares of Junior Dividend Stock (other than purchases,
redemptions or other acquisitions of a number of shares of Common Stock in the
aggregate not in excess of 2 percent of the shares of Common Stock outstanding
on the date this Certificate of Designations is filed with the Secretary of
State of the State of Delaware, at prices not in excess of the fair market value
thereof at the time of purchase, redemption or acquisition) unless and until all
accrued and unpaid dividends on the Series G Convertible Preferred Stock and
interest on dividends in arrears at the rate specified herein shall have been
paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the
Corporation ranking senior as to dividends to the Series G Convertible Preferred
Stock (the "Senior Dividend Stock") shall be in default, in whole or in part, no
dividend shall be paid or declared and set apart for payment on the Series G
Convertible Preferred Stock unless and until all accrued and unpaid dividends
with respect to the Senior Dividend Stock, including the full dividends for the
then current dividend period, shall have been paid or declared and set apart for
payment, without interest. No full dividends shall be paid or declared and set
apart for payment on any class or series or the Corporation's capital stock
ranking, as to dividends, on a parity with the Series G Convertible Preferred
Stock (the "Parity Dividend Stock") for any period unless all accrued but unpaid
dividends (and interest on dividends in arrears at the rate specified herein)
have been, or contemporaneously are, paid or declared and set apart for such
-3-
payment on the Series G Convertible Preferred Stock. No full dividends shall be
paid or declared and set apart for payment on the Series G Convertible Preferred
Stock for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series G Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series G
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series G Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series G
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
(b) If the Corporation elects in the exercise of its sole
discretion to issue shares of Common Stock in payment of dividends on the Series
G Convertible Preferred Stock, the Corporation shall issue and dispatch, or
cause to be issued and dispatched, to each holder of such shares a certificate
representing the number of whole shares of Common Stock arrived at by dividing
the per share Computed Price of such shares of Common Stock into the total
amount of cash dividends such holder would be entitled to receive if the
aggregate dividends on the Series G Convertible Preferred Stock held by such
holder which are being paid in shares of Common Stock were being paid in cash;
provided, however, that if certificates representing shares of Common Stock are
issued and dispatched to holders of Series G Convertible Preferred Stock
subsequent to the third trading day after a dividend payment date, the
percentage used to calculate the Computed Price will be reduced by one for each
trading day after the third trading day following such dividend payment date to
the date of dispatch of shares of Common Stock. No fractional shares of Common
Stock shall be issued in payment of dividends. In lieu thereof, the Corporation
may issue a number of shares of Common Stock to each holder which reflects a
rounding to the nearest whole number of shares of Common Stock or may pay cash.
The Corporation
-4-
shall not exercise its right to issue shares of Common Stock in payment of
dividends on Series G Convertible Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held in the Corporation's treasury,
is insufficient to pay the portion of such dividends to be paid in shares of
Common Stock;
(ii) the issuance or delivery of shares of Common Stock as a
dividend payment would require registration with or approval of any governmental
authority under any law or regulation, and such registration or approval has not
been effected or obtained;
(iii) the shares of Common Stock to be issued as a dividend
payment have not been authorized for listing, upon official notice of issuance,
on any securities exchange or market on which the Common Stock is then listed;
or have not been approved for quotation if the Common Stock is traded in the
over-the-counter market;
(iv) the Computed Price (determined without regard to the
proviso to the definition thereof) is less than the par value of the shares of
Common Stock;
(v) the shares of Common Stock (A) cannot be sold or transferred
without restriction by unaffiliated holders who receive such shares of Common
Stock as a dividend payment or (B) are no longer listed on a national securities
exchange, on the Nasdaq National Market or the Nasdaq SmallCap Market; or
(vi) the issuance of shares of Common Stock in payment of
dividends on Series G Convertible Preferred Stock held by any GFL Person (as
defined in Section 9(a) hereof) would result in any GFL Person beneficially
owning more than 4.9% of the Common Stock, determined as provided in the proviso
to the second sentence of Section 9(a) hereof.
Shares of Common Stock issued in payment of dividends on Series
G Convertible Preferred Stock pursuant to this Section shall be, and for all
purposes shall be deemed to be, validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation; the issuance and delivery thereof is
hereby authorized; and the dispatch thereof will be, and for all purposes shall
be deemed to be, payment in full of the cumulative dividends
-5-
to which holders are entitled on the applicable dividend payment date.
"Computed Price" of shares of Common Stock means the price equal
to 85 percent of the arithmetic mean of the per share Closing Price (as defined
in Section 9(b)) of the Common Stock for the three consecutive trading days
ending on the third trading day prior to the applicable dividend payment date;
provided however, that, notwithstanding the foregoing, in no event shall the
Computed Price be less than $.01 per share.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series G Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount per share of
Series G Convertible Preferred Stock equal to the sum of (i) all dividends
accrued and unpaid thereon to the date of final distribution to such holders,
(ii) accrued and unpaid interest on dividends in arrears to the date of
distribution, and (iii) $1,000.00 (collectively, "the Liquidation Preference"),
and no more, before any payment shall be made or any assets distributed to the
holders of Common Stock or any other class or series of the Corporation's
capital stock ranking junior as to liquidation rights to the Series G
Convertible Preferred Stock (collectively, the "Junior Liquidation Stock");
provided, however, that such rights shall accrue to the holders of Series G
Convertible Preferred Stock only in the event that the Corporation's payments
with respect to the liquidation preference of the holders of capital stock of
the Corporation ranking senior as to liquidation rights to the Series G
Convertible Preferred Stock (the "Senior Liquidation Stock") are fully met.
After the liquidation preferences of the Senior Liquidation Stock are fully met,
the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series G Convertible Preferred
Stock and any other class or series of the Corporation's capital stock having
parity as to liquidation rights with the Series G Convertible Preferred Stock
(the "Parity Liquidation Stock") in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of such preferential
amounts). After payment in full of the liquidation price of the shares of the
Series G Convertible Preferred Stock and the Parity Liquidation Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of
-6-
all or part of the Corporation's assets for cash, securities, or other property
in and of itself will be considered a liquidation, dissolution, or winding up of
the Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series G
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
SECTION 7. NO SINKING FUND. The shares of Series G Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is in
compliance in all material respects with its obligations to the holders of
shares of Series G Convertible Preferred Stock (including, without limitation,
its obligations under the Registration Rights Agreement between the Corporation
and the original holders of the Series G Convertible Preferred Stock (the
"Registration Rights Agreement") and the provisions of this Certificate of
Designations), the Corporation shall have the right, exercisable on not less
than 15 days or more than 20 days written notice to the holders of record of the
shares of Series G Convertible Preferred Stock to be redeemed, at any time which
is (x) 90 days or more after the Tranche 1 Registration Effective Date (as
defined in Section 9(b)) to redeem all of the shares or any part of not less
than 600 shares (or such lesser number of shares of Tranche 1 Series G
Convertible Preferred Stock as shall remain outstanding at the time of exercise
of such redemption right) of Tranche 1 Series G Convertible Preferred Stock or
(y) 90 days or more after the Tranche 2 Registration Effective Date (as defined
in Section 9(b)) to redeem all of the shares or any part of not less than 600
shares (or such lesser number of shares of Tranche 2 Series G Convertible
Preferred Stock as shall remain outstanding at the time of exercise of such
redemption right) of Tranche 2 Series G Convertible Preferred Stock, in either
case in accordance with this Section 8. Any notice of redemption (a "Notice of
Redemption") under this Section shall be delivered to the holders of the shares
of Series G Convertible Preferred Stock at their addresses appearing on the
records of the Corporation; provided, however, that any failure or defect in the
giving of notice to any such holder shall not affect the validity of notice to
or the redemption of shares of Series G Convertible Preferred Stock of any other
holder. Any Notice of Redemption may, subject to the 15 and 20 day restrictions
stated above, be given prior to the date which is 90 days after the Tranche 1
Registration Effective Date or the Tranche 2 Registration Effective Date, as the
case may be, but in
-7-
any such case may not specify a Redemption Date (as herein defined) prior to the
date which is 90 days after the Tranche 1 Registration Effective Date or the
Tranche 2 Registration Effective Date, as the case may be. Any Notice of
Redemption shall state (1) that the Corporation is exercising its right to
redeem all or a portion of the outstanding shares of Series G Convertible
Preferred Stock pursuant to this Section 8, (2) the number of shares of Series G
Convertible Preferred Stock held by such holder which are to be redeemed and the
tranche of the shares to be redeemed, (3) the Redemption Price (as hereinafter
defined) per share of Series G Convertible Preferred Stock to be redeemed,
determined in accordance with this Section, and (4) the date of redemption of
such shares of Series G Convertible Preferred Stock, determined in accordance
with this Section (the "Redemption Date"). On the Redemption Date, the
Corporation shall make payment in immediately available funds of the applicable
Redemption Price (as hereinafter defined) to each holder of shares of Series G
Convertible Preferred Stock to be redeemed to or upon the order of such holder
as specified by such holder in writing to the Corporation at least one business
day prior to the Redemption Date. If the Corporation exercises its right to
redeem all or a portion of the outstanding shares of Series G Convertible
Preferred Stock the Corporation shall make payment to the holders of the shares
of Series G Convertible Preferred Stock to be redeemed in respect of each share
of Series G Convertible Preferred Stock to be redeemed of an amount equal to the
sum of (A) the amount of the Liquidation Preference determined as of the
applicable Redemption Date and (B) $176.50 (such sum being referred to herein as
the "Redemption Price"). Upon redemption of less than all of the shares of
Series G Convertible Preferred Stock evidenced by a particular certificate,
promptly, but in no event later than three business days after surrender of such
certificate to the Corporation, the Corporation shall issue a replacement
certificate for the shares of Series G Convertible Preferred Stock which have
not been redeemed. Only whole shares of Series G Convertible Preferred Stock may
be redeemed. If the Corporation exercises its right to redeem less than all
outstanding shares of Series G Convertible Preferred Stock, then such redemption
shall be made, as nearly as practical, pro rata among the holders of record of
the Series G Convertible Preferred Stock. Notwithstanding any other provision of
this Certificate of Designations, no share of Series G Convertible Preferred
Stock as to which the holder exercises the right of conversion pursuant to
Section 9 hereof may be redeemed by the Corporation on or after the date of
exercise of such conversion right.
-8-
SECTION 9. CONVERSION.
(a) Conversion at Option of Holder. (i) The holders of the
Series G Convertible Preferred Stock may, upon surrender of the certificates
therefor, convert any or all of their shares of Series G Convertible Preferred
Stock into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. Commencing on the date which is
the earliest of (i) the Tranche 1 Registration Effective Date, (ii) or the
Tranche 2 Registration Effective Date and (iii) the date which is 90 days after
the date of initial issuance of shares of Series G Convertible Preferred Stock
(the "Issuance Date") and at any time thereafter, each share of Series G
Convertible Preferred Stock initially may be converted at the principal
executive offices of the Corporation, the office of any transfer agent for the
Series G Convertible Preferred Stock, if any, the office of any transfer agent
for the Common Stock or at such other office or offices, if any, as the Board of
Directors may designate, into whole shares of Common Stock at the rate equal to
the number of fully paid and nonassessable shares of Common Stock (calculated as
to each conversion to the nearest 1/100th of a share) determined by dividing (y)
the sum of (i) the Conversion Amount, (ii) accrued but unpaid dividends to the
Conversion Date, and (iii) accrued but unpaid interest on the dividends on the
shares of Series G Convertible Preferred Stock being converted in arrears to the
Conversion Date by (z) the lesser of (I) $11.50 (subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events) and (II) the product of (A) the Tranche 1
Conversion Percentage or the Tranche 2 Conversion Percentage, as the case may
be, times (B) the arithmetic average of the Closing Price of the Common Stock on
the three consecutive trading days immediately preceding the Conversion Date
(but in no event shall the amount determined pursuant to subclause (II) of this
clause (z) be less than $7.00 (subject to equitable adjustments for stock
splits, stock dividends, combinations, recapitalizations, reclassifications and
similar events), regardless of the actual amount otherwise determined pursuant
to this clause (z)) (the "Minimum Conversion Price"), in each case subject to
adjustment as hereinafter provided (the "Conversion Rate"); provided, however,
that in no event shall Genesee Fund Limited ("Genesee") be entitled to convert
any shares of Series G Convertible Preferred Stock in excess of that number of
shares of Series G Convertible Preferred Stock upon conversion of which the sum
of (1) the number of shares of Common Stock beneficially owned by Genesee and
any person whose beneficial ownership of shares of Common Stock would be
aggregated with
-9-
Genesee's beneficial ownership of shares of Common Stock for purposes of Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Regulation 13D-G thereunder (each a "GFL Person" and collectively, the "GFL
Persons") (other than shares of Common Stock deemed beneficially owned through
the ownership of unconverted shares of Series G Convertible Preferred Stock and
unexercised Common Stock Purchase Warrants issued to Genesee in connection with
the issuance of the Series G Convertible Preferred Stock) and (2) the number of
shares of Common Stock issuable upon the conversion of the number of shares of
Series G Convertible Preferred Stock with respect to which the determination in
this proviso is being made, would result in beneficial ownership by any GFL
Person of more than 4.9% of the outstanding shares of Common Stock. For purposes
of the proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (1) of the proviso to the immediately preceding sentence. For purposes
of the proviso to the second preceding sentence, the Corporation shall be
entitled to rely, and shall be fully protected in relying, on any statement or
representation made by Genesee to the Corporation in connection with a
particular conversion, without any obligation on the part of the Corporation to
make any inquiry or investigation or to examine its records or the records of
any transfer agent for the Common Stock.
(ii) Each certificate for shares of Series G Convertible
Preferred Stock initially issued shall bear a legend identifying it as either
"Tranche 1" or "Tranche 2," as agreed in writing with the Corporation by the
initial holder of shares of Series G Convertible Preferred Stock. Any new
certificate issued upon transfer of any shares of Series G Convertible Preferred
Stock or, in connection with a conversion of shares of Series G Convertible
Preferred Stock, to evidence the unconverted balance of shares of Series G
Convertible Preferred Stock shall bear the same legend as the certificate
surrendered to the Corporation in connection therewith, if applicable.
-10-
(b) Certain Definitions.
As used herein, the "Closing Price" of any security on any date
shall mean the closing bid price of such security on such date on the principal
securities exchange on which such security is traded.
As used herein, the "Conversion Amount" initially shall be equal
to $1,000.00, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which
the notice of conversion is actually received by the Corporation, in case of a
conversion at the option of the holder pursuant to Section 9(a).
As used herein, "SEC" shall mean the United States Securities
and Exchange Commission.
As used herein, "Tranche 1 Computation Date" means (1) January
1, 1997, unless the Tranche 1 Registration Statement theretofore has been
declared effective by the SEC, and, (2) if the Tranche 1 Registration Statement
has not theretofore been declared effective by the SEC, each date which is 30
days after a Tranche 1 Computation Date.
As used herein, "Tranche 2 Computation Date" means (1) February
1, 1997, unless the Tranche 2 Registration Statement theretofore has been
declared effective by the SEC, and, (2) if the Tranche 2 Registration Statement
has not theretofore been declared effective by the SEC, each date which is 30
days after a Tranche 2 Computation Date.
As used herein, "Tranche 1 Conversion Percentage" shall mean,
with respect to any conversion of shares of Tranche 1 Series G Convertible
Preferred Stock, 85 percent, except that, if the Tranche 1 Registration
Statement is not ordered effective by the SEC by the Tranche 1 Computation Date,
then the percentage stated above in this paragraph shall be reduced by two
percentage points on each Tranche 1 Computation Date, and except that the
percentage stated above in this paragraph, as so adjusted, is also subject to
adjustment as provided in Section 3(f)(iii) of the Registration Rights
Agreement.
As used herein, "Tranche 2 Conversion Percentage" shall mean,
with respect to any conversion of Tranche 2 Series G Convertible Preferred
Stock, 85 percent, except that, if the
-11-
Tranche 2 Registration Statement is not ordered effective by the SEC by the
Tranche 2 Computation Date, then the percentage stated above in this paragraph
shall be reduced by two percentage points on each Tranche 2 Computation Date,
and except that the percentage stated above in this paragraph, as so adjusted,
is also subject to adjustment as provided in Section 3(f)(iii) of the
Registration Rights Agreement.
As used herein, "Tranche 1 Registration Effective Date" shall
mean the date on which the Tranche 1 Registration Statement is first ordered
effective by the SEC.
As used herein, "Tranche 2 Registration Effective Date" shall
mean the date on which the Tranche 2 Registration Statement is first ordered
effective by the SEC.
As used herein, "Tranche 1 Registration Statement" shall mean
the Registration Statement required to be filed by the Corporation with the SEC
pursuant to Section 2(a)(i) of the Registration Rights Agreement.
As used herein, "Tranche 2 Registration Statement" shall mean
the Registration Statement required to be filed by the Corporation with the SEC
pursuant to Section 2(a)(ii) of the Registration Rights Agreement.
(c) Other Provisions. Notwithstanding anything in this Section 9
to the contrary, no change in the Conversion Amount shall actually be made until
the cumulative effect of the adjustments called for by this Section 9 since the
date of the last change in the Conversion Amount would change the Conversion
Amount by more than 1%. However, once the cumulative effect would result in such
a change, then the Conversion Rate shall actually be changed to reflect all
adjustments called for by this Section 9 and not previously made.
Notwithstanding anything in this Section 9, no change in the Conversion Amount
shall be made that would result in a Conversion Price of less than the par value
of the Common Stock into which shares of Series G Convertible Preferred Stock
are at the time convertible.
The holders of shares of Series G Convertible Preferred Stock at
the close of business on the record date for any dividend payment to holders of
Series G Convertible Preferred Stock shall be entitled to receive the dividend
payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such
-12-
dividend payment date; provided, however, that shares of Series G Convertible
Preferred Stock surrendered for conversion during the period between the close
of business on any record date for a dividend payment and the opening of
business on the corresponding dividend payment date must be accompanied by
payment of an amount equal to the dividend payable on such shares on such
dividend payment date. A holder of shares of Series G Convertible Preferred
Stock on a record date for a dividend payment who (or whose transferee) tenders
any of such shares for conversion into shares of Common Stock on or after such
dividend payment date will receive the dividend payable by the Corporation on
such shares of Series G Convertible Preferred Stock on such date, and the
converting holder need not include payment of the amount of such dividend upon
surrender of shares of Series G Convertible Preferred Stock for conversion.
Except as provided above, no adjustment shall be made in respect of cash
dividends on Common Stock or Series G Convertible Preferred Stock that may be
accrued and unpaid at the date of surrender for conversion.
-13-
The right of the holders of Series G Convertible Preferred Stock
to convert their shares shall be exercised by delivering to the Corporation or
its agent, as provided above, a written notice, duly signed by or on behalf of
the holder, stating the number of shares of Series G Convertible Preferred Stock
to be converted and, in the case of Genesee, stating that such conversion will
not result in Genesee beneficially owning a number of shares of Common Stock in
excess of that number permitted by Section 9(a). Promptly, but in no event later
than 10 business days after delivery of a notice of conversion, such holder
shall surrender for such purpose to the Corporation or its agent, as provided
above, certificates representing shares to be converted, duly endorsed in blank
or accompanied by proper instruments of transfer. If such holder shall fail to
deliver certificates representing shares to be converted in such form on or
prior to such tenth business day, such notice of conversion shall not be
effective, unless otherwise agreed by the Corporation, but such failure shall
not affect such holder's right to convert such shares at a date after the date
such notice of conversion was given. The Corporation shall pay any tax arising
under United States federal, state or local law in connection with any
conversion of shares of Series G Convertible Preferred Stock except that the
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery upon conversion of
shares of Common Stock or other securities or property in a name other than that
of the holder of the shares of the Series G Convertible Preferred Stock being
converted, and the Corporation shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series G Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series G Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a
-14-
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series G Convertible
Preferred Stock on the new basis. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all of the outstanding shares of Series G Convertible Preferred Stock, the
Corporation promptly shall seek such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the Corporation)
in which the Corporation is not the surviving corporation, or in case of any
sale or transfer of all or substantially all of the assets of the Corporation,
or in the case of any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, the
Corporation shall make appropriate provision or cause appropriate provision to
be made so that each holder of shares of Series G Convertible Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series G Convertible Preferred Stock into the kind and amount of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer, or share exchange by a holder of the number of shares of Common
Stock into which such shares of Series G Convertible Preferred Stock could have
been converted immediately prior to the effective date of such consolidation,
merger, sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder of shares
of Common Stock is entitled to elect to receive either securities, cash, or
other assets upon completion of such transaction, the Corporation shall provide
or cause to be provided to each holder of Series G Convertible Preferred Stock
the right to elect the securities, cash, or other assets into which the Series G
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The Corporation shall not effect any such transaction unless the
provisions of this paragraph have been complied with. The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers, or
share exchanges.
-15-
If a holder shall have given a notice of conversion of shares of
Series G Convertible Preferred Stock, upon surrender of certificates
representing shares of Series G Convertible Preferred Stock for conversion, the
Corporation shall issue and deliver to such person certificates for the Common
Stock issuable upon such conversion within three business days after such
surrender of certificates and the person converting shall be deemed to be the
holder of record of the Common Stock issuable upon such conversion, and all
rights with respect to the shares surrendered shall forthwith terminate except
the right to receive the Common Stock or other securities, cash, or other assets
as herein provided.
No fractional shares of Common Stock shall be issued upon
conversion of Series G Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in respect of the
aggregate number of such shares surrendered for conversion at one time by the
same holder, the Corporation at its option (a) may pay in cash an amount equal
to the product of (i) the arithmetic average of the Closing Price of a share of
Common Stock on the three consecutive trading days before the Conversion Date
and (ii) such fraction of a share or (b) may issue an additional share of Common
Stock.
The "Closing Price" for each day shall be the closing price
regular way on such day as reported on the New York Stock Exchange Composite
Tape, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which Common Stock is
listed or admitted to trading, or, if not listed or admitted to trading on any
national securities exchange, the closing bid price as reported on the Nasdaq
National Market (or, if not so reported, the closing price), or, if not admitted
for quotation on the Nasdaq National Market, the average of the high bid and low
asked prices on such day as recorded by the National Association of Securities
Dealers, Inc. through the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), or if the National Association of Securities
Dealers, Inc. through NASDAQ shall not have reported any bid and asked prices
for the Common Stock on such day, the average of the bid and asked prices for
such day as furnished by any New York Stock Exchange member firm selected from
time to time by the Corporation for such purposes, or, if no such bid and asked
prices can be obtained from any such firm, the fair market value of one share of
Common Stock on such day as determined in good faith by the Board of Directors.
Such determination by the Board of Directors shall be conclusive.
-16-
The Conversion Amount shall be adjusted from time to time under
certain circumstances, subject to the provisions of the first three sentences of
the first paragraph of this Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants on a
pro rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the average daily Closing Prices of the Common Stock
on the 30 consecutive business days commencing 45 business days before the
record date (the "Current Market Price"), then in each such case the Conversion
Amount in effect on such record date shall be adjusted in accordance with the
formula
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable pursuant
to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants).
M = the Current Market Price per share of Common Stock on the record
date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the
-17-
Corporation), then in each such case the Conversion Amount then in effect shall
be adjusted in accordance with the formula
C1 = C x M
-----
M - F
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on the record
date mentioned below.
F = the aggregate amount of such cash dividend and/or the fair market
value on the record date of the assets or securities to be
distributed divided by the number of shares of Common Stock
outstanding on the record date. The Board of Directors shall
determine such fair market value, which determination shall be
conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series G Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant
to the fifth paragraph of this Section 9(c), the holder of any Series G
Convertible Preferred Stock thereafter surrendered for conversion shall become
entitled to receive securities, cash, or assets other than Common Stock, the
number or amount of such securities or property so receivable upon conversion
shall be subject to adjustment from time to time in a manner and on terms nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 9, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
-18-
Whenever the Conversion Amount is adjusted as herein provided,
the Corporation shall send to each transfer agent, if any, for the Series G
Convertible Preferred Stock and the Common Stock, a statement signed by the
Chairman of the Board, the President, or any Vice President of the Corporation
and by its Treasurer or its Secretary or Assistant Secretary stating the
adjusted Conversion Amount determined as provided in this Section 9, and any
adjustment so evidenced, given in good faith, shall be binding upon all
stockholders and upon the Corporation. Whenever the Conversion Amount is
adjusted, the Corporation will give notice by mail to the holders of record of
Series G Convertible Preferred Stock, which notice shall be made within 15 days
after the effective date of such adjustment and shall state the adjustment and
the Conversion Amount. Notwithstanding the foregoing notice provisions, failure
by the Corporation to give such notice or a defect in such notice shall not
affect the binding nature of such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the
actions specified in the fifth paragraph of this Section 9(c) or in
subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) which
would result in any adjustment in the Conversion Amount under this Section 9(c),
the Corporation shall cause a notice to be mailed at least 20 days prior to the
date on which the books of the Corporation will close or on which a record will
be taken for such action, to the holders of record of the outstanding Series G
Convertible Preferred Stock on the date of such notice. Such notice shall
specify the action proposed to be taken by the Corporation and the date as of
which holders of record of the Common Stock shall participate in any such
actions or be entitled to exchange their Common Stock for securities or other
property, as the case may be. Failure by the Corporation to mail the notice or
any defect in such notice shall not affect the validity of the transaction.
Notwithstanding any other provision of this Section 9, no
adjustment in the Conversion Amount need be made (a) for a transaction referred
to in subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) if
holders of Series G Convertible Preferred Stock are to participate in the
transaction or distribution on a basis and with notice that the Board of
Directors determines such transaction to be fair to the holders of the Series G
Convertible Preferred Stock and appropriate in light of the basis on which
holders of the Common Stock or, in the case of a transaction referred to in said
subparagraph (ii), holders of Junior Stock participate in the transaction; (b)
for sales of Common Stock pursuant to a plan for reinvestment of dividends and
-19-
interest, provided that the purchase price in any such sale is at least equal to
the fair market value of the Common Stock at the time of such purchase, or
pursuant to any plan adopted by the Corporation for the benefit of its
employees, directors, or consultants; or (c) after such time as a holder of
shares of Series G Convertible Preferred Stock becomes entitled to receive only
cash upon conversion of such shares (in which case no interest shall accrue on
the amount of such cash for any period prior to the date which is three business
days after surrender of the certificates for such shares for conversion).
(d) Conversion at Option of Corporation. So long as the
Corporation shall be in compliance in all material respects with its obligations
to the holders of the Series G Convertible Preferred Stock (including, without
limitation, its obligations under the Registration Rights Agreement and the
provisions of this Certificate of Designations) and so long as the Tranche 1
Registration Statement and the Tranche 2 Registration Statement shall be
effective, the Corporation shall have the right, exercisable at any time or from
time to time on or after the date which is one year after the later of (x) the
Tranche 1 Registration Effective Date and (y) the Tranche 2 Registration
Effective Date, by at least 15 business days but not more than 20 business days
prior notice (a "Corporation Conversion Notice") to the holders of the Series G
Convertible Preferred Stock, to require such holders to convert, in accordance
with the provisions, and subject to the limitations, of this Section 9, all or
any part of the outstanding shares of Series G Convertible Preferred Stock into
shares of Common Stock to the extent the same are at such time convertible into
shares of Common Stock. The Corporation Conversion Notice shall state (1) the
number of shares of Series G Convertible Preferred Stock which the Corporation
seeks to require to be converted into shares of Common Stock and the tranche of
the shares to be converted and (2) the conversion date (which shall not be less
than 15 business days or more than 20 business days after the date the
Corporation Conversion Notice is given). If the Corporation shall give a
Corporation Conversion Notice, then, unless theretofore converted by the holder
or redeemed by the Corporation in accordance herewith, and, so long as the
Tranche 1 Registration Statement and the Tranche 2 Registration Statement shall
remain effective on such conversion date and the Corporation shall be in
compliance in all material respects with its obligations under the Registration
Rights Agreement on such conversion date, on the conversion date properly set
forth therein, the lesser of (A) the number of shares of Series G Convertible
Preferred Stock which the Corporation seeks to require to be converted, as set
forth in such Corporation Conversion Notice or
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(B) the maximum number of shares of Series G Convertible Preferred Stock which
on such conversion date is convertible in accordance with Sections 9(a) hereof,
shall be converted into such number of shares of Common Stock as shall be
determined pursuant to this Section 9 (but without regard to the Minimum
Conversion Price) as if the conversion of such number of shares of Series G
Convertible Preferred Stock were made by the holders thereof in accordance
herewith without any further action on the part of the holders of such shares of
Series G Convertible Preferred Stock. Upon receipt by the Corporation of
certificates for shares of Series G Convertible Preferred Stock converted into
shares of Common Stock in accordance with this Section 9(d) after a Corporation
Conversion Notice is given, the Corporation shall issue and, within three
trading days after such surrender, deliver to or upon the order of such holder
(1) that number of shares of Common Stock for the number of shares of Series G
Convertible Preferred Stock converted as shall be determined in accordance
herewith, (2) a new certificate for the balance of shares of Series G
Convertible Preferred Stock, if any, and (3) payment of the accrued and unpaid
dividends on the shares of Series G Convertible Preferred Stock so converted
(which payment of dividends may be made in accordance with Section 4 if the
Corporation satisfies the requirements thereof).
SECTION 10. VOTING RIGHTS. Except as otherwise required by law
or expressly provided herein, shares of Series G Convertible Preferred Stock
shall not be entitled to vote on any matter.
The affirmative vote or consent of the holders of a majority of
the outstanding shares of the Series G Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences, or special rights of the Series G
Convertible Preferred Stock, or (2) the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock; provided, however, that any increase
in the authorized preferred stock of the Corporation or the creation and
issuance of any stock which is both Junior Dividend Stock and Junior Liquidation
Stock or any other capital stock of the Corporation ranking on a parity with the
Series G Convertible Preferred Stock shall not be deemed to affect materially
and adversely such powers, preferences, or special rights.
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SECTION 11. OUTSTANDING SHARES. For purposes of this Certificate
of Designations, all shares of Series G Convertible Preferred Stock shall be
deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series G Convertible Preferred Stock for conversion into
Common Stock, all shares of Series G Convertible Preferred Stock converted into
Common Stock; (ii) from the date of registration of transfer, all shares of
Series G Convertible Preferred Stock held of record by the Corporation or any
subsidiary or Affiliate (as defined herein) of the Corporation and (iii) from
the Redemption Date, all shares of Series G Convertible Preferred Stock which
are redeemed, so long as in each case the Redemption Price of such shares of
Series G Convertible Preferred Stock shall have been paid by the Corporation as
and when required hereby. For the purposes of this Certificate of Designations,
"Affiliate" means any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Corporation. "Control" is
the power to direct the management and policies of a person, directly or through
one or more intermediaries, whether through the ownership of voting securities,
by contract, or otherwise.
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IN WITNESS WHEREOF, Palomar Medical Technologies, Inc. has
caused its corporate seal to be hereunto affixed and this certificate to be
signed by David A. Broadwin, its Assistant Secretary, this 26th day of
September, 1996.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By /s/ Dave A. Broadwin
--------------------------
David A. Broadwin
Assistant Secretary
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EXHIBIT 10(xx)
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of the date of
acceptance set forth below, by and between PALOMAR MEDICAL TECHNOLOGIES, INC., a
Delaware corporation, with headquarters located at 66 Cherry Hill Drive,
Beverly, Massachusetts 01915 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act of 1933, as amended
(the "1933 Act"); and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, shares of non-voting, convertible
preferred stock of the Company which will be convertible into shares of Common
Stock, $.01 par value per share (the "Common Stock"), of the Company upon the
terms and subject to the conditions of such preferred stock, and in connection
therewith to receive warrants to purchase shares of Common Stock, subject to
acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE; WARRANTS.
A. SUBSCRIPTION. The undersigned hereby agrees to purchase
from the Company the number of shares (the "Preferred Shares") of Series G
Convertible Preferred Stock, $.01 par value per share (the "Preferred Stock"),
of the Company set forth on the signature page of this Agreement, having the
terms and conditions as set forth in the form of Certificate of Designations
attached hereto as ANNEX I (the "Certificate of Designations") at the price per
share and for the aggregate purchase price set forth on the signature page of
this Agreement. The purchase price for the Preferred Stock shall be payable in
United States Dollars. The Buyer hereby agrees that certificates for a number of
Preferred Shares equal to (i) 40% of the total number of Preferred Shares shall
bear the first legend set forth in Section 9(a)(ii) of the terms of the
Preferred Stock in the Certificate of Designations and (ii) 60% of the total
number of Preferred Shares shall bear the second legend set forth in Section
9(a)(ii) of the terms of the Preferred Stock in the Certificate of Designations.
In addition to issuance of the Preferred Shares, the Company shall issue to the
Buyer on the Closing Date (as herein defined) warrants to purchase shares of
Common Stock, such warrants to be in the form attached
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hereto as ANNEX II (the "Warrants"). The number of shares of Common Stock
initially purchasable upon exercise of the Warrants to be issued by the Buyer on
the Closing Date shall be the quotient obtained by dividing (1) the number of
shares of Common Stock into which the number of Preferred Shares to be issued to
the Buyer on the Closing Date would be convertible on the Closing Date, if the
Preferred Shares were convertible on the Closing Date, by (2) four (4). The
shares of Common Stock issuable upon conversion of the Preferred Shares are
referred to herein as the "Conversion Shares." The shares of Common Stock
issuable upon exercise of the Warrants are referred to herein as the "Warrant
Shares." The Conversion Shares and the Warrant Shares are referred to herein
collectively as the "Common Shares." The Common Shares and the Preferred Shares
are referred to herein collectively as the "Shares." The Shares and the Warrants
are referred to herein collectively as the "Securities."
B. FORM OF PAYMENT. The Buyer shall pay the purchase price for
the Preferred Shares by delivering good funds in United States Dollars to the
escrow agent (the "Escrow Agent") identified in the Joint Escrow Instructions
attached hereto as ANNEX III (the "Joint Escrow Instructions"). Such delivery of
funds shall be made against delivery by the Company of the certificates for the
Preferred Shares and the Warrants registered in the name of the Buyer. Promptly
following payment by the Buyer to the Escrow Agent of the purchase price of the
Preferred Shares, but in no event later than the Closing Date, the Company shall
deliver certificates for the Preferred Shares and the Warrants, registered in
the name of the Buyer, to the Escrow Agent. By signing this Agreement, the Buyer
and the Company each agrees to all of the terms and conditions of, and becomes a
party to, the Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
C. METHOD OF PAYMENT. Payment of the purchase price for the
Preferred Shares shall be made by wire transfer of funds to:
Citibank, N.A.
153 East 53rd Street
New York, New York 10043
ABA#021000089
For Further Credit to A/C#37179446
for credit to the account of Brian W. Pusch Attorney
Escrow Account
Reference: GFL/Palomar
Not later than 4:00 p.m., New York City time, on the date which is five New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of
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this Agreement to the Buyer, the Buyer shall deposit with the Escrow Agent
the aggregate purchase price for the Preferred Shares.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. The Buyer is purchasing the Preferred Shares and the
Warrants for its own account for investment only and not with a view towards the
public sale or distribution thereof;
b. The Buyer is an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3);
c. All subsequent offers and sales of the Securities by the
Buyer shall be made pursuant to registration of the Securities being offered and
sold under the 1933 Act or pursuant to an exemption from registration;
d. The Buyer understands that the Preferred Shares and the
Warrants are being offered and sold, and the Common Shares are being offered, to
it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Preferred Shares and
the Warrants and to receive an offer of the Common Shares;
e. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Preferred Shares and
the Warrants and the offer of the Common Shares which have been requested by the
Buyer. The Buyer and its advisors, if any, have been afforded the opportunity to
ask questions of the Company and have received complete and satisfactory answers
to any such inquiries. Without limiting the generality of the foregoing, the
Buyer has had the opportunity to obtain and to review the Company's (1) Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995 (as amended by
Amendment No. 1 thereto on Form 10-KSB/A filed with the Securities and Exchange
Commission (the "SEC") on August 23, 1996), (2) Quarterly Reports on Form 10-QSB
for the fiscal quarters ended March 31, 1996 (as amended by
-3-
Amendment No. 1 thereto on Form 10-QSB/A filed with the SEC on August 23, 1996)
and June 30, 1996, (3) Current Report on Form 8-K, dated May 3, 1996, as amended
by Amendment No. 1 on Form 8-K/A dated May 3, 1996, (4) definitive Proxy
Statement for its 1996 Special Meeting of Stockholders, and (5) Registration
Statement on Form S-3 (the "August Registration Statement") filed on August 23,
1996 (Registration No. 333-10681), in each case as filed with the SEC. The Buyer
understands that its investment in the Shares involves a high degree of risk;
f. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities; and
g. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
h. The Buyer acknowledges that, except for the historical
material contained herein or in the SEC filings referenced in Section 2(e)
hereof, the matters disclosed herein and therein are forward-looking statements
under the federal securities laws that involve risks and uncertainties,
including, but not limited to, product demand and market acceptance risks, the
effect of economic conditions, the impact of competitive products and pricing,
product development, commercialization and technological difficulties, capacity
and supply constraints or difficulties, the results of financing efforts, actual
purchases under agreements, the effect of the Company's accounting policies, and
other risks detailed in the Company's SEC filings. Actual results could differ
materially from those estimated or anticipated in these forward-looking
statements. Without limiting the generality of the foregoing, the Buyer
acknowledges the Risk Factors set forth in the August Registration Statement.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
A. CONCERNING THE SECURITIES. The Securities have been duly
authorized and the Preferred Shares, when issued and paid for in accordance with
this Agreement, and the Common Shares, when issued upon conversion of the
Preferred Shares or exercise of the Warrants, as the case may be, will be duly
and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder. There are
no preemptive rights of any stockholder of the Company, as such, to acquire any
of the Securities. The Common Stock is listed for trading on the Nasdaq SmallCap
Market ("Nasdaq") and (1) the Company and the Common Stock meet the criteria for
continued
-4-
listing and trading on Nasdaq; (2) the Company has not been notified since
January 1, 1994 by the National Association of Securities Dealers, Inc. of any
failure or potential failure to meet the criteria for continued listing and
trading on Nasdaq and (3) no suspension of trading in the Common Stock is in
effect.
B. SUBSCRIPTION AGREEMENT; REGISTRATION RIGHTS AGREEMENT;
WARRANTS. This Agreement, the Registration Rights Agreement, the form of which
is attached hereto as Annex IV (the "Registration Rights Agreement"), and the
Warrants have been duly and validly authorized by the Company, this Agreement
has been duly executed and delivered on behalf of the Company and this Agreement
is and the Registration Rights Agreement and the Warrants, when executed and
delivered by the Company, will be valid and binding agreements of the Company
enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
C. NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the issuance of
the Shares and the Warrants and the other transactions contemplated by this
Agreement, the Registration Rights Agreement, the Warrants and the terms of the
Preferred Stock do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under, the
certificate of incorporation or by-laws of the Company, or any indenture,
mortgage, deed of trust or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
or any applicable law, rule or regulation or any applicable decree, judgment or
order of any court, United States federal or state regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or any of its properties or assets.
D. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Shares and the Warrants
as contemplated by this Agreement, the terms of the Preferred Stock and the
Warrants.
E. INFORMATION PROVIDED. The information provided by or on
behalf of the Company to the Buyer and referred to in Section 2(e) of this
Agreement does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstance under which they are made, not misleading.
-5-
F. ABSENCE OF CERTAIN CHANGES. Since December 31, 1995, there
has been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of operations or
prospects of the Company, except as disclosed in the documents referred to in
Section 2(e) hereof.
G. ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company or any of its subsidiaries, wherein
an unfavorable decision, ruling or finding would have a material adverse effect
on the properties, business, condition (financial or other), results of
operations or prospects of the Company and its subsidiaries taken as a whole or
the transactions contemplated by this Agreement or any of the documents
contemplated hereby or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Preferred Shares and the Warrants have not been and are not being registered
under the provisions of the 1933 Act and, except as provided in the Registration
Rights Agreement, the Common Shares have not been and are not being registered
under the 1933 Act, and may not be transferred unless (A) subsequently
registered thereunder or (B) the Buyer shall have delivered to the Company an
opinion of counsel, reasonably satisfactory in form, scope and substance to the
Company, to the effect that the Shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (2) any sale of the
Shares or the Warrants made in reliance on Rule 144 promulgated under the 1933
Act may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such Shares or Warrants under
circumstances in which the seller, or the person through whom the sale is made,
may be deemed to be an underwriter, as that term is used in the 1933 Act, may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (3) neither the Company nor any other
person is under any obligation to register the Shares (other than pursuant to
the Registration Rights Agreement) or the Warrants under the 1933 Act or to
comply with the terms and conditions of any exemption thereunder.
B. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that,
in addition to the legend on certificates for the Preferred Shares contemplated
by Section 1(a) hereof and Section 9(a)(ii) of the Certificate of Designations,
the certificates for
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the Preferred Shares, and the Warrants, and, until such time as the Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the certificates for the Common Shares, may bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for the Shares):
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under the Securities
Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
C. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
enter into the Registration Rights Agreement, on or before the Closing Date.
D. NASDAQ NOTIFICATION FORM; REPORTING STATUS. On or before
the Closing Date, the Company shall notify the Nasdaq of the issuance and sale
of the Preferred Stock and Warrants pursuant to this Agreement and shall provide
evidence of such notification to the Buyer. So long as the Buyer beneficially
owns any of the Preferred Shares, the Warrants or the Common Shares, the Company
shall file all reports required to be filed with the SEC pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would permit such termination.
E. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Preferred Shares and the Warrants for the Company's internal working
capital purposes, mergers and acquisitions, investments and general corporate
purposes.
F. BLUE SKY LAWS. On or before the Closing Date, the Company
shall take such action as shall be necessary to qualify, or to obtain an
exemption for, the Preferred Shares and the Warrants for sale to the Buyer
pursuant to this Agreement and the Common Shares for issuance to the Buyer on
conversion of the Preferred Shares and on exercise of the Warrants under such of
the securities or "blue sky" laws of jurisdictions in the United States as shall
be applicable to the sale of the Preferred Shares to the Buyer pursuant to this
Agreement and the issuance of the Common Shares to the Buyer on conversion of
the Preferred Shares. The Company shall furnish copies of all filings,
applications, orders and grants or confirmations of exemptions relating to such
securities or "blue sky" laws on or prior to the Closing Date.
-7-
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
A. TRANSFER AGENT INSTRUCTIONS. Promptly following the
delivery by the Buyer of the aggregate purchase price for the Preferred Shares
in accordance with Section 1(c) hereof, and prior to the Closing Date the
Company will irrevocably instruct its transfer agent to issue certificates for
the Common Shares from time to time upon conversion of the Preferred Shares and
exercise of the Warrants in such amounts as specified from time to time to the
transfer agent in the notices of conversion surrendered in connection with such
conversions and referred to in Section 5(b) of this Agreement or in the
subscription forms attached to the Warrants, as the case may be, such
certificates to bear the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Common Shares under the 1933 Act,
registered in the name of the Buyer or its nominee and in such denominations to
be specified by the Buyer in connection with each conversion of Preferred Shares
or exercise of Warrants, as the case may be. The Company warrants that no
instruction other than such instructions referred to in this Section 5 and stop
transfer instructions to give effect to Section 4(a) hereof prior to
registration of the Common Shares under the 1933 Act will be given by the
Company to the transfer agent and that the Common Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section 5(a) shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Shares. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory in form, scope and substance to the
Company that registration of a resale by the Buyer of any of the Securities in
accordance with clause (1)(B) of Section 4(a) of this Agreement is not required
under the 1933 Act (which opinion expressly states that it may be relied upon by
the Company and its counsel in delivering instructions to the Company's transfer
agent), the Company shall permit the transfer of such Securities and, in the
case of the Common Shares, promptly, but in no event later than three days after
receipt of such opinion, instruct the Company's transfer agent to issue one or
more share certificates in such name and in such denominations as specified by
the Buyer. The provisions of Section 3(n) of the Registration Rights Agreement
shall supersede this Section 5(a) with respect to the Common Shares once said
Section 3(n) becomes applicable.
B. CONVERSION PROCEDURE. In connection with the exercise of
conversion rights relating to the Preferred Shares the Buyer or any subsequent
holder of the Preferred Shares shall, in addition to any other requirement
imposed by the terms of the Preferred Shares as set forth in the Certificate of
Designation, complete, sign and furnish to the Company a notice of conversion in
the form attached hereto as Annex V which notice of conversion properly
completed and duly executed shall be deemed a sufficient
-8-
notice of conversion for all purposes of the Certificate of Designations.
6. STOCK DELIVERY INSTRUCTIONS.
The certificates for the Preferred Shares and Warrants shall
be delivered by the Company to the Escrow Agent pursuant to Section 1(b) hereof
on a delivery against payment basis at the closing.
7. CLOSING DATE.
The date and time of the issuance and sale of the Preferred
Shares and issuance of the Warrants (the "Closing Date") shall be 12:00 noon,
New York City time, on the date which is three New York Stock Exchange trading
days after the date on which the Buyer has deposited the purchase price for the
Preferred Shares with the Escrow Agent in accordance with Section 1(c) hereof,
or such other mutually agreed to time. The closing shall occur on the Closing
Date at the offices of the Escrow Agent.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND
ISSUE.
The Buyer understands that the Company's obligation to sell
the Preferred Shares and issue the Warrants to the Buyer pursuant to this
Agreement is conditioned upon:
a. The receipt and acceptance by the Company of this Agreement
executed by the Buyer as evidenced by execution of this Agreement by the Company
and delivery of an executed counterpart of this Agreement to the Buyer or its
legal counsel;
b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the purchase price for the Preferred
Shares in accordance with Section 1(c) hereof; and
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Shares and acquire the Warrants is conditioned upon:
-9-
a. Delivery by the Company to the Escrow Agent of the
certificates for the Preferred Shares and the Warrants in accordance with this
Agreement;
b. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
such Closing Date; and
c. Receipt by the Buyer on the Closing Date of an opinion of
counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, to the effect set forth in Annex VI
attached hereto.
10. GOVERNING LAW; MISCELLANEOUS. This Agreement shall be
governed by and interpreted in accordance with the laws of the Commonwealth of
Massachusetts. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. Any notices
required or permitted to be given under the terms of this Agreement shall be
sent by mail or delivered personally (which shall include telephone line
facsimile transmission) or by courier and shall be effective five days after
being placed in the mail, if mailed, or upon receipt, if delivered personally or
by courier, in each case addressed to a party at such party's address shown in
the introductory paragraph or on the signature page of this Agreement (facsimile
number 508-921-5801, in the case of the Company, and 703-834-6627, in the case
of the Buyer) or such other address as a party shall have provided by notice to
the other party in accordance with this provision and, in the case of notice to
the Company, with a copy to Foley, Hoag & Eliot LLP, One Post Office Square,
Boston, Massachusetts 02109, Attention: David Broadwin, Esq. (facsimile number
617-832-7000) and, in the case of notice to the Buyer, with a copy to Law
Offices of Brian W Pusch, Penthouse Suite, 29 West 57th Street, New York, New
York 10019 (facsimile number 212-980-7055). The Buyer shall have the right to
assign its rights and obligations under this Agreement with respect to the
purchase of all or any portion of the Preferred Shares and the Warrants,
provided such assignee, by written instrument duly executed by such assignee,
assumes all obligations of the Buyer hereunder with respect to the purchase of
the portion of the Preferred Shares and Warrants so assigned and
-10-
makes the same representations and warranties with respect thereto as the Buyer
makes in this Agreement, whereupon the Buyer shall be relieved of any further
obligations, responsibilities and liabilities with respect to the purchase of
all or the portion of the Preferred Shares and Warrants so assigned. In the case
of any such assignment, the Company shall agree in writing with such assignee to
make available to such assignee the benefits of the Registration Rights
Agreement with respect to the Common Shares issuable on conversion of the
Preferred Shares or exercise of the Warrants with respect to which the purchase
under this Agreement has been so assigned.
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IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the date set
forth below.
NUMBER OF SHARES: 10,000
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE: $10,000,000.00
NAME OF BUYER: GENESEE FUND LIMITED
SIGNATURE /s/ A. P. de Groot
----------------------------
Title: President
-------------------------------
Date: 9/26/96
-------------------------------
Address: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
This Agreement has been accepted as of the date set forth
below.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Steven Georgiev
----------------------------------
Title: Chairman - CEO
-------------------------------
Date: 9/26/96
-------------------------------
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EXHIBIT 10(yy)
Annex IV
to
Subscription
Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 26, 1996
(this "Agreement"), is made by and between PALOMAR MEDICAL TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), and the person named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of
September 26, 1996, between the Initial Investor and the Company (the
"Subscription Agreement"), the Company has agreed, upon the terms and subject to
the conditions of the Subscription Agreement, to issue and sell to the Initial
Investor an aggregate of 10,000 shares (the "Preferred Shares") of preferred
stock of the Company as provided in the Subscription Agreement, which shares of
Preferred Stock are convertible into shares (the "Conversion Shares") of Common
Stock, $.01 par value per share (the "Common Stock"), and warrants (the
"Warrants") to purchase shares (the "Warrant Shares" and, together with the
Conversion Shares, the "Shares") of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration
-1-
Statement or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Shares and any shares of
Common Stock issued by the Company to any Investor as a dividend on the
Preferred Shares.
(iv) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(A) MANDATORY REGISTRATION. The Company shall (i) prepare, and on or
prior to December 1, 1996, file with the SEC a Registration Statement on Form
S-3 covering the resale of at least 770,000 shares of Common Stock as
Registrable Securities (ii) prepare, and on or prior to January 1, 1997 file
with the SEC a Registration Statement on Form S-3 covering the resale of at
least 1,160,000 shares of Common Stock as Registrable Securities, and which
Registration Statements shall state that, in accordance with Rule 416 under the
Securities Act, such Registration Statements also cover such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Shares and exercise of the Warrants to prevent
dilution resulting from stock splits, stock dividends or similar transactions or
by reason of changes in the conversion price of the Preferred Shares and the
exercise price of the Warrants in accordance with the respective terms thereof.
If at any time after January 1, 1997 the number of shares included in the
Registration Statements required to be filed as provided in the first sentence
of this Section 2(a) shall not be sufficient to cover the resale of the number
of shares of Common Stock issuable on conversion in full of the unconverted
Preferred Shares and the unexercised Warrants, then promptly, but in no event
later than 15 days after such insufficiency shall occur, the Company shall file
with the SEC an additional Registration Statement on Form S-3 (which shall not
constitute a
-2-
post-effective amendment to any Registration Statement required to be filed
pursuant to the first sentence of this Section 2(a) or other applicable form
covering such number of shares of Common Stock as shall be sufficient to cover
the resale of the shares acquired upon such conversion and exercise. For all
purposes of this Agreement (other than Section 2(c) hereof) such additional
Registration Statement shall be deemed to be the Registration Statement required
to be filed by the Company pursuant to this Section 2(a) (i) or (ii), as the
case may be, and the Company and the Investors shall have the same rights and
obligations (other than Section 2(c) hereof) with respect to such additional
Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a)(i) or (ii), as the case may be.
(B) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
and an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with this Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
(C) ADJUSTMENT IN CONVERSION PRICE. If the Registration Statements
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof are not effective (i) on or before December 31, 1996, in
case of the Registration Statement to be filed pursuant to Section 2(a)(i)
hereof or (ii) on or before January 31, 1997, in case of the Registration
Statement to be filed pursuant to Section 2(a)(ii) hereof, then the conversion
price of the Preferred Shares shall be adjusted as provided in the Certificate
of Designations for the Preferred Shares.
(D) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC 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 or their
then equivalents relating to equity securities to be issued solely in
-3-
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 Investor, who is entitled to registration rights
under this Section 2(a) written notice of such determination and, if within
twenty (20) days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Investor requests to be registered,
except that if, in connection with any underwritten public offering for the
account of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, such
limitation is necessary to effect an orderly public distribution, then the
Company shall be obligated to include in such Registration Statement only such
limited portion of the Registrable Securities with respect to which such
Investor has requested inclusion hereunder. Any exclusion of Registrable
Securities shall be made pro rata among the Investors seeking to include
Registrable Securities, in proportion to the number of Registrable Securities
sought to be included by such Investors; provided, however, that the Company
shall not exclude any Registrable Securities unless the Company has first
excluded all outstanding securities the holders of which are not entitled by
right to inclusion of securities in such Registration Statement; and provided
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement. No right to registration of Registrable Securities under
this Section 2(d) shall be construed to limit any registration required under
Section 2(a) hereof. The obligations of the Company under this Section 2(d) may
be waived by Investors holding a majority in interest of the Registrable
Securities and shall expire after the Company has afforded the opportunity for
the Investors to exercise registration rights under this Section 2(d) for two
registrations; provided, however, that any Investor who shall have had any
Registrable Securities excluded from any Registration Statement in accordance
with this Section 2(d) shall be entitled to include in an additional
Registration Statement filed by the Company the Registrable Securities so
excluded. Notwithstanding any other provision of this Agreement, if the
Registration Statements required to be filed pursuant to Section 2(a) of this
Agreement shall have been ordered effective by the SEC and thereafter the
Company shall have complied in all material respects with its obligations under
this Agreement in respect of such Registration Statements, then the Company
shall not be obligated to register any Registrable Securities on any
Registration Statement referred to in this Section 2(d).
(E) ELIGIBILITY FOR FORM S-3. The Company represents
-4-
and warrants that it meets the requirements for the use of Form S-3 for
registration of the sale by the Initial Investor and any Investor of the
Registrable Securities and the Company shall file all reports required to be
filed by the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall:
(a) use its best efforts to cause each Registration Statement relating
to Registrable Securities to become effective as soon as possible after such
Registration Statement is filed with the SEC, and keep the Registration
Statement effective pursuant to Rule 415 at all times until the later of (1) in
the case of any Registrable Securities, the earlier of (i) such date as is three
years after the date such Registration Statement is first ordered effective by
the SEC and (ii) the date on which all Registrable Securities have been sold by
the Investors under circumstances in which the buyers may resell the Registrable
Securities without registration under the Securities Act and, (2) in the case of
Registrable Securities that are Warrant Shares, the later of (i) the date which
is three years after the date such Registration Statement if first ordered
effective by the SEC (but in no event later than the date on which all
Registrable Securities that are Warrant Shares have been sold by the Investors
under circumstances in which the buyers may resell the Registrable Securities
that are Warrant Shares without registration under the Securities Act), in case
the Warrants have been exercised in full on a net exercise basis and (ii) the
date which is three years after the latest exercise of the Warrants for cash
(but in no event later than the date on which all Registrable Securities that
are Warrant Shares have been sold by the Investors under circumstances in which
the buyers may resell the Registrable Securities that are Warrant Shares without
registration under the Securities Act) (the "Termination Date"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any 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 in which
they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until the
Termination Date, and, during such period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such time as all of such
Registrable Securities have been
-5-
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement;
(c) furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel, (1) promptly after the same
is prepared and publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement thereto,
each letter written by or on behalf of the Company to the SEC or the staff of
the SEC and each item of correspondence from the SEC or the staff of the SEC
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the Termination Date, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times until the Termination Date and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (I) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal expense
or burden to the Company or (V) make any change in its charter or by-laws, which
in each case the Board of Directors of the Company determines to be contrary to
the best interests of the Company and its stockholders;
(e) in the event Investors who hold a majority in interest of the
Registrable Securities being offered in the offering select underwriters for the
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
-6-
indemnification and contribution obligations, with the underwriters of such
offering;
(f) (i) as promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits 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, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request;
(ii) If at the time the Company notifies the Investors as contemplated
by Section 3(f)(i): (1) the Registration Statement required by Section 2(a)(i)
or (ii), as the case may be, of this Agreement shall have been effective for at
least 90 consecutive days and (2) the Company shall be in compliance in all
material respects with its obligations under this Agreement, the terms of the
Preferred Shares and the Warrants and such event relates to a prospective
development of the Company, then the Company shall not be required to make such
amendment or supplement prior to five days after such notice; provided, however,
that the Company may not invoke the provisions of this Section 3(f)(ii) until at
least 50 days after the Company shall have previously invoked such provisions;
(iii) If at the time the Company notifies the Investors as contemplated
by Section 3(f)(i): (1) the Registration Statement required by Section 2(a)(i)
or (ii), as the case may be, of this Agreement shall not have been effective for
at least 90 consecutive days and (2) the Company shall be in compliance in all
material respects with its obligations under this Agreement, the terms of the
Preferred Shares and the Warrants and such event relates to a prospective
development of the Company, then the Company shall not be required to make such
amendment or supplement prior to ten trading days after such notice; provided,
however, that the Company may not invoke the provisions of this Section
3(f)(iii) until at least 30 days after the end of the most recent period during
which the Company shall have previously invoked such provisions; and provided
further, however, that any period during which the Company has invoked the
provisions of this Section 3(f)(iii) shall, regardless of when such period
actually shall occur, be treated as if it were a period subsequent to 90 days
after the Closing Date during which such Registration Statement had not become
effective for the purposes of Section 9 of the Certificate of Designations
relating to the Preferred Shares (the "Certificate of Designations") and the
Conversion Percentage (as defined in the
-7-
Certificate of Designations) applicable to the Preferred Shares shall be
adjusted as provided in such Section 9 in respect of the period during which the
Company has invoked the provisions of this Section 3(f)(iii). In lieu of any
such adjustment of the Conversion Percentage (as so defined) applicable to the
Preferred Shares, the Company shall have the right, exercisable by notice to the
Initial Investor given not later than the date the Company gives notice as
contemplated by Section 3(f)(i), to make payments to the Initial Investor in
U.S. dollars in such amounts and at such times as shall be determined pursuant
to this Section 3(f)(iii). The amount to be paid by the Company to the Initial
Investor shall be paid at the rate of two percent (2%) per 30-day period of the
aggregate purchase price paid by the Initial Investor for the Preferred Shares
purchased by the Initial Investor pursuant to the Subscription Agreement for
each period during which, in accordance with this Section 3(f)(iii), such
Registration Statement is unavailable for use by the Investors. Such amount
shall be paid by the Company in immediately available funds within three
business days after each such period;
(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling stockholders'
counsel by the Investors who hold a majority in interest of the Registrable
Securities being sold to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to their filing with
the SEC, and shall not file any document in a form to which such counsel
reasonably objects;
(i) make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the Securities Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter next following the
effective date of the Registration Statement;
(j) at the request of the Investors who hold a majority in interest of
the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the
-8-
underwriters; and (ii) an opinion, dated such date, from counsel representing
the Company for purposes of such Registration Statement, in form and substance
as is customarily given in an underwritten public offering, addressed to the
underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction or (iii)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to Section 4(e) hereof unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a court
-9-
or governmental body of competent jurisdiction or through other means, give
prompt notice to such Investor, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such information;
(l) use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a national
securities exchange and on each additional national securities exchange on which
securities of the same class or series issued by the Company are then listed, if
any, if the listing of such Registrable Securities is then permitted under the
rules of such exchange or (ii) secure designation of all the Registrable
Securities covered by the Registration Statement as a National Association of
Securities Dealers Automated Quotations System ("NASDAQ") "national market
system security" within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Registrable Securities on the NASDAQ National Market System or,
if, despite the Company's best efforts to satisfy the preceding clause (i) or
(ii), the Company is unsuccessful in satisfying the preceding clause (i) or
(ii), to secure listing on a national securities exchange or NASDAQ
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(m) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(n) cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such denominations
or amounts as the case may be, as the managing underwriter or underwriters, if
any, or the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may request; and,
within three business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel selected by the Company to deliver, to
the transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
instruction in the form attached hereto as EXHIBIT 1 (without substantive
additions thereto) and an opinion of such counsel in the form attached hereto as
EXHIBIT 2 (without substantive additions thereto); and
-10-
(o) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. Promptly after the Company
furnishes to an Investor a draft of the Registration Statement as contemplated
by Section 3(h), such Investor shall complete and submit to the Company an
Investor Questionnaire in the form attached hereto as EXHIBIT 3. Each Investor
will notify the Company promptly of any material change in the information
provided by such Investor in its Investor Questionnaire (other than a change in
beneficial ownership of securities as a result of sales of Registrable
Securities pursuant to such Registration Statement). If the Company shall have
furnished such draft of the Registration Statement to an Investor and, at least
one (1) business day prior to the filing date the Company has not received the
Investor Questionnaire from such Investor (a "Non-Responsive Investor"), then
the Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
-11-
Investor's Registrable Securities from the Registration Statement;
(d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice;
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement;
(f) Each Investor whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement and each such Investor shall use its reasonable best
efforts to comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale; and
(g) Each Investor agrees to notify the Company promptly after the date
on which all Registrable Securities owned by such Investor have been sold by
such Investor, if such date is prior to the Termination Date.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
discounts and commissions and other fees and expenses of investment bankers and
other than brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to Section 3, including, without limitation,
all registration, listing and qualifications fees,
-12-
printers and accounting fees and the fees and disbursements of counsel for the
Company and the Investors, shall be borne by the Company; provided, however,
that the Investors shall bear the fees and out-of-pocket expenses of the one
legal counsel selected by the Investors pursuant to Section 2(b) hereof.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act, any underwriter (as defined in the Securities Act) for the
Investors, the directors, if any, of such underwriter and the officers, if any,
of such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Person"), against any losses, claims, damages, expenses or
liabilities (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred
-13-
by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (I) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (II) with respect to any preliminary prospectus
shall not inure to the benefit of any such person from whom the person asserting
any such Claim purchased the Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected in the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; and (III) shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to indemnify and hold harmless, to
the same extent and in the same manner set forth in Section 6(a), the Company,
each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and such Investor will reimburse
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably
-14-
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim as does not exceed the amount,
if any, by which (1) the net proceeds to such Investor as a result of the sale
of Registrable Securities pursuant to such Registration Statement exceed (2) the
purchase price paid by such Investor for the Registrable Securities sold by such
Investor pursuant to such Registration Statement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The Company shall pay for only
one separate legal counsel for the Investors; such legal counsel shall be
selected by the Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim relates.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not
-15-
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to
-16-
transferees or assignees of all or any portion of such securities which was
issued upon conversion of at least 1,000 Preferred Shares, or any transferee of
any portion of the Preferred Shares which is at least 1,000 Preferred Shares, or
any combination thereof, only if: (a) the Investor 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, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, and (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained herein.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a majority in interest of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or sent by certified mail, return receipt requested, properly addressed and with
proper postage pre-paid (i) if to the Company, at Palomar Medical Technologies,
Inc., 66 Cherry Hill Drive, Beverly, Massachusetts 01915, Attention: Chief
Financial Officer, (ii) if to the Initial Investor, at the address set forth
under its name in the Subscription Agreement and (iii) if to any other Investor,
at such address as such Investor shall have provided in writing to the
-17-
Company, or at such other address as each such party furnishes by notice given
in accordance with this Section 11(b), and shall be effective, when personally
delivered, upon receipt and, when so sent by certified mail, four days after
deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
agreements made and to be performed entirely within such State. In the event
that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to perform
its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in both direct and consequential damages to the Investors and the Company
agrees that, in addition to any other liability the Company may have by reason
of any such failure or delay, the Company shall be liable for all direct and
consequential damages caused by any such failure or delay.
-18-
(j) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
-19-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By /s/ Steve Georgiev
------------------------
Name: Steven Georgiev
Title: CEO
INITIAL INVESTOR:
NAME: GENESEE FUND LIMITED
By /s/ A. P. de Groot
------------------------
Name: A. P. de Groot
Title: President
-1-
EXHIBIT 1
TO
REGISTRATION
RIGHTS AGREEMENT
[Company Letterhead]
[Date]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you [(1) to transfer or re-register the certificates for the shares of Common
Stock, $.01 par value per share (the "Common Stock"), of Palomar Medical
Technologies, Inc., a Delaware corporation (the "Company"), represented by
certificate numbers _______ and _______ for an aggregate of _______ shares (the
"Outstanding Shares") of Common Stock presently registered in the name of [Name
of Investor] upon surrender of such certificate to you, notwithstanding the
legend appearing on such certificates, (2)]1 to issue shares (the "Conversion
Shares") of Common Stock to or upon the order of the holder from time to time on
conversion of the shares (the "Preferred Shares") of Series G Convertible
Preferred Stock, $.01 par value, of the Company, issued by the Company upon
surrender to you for conversion of certificates for Preferred Shares and a
properly completed and duly executed Notice of Conversion in the form enclosed
herewith and (3) to issue shares (the "Warrant Shares") of Common Stock on
exercise of the Common Stock Purchase Warrants (the "Warrants") to or upon the
order of the registered holder from time to time upon surrender to you by such
registered holder for exercise of Warrants and a properly completed and duly
executed form of subscription in the form enclosed herewith. [The transfer or
re-registration of the certificates for the Outstanding Shares by you should be
made at such time as you are requested to do so by the record holder of the
Outstanding Shares. The certificate issued upon such transfer or re-registration
should be registered in such name as requested by the holder of record of the
certificate surrendered to you and should not bear any legend which would
restrict the transfer of the shares represented thereby. In addition, you are
hereby directed to remove any stop-transfer instruction relating to the
Outstanding Shares.]* Certificates for the Conversion Shares and the Warrant
- --------
Omit if no conversions of Preferred Stock or no exercises of Warrants
have occurred before SEC registration is declared effective.
Shares should not bear any restrictive legend and should not be subject to any
stop-transfer restriction.
Contemporaneous with the delivery of this letter, the Company is
delivering to you an opinion of ____________________ as to registration of [the
Outstanding Shares,]2 the Conversion Shares and the Warrants Shares under the
Securities Act of 1933, as amended.
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:______________________________
Name:
Title:
Enclosure
cc: [Name of Investor]
________________________________
2
EXHIBIT 2
TO
REGISTRATION
RIGHTS AGREEMENT
[Date]
[Name and address
of transfer agent]
PALOMAR MEDICAL TECHNOLOGIES, INC.
SHARES OF COMMON STOCK
----------------------
Ladies and Gentlemen:
We are counsel to Palomar Medical Technologies, Inc., a Delaware
corporation (the "Company"), and we understand that [Name of Investor] (the
"Holder") has purchased from the Company an aggregate of shares (the "Preferred
Shares") of the Company's Series G Convertible Preferred Stock, $.01 par value
per share, (the "Preferred Stock") convertible into shares of Common Stock, $.01
par value (the "Common Stock"), and warrants to purchase shares of Common Stock
(the "Warrants"). The Preferred Shares and the Warrants were purchased by the
Holder pursuant to a Subscription Agreement, dated as of September , 1996,
between the Holder and the Company (the "Subscription Agreement"). Pursuant to a
Registration Rights Agreement, dated as of September , 1996, between the Company
and the Holder (the "Registration Rights Agreement") entered into in connection
with the purchase by the Holder of the Preferred Shares and the Warrants
pursuant to the Subscription Agreement, the Company agreed with the Holder,
among other things, to register for resale by the Holder shares (the "Common
Shares") of Common Stock issuable upon conversion of the Preferred Shares and on
exercise of the Warrants under the Securities Act of 1933, as amended (the
"Securities Act"), upon the terms provided in the Registration Rights Agreement.
In connection with the exercise by the Holder of its registration rights under
the Registration Rights Agreement, on __________, the Company filed a
Registration Statement on Form S-3 (File No. 333-__________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Common Shares, which names the Holder as a selling stockholder thereunder.
[If notice from SEC is available: The Company has received a notice from the SEC
that the Registration Statement has been declared effective. A
copy of such notice is attached hereto.]
Based on the foregoing, we are of the opinion that the Common Shares
have been registered under the Securities Act.
This opinion has been furnished to you in connection with the
above-referenced transaction and may not be used for any other purpose or by any
other person. We assume no responsibility to inform you of events or changes
occurring after the date hereof.
[Other introductory and scope of examination language to be inserted]
Very truly yours,
cc:[Name of Investor]
EXHIBIT 3
TO
REGISTRATION
RIGHTS AGREEMENT
INVESTOR QUESTIONNAIRE
Reference is made to the Registration Rights Agreement, dated as of
September __, 1996 (the "Agreement"). In connection with the preparation of the
registration statement which is the subject of the Agreement, please provide us
with the following information:
1. Pursuant to the "Selling Shareholder" section of the Registration
Statement, please state your organization's name exactly as it should appear in
the Registration Statement and provide the following information, as of
September __, 1996:
____________________________________
[name]
(1) (2)
Number of shares which Number of shares, if any,
are being included in the which will be owned after
Registration Statement completion of sale of
shares included in
Registration Statement
2. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates other than as disclosed in the Prospectus included in this
Registration Statement?
_______ Yes ________ No
If yes, please indicate the nature of any such relationships below:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[NAME OF INVESTOR]
By:_____________________________
Name: __________________________
Title:__________________________
EXHIBIT 10(zz)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED
UNDER THOSE LAWS OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT AN EXEMPTION FROM REGISTRATION UNDER EACH OF THOSE LAWS
IS AVAILABLE.
Right to Purchase 323,799 Shares
of Common Stock of Palomar
Medical Technologies, Inc.
PALOMAR MEDICAL TECHNOLOGIES, INC.
Common Stock Purchase Warrant
PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), hereby certifies that, for value received, Genesee Fund Limited
or registered assigns (the "Holder"), is entitled, subject to the terms set
forth below, to purchase from the Company at any time or from time to time after
the date hereof, and before 5:00 p.m., New York City time, on the Expiration
Date (as hereinafter defined), 323,799 fully paid and nonassessable shares of
Common Stock, $.01 par value per share, of the Company at a purchase price per
share equal to the Purchase Price (as hereinafter defined). The number of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided in this Warrant.
As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
(a) The term "Business Day" as used herein shall mean a day on
which the New York Stock Exchange is open for business.
(b) The term "Common Stock" includes the Company's Common
Stock, $.01 par value per share, as authorized on the date hereof, and
any other securities into which or for which the Common Stock may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c) The term "Company" shall include Palomar Medical
Technologies, Inc. and any corporation that shall succeed to or assume
the obligation of Palomar Medical
-1-
Technologies, Inc. hereunder.
(d) The term "Expiration Date" refers to September 27, 2001.
(e) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the Holder of this Warrant at any
time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities
pursuant to Section 4.
(f) The term "Purchase Price" shall mean [THE GREATER OF (I)
$12.00 OR (II) 130% OF THE CLOSING BID PRICE ON THE DAY PRIOR TO THE
CLOSING], subject to adjustment as provided in this Warrant.
1. EXERCISE OF WARRANT.
1.1 EXERCISE. (a) This Warrant may be exercised by the Holder
hereof in full or in part at any time or from time to time during the exercise
period specified in the first paragraph hereof until the Expiration Date by
surrender of this Warrant and the subscription form annexed hereto (duly
executed) by such Holder, to the Company at its principal office, accompanied by
payment, in cash or by certified or official bank check payable to the order of
the Company in the amount obtained by multiplying (a) the number of shares of
Common Stock designated by the Holder in the subscription form by (b) the
Purchase Price then in effect. On any partial exercise the Company will
forthwith issue and deliver to or upon the order of the Holder hereof a new
Warrant or Warrants of like tenor, in the name of the Holder hereof or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may
request, providing in the aggregate on the face or faces thereof for the
purchase of the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
(b) Notwithstanding any other provision of this Warrant, in no
event shall Genesee Fund Limited ("Genesee") be entitled at any time to purchase
a number of shares of Common Stock on exercise of this Warrant in excess of that
number of shares upon purchase of which the sum of (1) the number of shares of
Common Stock beneficially owned by Genesee and any person whose beneficial
ownership of shares of Common Stock would be aggregated with Genesee's
beneficial ownership of shares of Common Stock for
-2-
purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Regulation 13D-G thereunder, (each a "GFL Person" and
collectively, the "GFL Persons") (other than shares of Common Stock deemed
beneficially owned through the ownership of the unexercised portion of this
Warrant and shares of Series G Convertible Preferred Stock, $.01 par value, of
the Company beneficially owned by all GFL Persons) and (2) the number of shares
of Common Stock issuable upon exercise of the portion of this Warrant with
respect to which the determination in this sentence is being made, would result
in beneficial ownership by any GFL Person of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13D-G thereunder, except as otherwise provided in
clause (1) of the immediately preceding sentence. For purposes of the second
preceding sentence, the Company shall be entitled to rely, and shall be fully
protected in relying, on any statement or representation made by Genesee to the
Company in connection with a particular exercise of this Warrant, without any
obligation on the part of the Company to make any inquiry or investigation or to
examine its records or the records of any transfer agent for the Common Stock.
1.2 NET ISSUANCE. Notwithstanding anything to the contrary
contained in Section 1.1, in the case of any exercise on or prior to September
__, 1998 the Holder may elect to exercise this Warrant in whole or in part by
receiving shares of Common Stock equal to the net issuance value (as determined
below) of this Warrant, or any part hereof, upon surrender of this Warrant at
the principal office of the Company together with notice of such election, in
which event the Company shall issue to the Holder a number of shares of Common
Stock computed using the following formula:
X = Y (A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which
this Warrant is to be
exercised
A = the current fair market value of one share of Common
Stock calculated as of the last trading day immediately
preceding the exercise of this Warrant
-3-
B = the Purchase Price
As used herein, current fair market value of Common Stock as
of a specified date shall mean with respect to each share of Common Stock the
average of the closing bid prices of the Common Stock on the principal
securities market on which the Common Stock may at the time be traded over a
period of five Business Days consisting of the day as of which the current fair
market value of a share of Common Stock is being determined (or if such day is
not a Business Day, the Business Day next preceding such day) and the four
consecutive Business Days prior to such day. If on the date for which current
fair market value is to be determined the Common Stock is not eligible for
trading on any securities market, the current fair market value of Common Stock
shall be the highest price per share which the Company could then obtain from a
willing buyer (not a current employee or director) for shares of Common Stock
sold by the Company, from authorized but unissued shares, as determined in good
faith by the Board of Directors of the Company, unless prior to such date the
Company has become subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in which case the
current fair market value of the Common Stock shall be deemed to be the value
received by the holders of the Company's Common Stock for each share thereof
pursuant to the Company's acquisition.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon
as practicable after the exercise of this Warrant, and in any event within three
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue or stamp taxes) will cause to be issued in the name
of and delivered to the Holder hereof, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such Holder shall be entitled on such
exercise, in such denominations as may be requested by such Holder, plus, in
lieu of any fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then current fair market value (as
determined in accordance with subsection 1.2) of one full share, together with
any other stock or other securities any property (including cash, where
applicable) to which such Holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time, all the holders
of Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have
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become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such Holder
would hold on the date of such exercise if on the date hereof the Holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the case referred to in subdivisions (b) and (c) of this Section 3)
receivable by the Holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 4.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC.
In case at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition of such reorganization,
consolidation, merger, sale or conveyance, the Company shall give at least 30
days notice to the Holder of such pending transaction whereby the Holder shall
have the right to exercise this Warrant prior to any such reorganization,
consolidation, merger, sale or conveyance. Any exercise of this Warrant pursuant
to notice under this paragraph shall be conditioned upon the closing of such
reorganization, consolidation, merger, sale or conveyance which is the subject
of the notice and the exercise of this Warrant shall
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not be deemed to have occurred until immediately prior to the closing of such
transaction.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that the
Company shall (i) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock, or (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 5.
The Holder of this Warrant shall thereafter, on the exercise hereof as provided
in Section 1, be entitled to receive that number of shares of Common Stock
determined by multiplying the number of shares of Common Stock which would be
issuable on such exercise as of immediately prior to such issuance by a fraction
of which (i) the numerator is the Purchase Price in effect immediately prior to
such issuance and (ii) the denominator is the Purchase Price in effect on the
date of such exercise.
6. FURTHER ASSURANCES. The Company will take all action that
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all taxes,
liens and charges with respect to the issue thereof, on the exercise of all or
any portion of this Warrant from time to time outstanding.
7. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend on, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all of the assets of
the Company to or consolidation or merger of the
-6-
Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), or a favorable
vote of stockholders if either is required. Such notice shall be mailed at least
ten days prior to the date specified in such notice on which any such action is
to be taken or the record date, whichever is earlier.
8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF
WARRANTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of this Warrant, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of this
Warrant.
9. TRANSFER OF WARRANT. This Warrant shall inure to the
benefit of the successors to and assigns of the Holder. This Warrant and all
rights hereunder, in whole or in part, is registrable at the office or agency of
the Company referred to below by the Holder hereof in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed.
10. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to the Holder hereof), a register in which the Company shall record the
name and address of the person in
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whose name this Warrant has been issued, as well as the name and address of each
successor and prior owner of such Warrant. The Company shall be entitled to
treat the person in whose name this Warrant is so registered as the sole and
absolute owner of this Warrant for all purposes.
11. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon
the surrender hereof by the Holder hereof at the office or agency of the Company
referred to in Section 10, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for purchase hereunder, each
of such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said Holder hereof at the time of
such surrender.
12. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. WARRANT AGENT. The Company may, by written notice to the
Holder, appoint an agent having an office in the United States of America, for
the purpose of issuing Common Stock (or Other Securities) on the exercise of
this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section
11, and replacing this Warrant pursuant to Section 12, or any of the foregoing,
and thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.
14. REMEDIES. The Company stipulates that the remedies at law
of the Holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
15. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant
shall not entitle the Holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this
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Warrant, in the absence of affirmative action by the Holder hereof to purchase
Common Stock, and no mere enumeration herein of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Purchase
Price or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
16. NOTICES, ETC. All notices and other communications from
the Company to the registered Holder of this Warrant shall be mailed by first
class certified mail, postage prepaid, at such address as may have been
furnished to the Company in writing by such Holder or at the address shown for
such Holder on the register of Warrants referred to in Section 10.
17. TRANSFER RESTRICTIONS. By acceptance of this Warrant, the
Holder represents to the Company that this Warrant is being acquired for the
Holder's own account and for the purpose of investment and not with a view to,
or for sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling the Warrant or the Common Stock issuable
upon exercise of the Warrant. The Holder acknowledges and agrees that this
Warrant and, except as otherwise provided in the Registration Rights Agreement
by and between the Company and the original Holder of this Warrant (the
"Registration Rights Agreement"), the Common Stock issuable upon exercise of
this Warrant (if any) have not been (and at the time of acquisition by the
Holder, will not have been or will not be), registered under the Securities Act
or under the securities laws of any state, in reliance upon certain exemptive
provisions of such statutes. The Holder further recognizes and acknowledges that
because this Warrant and, except as provided in the Registration Rights
Agreement, the Common Stock issuable upon exercise of this Warrant (if any) are
unregistered, they may not be eligible for resale, and may only be resold in the
future pursuant to an effective registration statement under the Securities Act
and any applicable state securities laws, or pursuant to a valid exemption from
such registration requirements. Unless the shares of Common Stock issuable upon
exercise of this Warrant have theretofore been registered for resale under the
Securities Act, the Company may require, as a condition to the issuance of
Common Stock upon the exercise of this Warrant (i) in the case of an exercise in
accordance with Section 1.1 hereof, a confirmation as of the date of exercise of
the Holder's representations pursuant to this Section 17, or (ii) in the case of
an exercise in accordance with Section 1.2 hereof, an opinion of counsel
reasonably satisfactory to the Company that the shares of Common Stock to be
issued upon such exercise may be issued without registration under the
Securities Act.
-9-
18. Legend. Unless theretofore registered for resale under the
Securities Act, each certificate for shares issued upon exercise of this Warrant
shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under the Securities
Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
19. Miscellaneous. This Warrant and any terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the State of Delaware. The
headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof. The invalidity or unenforceability
of any provision hereof shall in no way affect the validity or enforceability of
any other provision.
-10-
IN WITNESS WHEREOF, Palomar Medical Technologies, Inc. has
caused this Warrant to be executed on its behalf by one of its officers
thereunto duly authorized.
Dated: September 27, 1996 PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Steve Georgiev
--------------------------
Title: CEO
-----------------------
-1-
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO PALOMAR MEDICAL TECHNOLOGIES, INC.
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
______________ shares of Common Stock, as defined in the Warrant, of Palomar
Medical Technologies, Inc. (the "Company").
2. The undersigned Holder (check one):
o (a) elects to pay the aggregate purchase price for such shares
of Common Stock (the "Exercise Shares") (i) by lawful money of
the United States or the enclosed certified or official bank
check payable in United States dollars to the order of the
Company in the amount of $___________, or (ii) by wire
transfer of United States funds to the account of the Company
in the amount of $____________, which transfer has been made
before or simultaneously with the delivery of this Form of
Subscription pursuant to the instructions of the Company;
or
o (b) elects to receive shares of Common Stock having a value
equal to the value of the Warrant calculated in accordance
with Section 1.2 of the Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other names as is specified below:
4. If this form is being submitted by Genesee Fund Limited ("GFL"), GFL
hereby represents to the Company that the exercise of the Warrant elected hereby
does not violate Section 1.1(b) of the Warrant.
Name: _____________________________________
Address: _____________________________________
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-----------------------------------
-3-
Dated:____________ ___, ____ ____________________________
(Signature must conform
to name of Holder as
specified on the face on
the Warrant)
----------------------------
----------------------------
(Address)
-4-
EXHIBIT 10(aaa)
WARRANT AGREEMENT
between
PALOMAR MEDICAL TECHNOLOGIES, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
Dated as of June 24, 1996
WARRANT AGREEMENT
AGREEMENT dated as of June 24, 1996 (the "Agreement") between
PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and
AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York corporation, as Warrant
Agent (the "Warrant Agent").
The Company proposes to issue and deliver its warrant
certificates (the "Warrant Certificates") evi dencing warrants (the "Warrants")
to purchase, under cer tain circumstances, up to an aggregate of 600,000 shares,
subject to adjustment, of its Common Stock, par value $0.01 per share ("Common
Stock"), such shares of Common Stock issuable upon exercise of the Warrants
being here inafter called the "Warrant Shares", in connection with an offering
by the Company of a minimum of 10,000 units (the "Units") and a maximum of
25,000 Units, each unit consisting of SF 1,000 principal amount of the Company's
4.5% Convertible Subordinated Debentures due 2003 (the "Debentures") and
twenty-four Warrants, each such Warrant entitling the registered owner thereof
to purchase one Warrant Share at the Swiss Franc equivalent on the date of
exercise of $16.50 per share, subject to adjustment.
In consideration of the foregoing and for the purpose of
defining the terms and provisions of the Warrants and the respective rights and
obligations there under of the Company and the record holders of the War rants
(the "Holders"), the Company and the Warrant Agent each hereby agree as follows:
1. CERTAIN DEFINITIONS
A. An "Affiliate" of the Company shall mean any Person
directly or indirectly controlling or con trolled by or under direct or indirect
common control with the Company, as the case may be. For purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "con trolled" have meanings correlative to the
foregoing.
B. "Agreement" shall have the meaning set forth in the
preamble hereof.
C. "Closing Price" for any day means the last reported sale
price of the Common Stock on Nasdaq on such day or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices on such day, in either case on Nasdaq or, if the Common Stock is not
listed or admitted to trading on Nasdaq, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the average
of the closing bid and asked prices in the over-the-counter market as furnished
by any New York Stock Exchange member or other firm se lected from time to time
by the Company for that purpose. If the Common Stock is not quoted on Nasdaq,
listed or admitted to trading on any national securities exchange, or listed in
any list of bid and asked prices in the over-the-counter market, "Closing Price"
shall mean the fair market value of the Common Stock as determined in accordance
with Section 4A(3) hereof.
D. "Commission" shall mean the Securities and Exchange
Commission.
E. "Common Stock" shall have the meaning set forth in the
preamble hereof.
F. "Company" shall have the meaning set forth in the preamble
hereof.
G. "Current Market Value" shall have the meaning set forth in
Section 4A(4).
H. "Debentures" shall mean the 4.5% Convertible Subordinated
Debentures issued by the Company.
I. "Dollar" "US$," "United States dollar" or the sign "$"
means a Dollar or other equivalent unit in such coin or currency of the United
States as at the time shall be legal tender for the payment of public and
private debts.
2
J. "Exchange Act" means the United States Securities Exchange
Act of 1934, as amended from time to time, and the rules and regulations
promulgated thereun der, and any successor statute thereto.
K. "Expiration Date" shall mean the date following the last
day on which any Debenture may be converted in to shares of Common Stock (at the
option of the Company or the Holder), or any Warrant may be exer cised for
Warrant Shares, in accordance with the respec tive terms thereof.
L. "Final Closing" means the final closing of the Offering.
M. "GAAP" means generally accepted accounting principles set
forth in the opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board or such other statements by any such
other entity as may be approved by a significant segment of the accounting
profession in the United States, and which are applicable to the circumstances
as of the date of this Warrant Agreement.
N. "Holders" shall have the meaning set forth in the preamble
hereof.
O. The "Indenture" shall mean the Indenture for the
Debentures.
P. An "Independent Financial Expert" shall mean a nationally
recognized investment banking firm which does not (and whose directors,
officers, employees and affiliates do not) have a direct or indirect finan cial
interest in the Company or any of its Affiliates, which has not been, and, at
the time it is called upon to give independent financial advice to the Company
or any of its Affiliates, is not (and none of whose directors, officers,
employees or affiliates is) a promoter, direc tor or officer of the Company or
any of its Affiliates or an underwriter with respect to any of the securities of
the Company or any of its Affiliates and which does not provide any advice or
opinions to the Company or any of its Affiliates except as an Independent
Financial Expert.
3
An Independent Financial Expert may be compensated by the Company or such
Affiliates for opinions or services it provides as an Independent Financial
Expert.
Q. "Initial Closing" means the first closing of the Offering.
R. "Nasdaq" means The Nasdaq National Market System.
S. "Noon Buying Rate" means the exchange rate for one U.S.
dollar expressed in Swiss Francs, based upon the noon buying rate in New York
City for cable transfers in Swiss Francs, as certified for customs purposes by
the Federal Reserve Bank of New York.
T. "Offering" means the offering of Units.
U. A "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
V. "Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
with respect to the terms of the offering of any of the Warrant Shares covered
by such Registration Statement and by all other amendments and supplements to
the prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus.
W. "Registrable Securities" shall mean the Warrant Shares.
X. "Registration Rights" shall mean the rights of Holders set
forth in Section 2C to have the Warrant Shares registered for issuance under an
effective registration statement.
Y. "Registration Agreement" shall mean the Registration Rights
Agreement among the Company and Holders of Warrant Shares set forth in Section
2C to have the
4
Warrant Shares registered for sale under an effective registration statement.
Z. "Registration Statement" shall mean a registration
statement on an appropriate form under the Securities Act which covers the offer
and sale by the Company of all the Registrable Securities pursuant to Rule 415
of the General Rules and Regulations under the Securities Act, or any similar
rule that may be adopted by the Commission, and all amendments and supplements
to such registration statement, including post-effective amendments, in each
case including the Prospectus con tained therein and all exhibits thereto and
all material incorporated or deemed to be incorporated by reference therein.
AA. "Securities Act" means the United States Securities Act of
1933, as amended, and any successor statute.
BB. "Security" shall have the same meaning as in Section 2(1)
of the United States Securities Act of 1933, as amended.
CC. "Subagent" shall have the meaning set forth in Section 9A.
DD. "Subsidiary" shall mean any corporation of which at least
a majority of the outstanding stock having by the terms thereof ordinary voting
power to elect a majority of the directors of such corporation, irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by the Company, or
by one or more Subsidiaries of the Company, or by the Company and one or more
Subsidiaries.
EE. "Swiss Franc" or the abbreviation "SF" means a Swiss Franc
or other equivalent unit in such coin or currency of Switzerland as at the time
shall be legal tender for the payment of public and private debts.
FF. "Taxes" means any present or future taxes, levies,
imposts, duties, fees, assessments, deductions,
5
withholdings or other charges of whatever nature, including, without limitation
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, social security, and franchise taxes, now or hereafter imposed or
levied by the United States of America or any state, local or foreign government
or by any department, agency or other political subdivision or taxing authority
thereof or therein and all interest, penalties, additions to tax and other
similar liabilities with respect thereto."
GG. "Units" shall mean the Units, each con sisting of SF 1,000
principal amount of the Company's 4.5% Convertible Subordinated Debentures and
twenty-four Warrants.
HH. "Warrant Agent" shall have the meaning set forth in the
preamble hereof or shall mean the suc cessor or successors of such Warrant Agent
appointed in accordance with the terms hereof.
II. "Warrant Certificates" shall have the meaning set forth in
the preamble hereof.
JJ. "Warrant Exercise Price" shall have the meaning set forth
in Section 3A.
KK. "Warrant Expiration Date" shall have the meaning set forth
in Section 3B(3).
LL. "Warrant Register" shall mean the register for the
Warrants of the Company maintained by the Warrant Agent.
MM. "Warrant Shares" shall have the meaning set forth in the
preamble hereof.
NN. "Warrants" shall have the meaning set forth in the
preamble hereof.
2. ORIGINAL ISSUE OF WARRANTS
A. Form of Warrant Certificates. The Warrant Certificates
shall be issued in registered form only and substantially in the form attached
hereto as Exhibit A,
6
shall be dated the date on which countersigned by the Warrant Agent and may have
such legends and endorsements typed, stamped, printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation pursuant thereto or with any rule or regulation of
any securities exchange on which the Warrants may be listed, or to conform to
usage.
B. Execution and Delivery of Warrant Certificates. Warrant
Certificates evidencing Warrants to purchase initially an aggregate of up to
600,000 Warrant Shares may be executed, on or after the date of this Agreement,
by the Company and delivered to the Warrant Agent for countersignature, and the
Warrant Agent shall thereupon countersign and deliver such Warrant Certificates
upon the order and at the direction of the Company to the purchasers of the
Units on the date of issuance. The Warrant Agent is hereby authorized to
countersign and deliver Warrant Certificates as required by this Section 2 or by
Section 3B, Section 5 or Section 7. The Warrant Certificates shall be executed
on behalf of the Company by the Chairman of the Board, President or Vice
President of such companies, either manually or by facsimile signature printed
thereon. The Warrant Certif icates shall be countersigned either manually or by
fac simile signature printed thereon by the Warrant Agent and shall not be valid
for any purpose unless so counter signed. In case any officer of the Company
whose signa ture shall have been placed upon any of the Warrant Certificates
shall cease to be such officer of the Compa ny before countersignature by the
Warrant Agent and issue and delivery thereof, such warrant Certificates may,
nevertheless, be countersigned by the Warrant Agent and issued and delivered
with the same force and effect as though such person had not ceased to be such
officer of the Company.
C. Exchange, Registration, and Transfer of Warrants and
Warrant Shares. The Warrants are not separately transferable. The Debentures,
Warrants, and Units have not been registered under the Securities Act, nor
qualified for sale under any other securities laws, and therefore are subject to
certain restrictions on trans fer. The Company will enter into a registration
rights
7
agreement with the purchasers of the Units (the "Registration Agreement")
pursuant to which the Company will, at the Company's expense, for the benefit of
the holders of the Warrants, and with respect to the Warrant Shares issuable
upon exercise of the Warrants (the "Registrable Securities"), (i) file with the
Commission within 60 days after the Initial Closing, a Registration Statement
covering the issuance of the Registrable Securities, (ii) use its best efforts
to cause the Registration Statement to be declared effective under the
Securities Act as soon as possible thereafter, and (iii) use its best efforts to
keep effective the Registration Statement until the Expiration Date. The Company
will provide to each holder of Registrable Securities copies of the Prospectus
which is a part of the Registration Statement and notify each Holder when the
Registration Statement has become effec tive. The purpose of the Registration
Statement shall be to enable each Holder which (i) receives Warrant Shares as
the result of the exercise of Warrants and (ii) is not an Affiliate of the
Company and is not engaging in a distribution of securities (within the meaning
of the Securities Act) to trade such Warrant Shares from and after the date of
issuance thereof without any limita tions or restrictions under the Securities
Act. The Company will agree in the Registration Agreement to use its best
efforts to cause the Warrant Shares issuable upon exercise of the Warrants to be
listed on Nasdaq upon effectiveness of the Registration Statement.
The Warrants are transferable, only as a Unit along with
transfer of the Debentures, by the Holder thereof, in whole or in part, on the
Warrant Register maintained by the Warrant Agent for such purpose, upon
surrender of the Warrants and accompanied by transfer of the Debentures in the
Unit, by the Holder or his or her attorney duly authorized in writing. Upon any
partial transfer the Company will issue and deliver to such Holder a new Warrant
Certificate or Certificates with respect to any portion not so transferred.
3. WARRANT EXERCISE PRICE; EXERCISE OF WARRANTS; EFFECT OF REDEMPTION OF
DEBENTURES
A. Warrant Exercise Price. Each Warrant Certificate shall,
when countersigned by the Warrant
8
Agent, entitle the Holder thereof, subject to the provisions of this Agreement,
to purchase one share of Common Stock for each Warrant represented thereby, in
each case at a purchase price (the "Warrant Exercise Price") of the Swiss Franc
equivalent on the date of exercise of $16.50 per share, based on the Noon Buying
Rate in effect on the date of exercise, subject to adjustment as herein
provided.
B. Exercise of Warrants. (1) Generally. The Warrants are
exercisable at any time during the period commencing 120 days following the
Initial Closing and ending on the Warrant Expiration Date. Warrants may only be
exercised in lots of 24 Warrants or integral multiples thereof; and each 24
Warrants to be exercised must be accompanied by SF 1,000 principal amount of
Debentures, presented for conversion or redemption or repurchase in its
entirety, as the case may be, pursuant to the terms of the Debentures. The
Warrants are not separately transferable.
(1) Method of Exercise; Payment of Warrant Exercise Price. In
order to exercise all or any of the Warrants represented by a Warrant
Certificate, the Holder thereof must surrender for exercise, if then permitted
pursuant to the terms hereof, the Warrant Certificate to the Warrant Agent, with
the exercise form on the reverse of or attached to the Warrant Certificate duly
executed, together with any required payment in full of the Warrant Exercise
Price then in effect for each Warrant Share or other securities or property
(including any money) to which the Holder is entitled as to which a Warrant is
submitted for exercise, any such payment of the Warrant Exercise Price to be in
cash, by check or by wire trans fer, payable to the order of the Company. All
funds re ceived upon the tender of Warrants shall be delivered or deposited by
the Warrant Agent as instructed in writing by the Company, in the case of
Warrants exercised for securities issued by the Company, upon exercise thereof.
If fewer than all the Warrants represented by a Warrant
Certificate are surrendered, such Warrant Certificate shall be surrendered and a
new Warrant Certificate of the same tenor and for the number of Warrants which
were not surrendered shall be executed by the Company.
9
The Warrant Agent shall countersign the new Warrant Certificate, register it, in
such name or names as may be directed in writing by the Holder and deliver the
new Warrant Certificate to the Person or Persons entitled to receive the same.
Upon surrender of a Warrant Certificate in conformity with the
foregoing provisions, the Warrant Agent shall thereupon promptly notify the
Company, and the Company shall transfer to the Holder of such Warrant
Certificate appropriate evidence of ownership of any Warrant Shares or other
securities or property (including any money) to which the Holder is entitled,
registered or otherwise placed in, or payable to the order of, such name or
names as may be directed in writing by the Hold er, and shall deliver such
evidence of ownership and any other securities or property (including any money)
to the Person or Persons entitled to receive the same, together with an amount
in cash in lieu of any fraction of a share as provided in Section 4E.
The Company agrees that the Warrant Shares so purchased shall
be deemed to be issued to the registered Holder thereof on the date on which
Warrants shall have been surrendered and payment made for such Warrant Shares as
aforesaid; provided however that no such surrender and payment on any date when
the stock transfer books of the Company shall be closed shall be effective to
constitute the person entitled to receive such Warrant Shares as the record
holder thereof on such date, but such surrender and payment shall be effective
to constitute the person entitled to receive such Warrant Shares as the record
holder thereof for all purposes immediately after the opening of business on the
next succeeding day on which such stock transfer books are open.
(2) Expiration of Warrants. All outstanding Warrants will
terminate and become void (the "Warrant Expiration Date") on the earlier of (i)
5:00 p.m., New York City time, seven years from the Initial Closing or (ii) upon
conversion, redemption, or repayment of the Debentures, in which case the
Warrants attached to such Debentures will expire upon such conversion,
redemption, or repayment unless then exercised. In the event the aforesaid
expiration dates of the Warrants fall on a
10
Saturday, Sunday, or on a legal holiday on which the New York Stock Exchange is
closed, then the Warrants shall expire at 5:00 p.m., New York City time, on the
next succeeding business date.
A holder of Debentures desiring to convert Debentures will not
be required to exercise the attached Warrants. However, if the Warrants are
unexercised, they will expire upon such conversion by the holder of Deben tures
or upon conversion or redemption at the option of the Company. Holders of
Debentures whose Debentures are redeemed through operation of the sinking fund
pertaining thereto will not be required to exercise the Warrants attached to
such Debentures. However, any unexercised Warrants will expire upon such payment
of the Debentures. Any tender of Debentures for repurchase, pursuant to the
terms of the Debentures, will be accompanied by the at tached Warrants, which
may either be exercised or, upon failure of such exercise, will expire upon such
repur chase. In addition, during the period beginning 90 days after the Initial
Closing and ending 119 days following the Initial Closing, any conversion of
Debentures will necessarily result in the expiration of the Warrants attached
thereto.
C. Money and Other Property Deposited with the Warrant Agent.
Any moneys, securities or other property which at any time shall be deposited by
the Company, or on its behalf with the Warrant Agent pursuant to this Agreement
shall be, and are hereby, assigned, transferred and set over to the Warrant
Agent in trust for the purpose for which such moneys, securities or other
property shall have been deposited; but such mon eys, securities or other
property need not be segregated from other funds, securities or other property
held by the Warrant Agent except to the extent required by law. Any money
deposited with the Warrant Agent for payment and distribution to the Holders
that remains unclaimed for two years after the Warrant Expiration Date shall be
paid to or upon the order of the Company, as the case may be, upon its request
therefor.
D. Payment of Taxes. All Warrant Shares or other securities
issuable by the Company upon the exer cise of Warrants shall be validly issued,
fully paid and
11
non-assessable, and the Company shall pay all taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
the issuance or delivery thereof or of other securities deliverable upon
exercise of Warrants. The Company shall not be required, however, to pay any tax
or other charge imposed in connection with any transfer involved in the issue of
any certificates for Warrant Shares or other securities issuable upon exercise
of the Warrants or payment of cash to any Person other than the Holder of a
Warrant Certificate surrendered upon the exercise or purchase of a Warrant, and
in case of such transfer or payment, the Warrant Agent and the Company shall not
be required to issue any stock certificate or pay any cash until such tax or
charge has been paid or it has been established to the Warrant Agent's and the
Company's satisfaction that no such tax or other charge is due.
E. Reorganizations, Reclassifications, Etc. Notwithstanding
anything herein to the contrary, in the case of any capital reorganization or
any reclassifica tion of the Common Stock, or in the case of the consoli dation
or merger of the Company with or into any other corporation or in case of any
sale or transfer of all or substantially all of the assets of the Company as may
be permitted by the provisions hereof, the Holder of each Warrant then
outstanding shall have the right thereafter to exercise such Warrant into the
kind and amount of shares of stock and other securities and property receiv able
upon such reorganization, reclassification, consoli dation, merger, sale or
transfer by a holder of the number of shares of Common Stock of the Company into
which such Warrant might have been exercised immediately prior to such
reorganization, reclassification, consoli dation, merger, sale or transfer; and,
in any such case, appropriate adjustment (as determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions of this Agreement (in cluding provisions with regard to the
adjustment of the Warrant Exercise Price) in order that the rights and interests
of the Holders thereafter shall be as nearly equivalent as may be practicable to
the rights and inter ests provided for in this Section 3.
12
F. Surrender of Certificates. Any Warrant Certificate
surrendered for exercise or purchase shall, if surrendered to the Company be
delivered to the Warrant Agent, and all Warrant Certificates surrendered or so
delivered to any Warrant Agent shall be promptly cancel led by such Warrant
Agent and shall not be reissued by the Company. The Warrant Agent shall destroy
such can celled Warrant Certificates and deliver its certificate of destruction
to the Company unless the Company shall otherwise direct.
4. ADJUSTMENTS ADJUSTMENTS
A. Adjustments Adjustments. The Warrant Exercise Price and the
number of shares of Common Stock issuable upon exercise of each Warrant shall be
subject to adjustment from time to time as follows:
13
(1) Stock Dividends and Distributions; Stock Splits; Reverse
Stock Splits; Reclassifications. In case the Company shall (i) pay a dividend on
its capital stock in shares of any class or series of Common Stock, (ii) make a
distribution in shares of any class of Common Stock, (iii) subdivide its
outstanding shares of any class or series of Common Stock, (iv) combine its
outstanding shares of any class or series of Common Stock into a smaller number
of shares of any class or series of Common Stock, or (v) issue any shares of its
capital stock in a reclassification of the Common Stock (including any such
reclassification in connection with a merger, consolidation or other business
combination in which the Company is the continuing corporation) the number of
shares of Common Stock purchasable upon exercise of each Warrant immediately
prior to the record date for such dividend or the effective date of such
subdivision or combination shall be adjusted so that the Holder of each Warrant
shall thereafter be entitled to receive the kind and number of shares of Common
Stock or other securities of the Company, as the case may be, that such Holder
would have owned or have been entitled to receive after the happening of any of
the events described above, had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this Section 4A(l) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(2) Distribution of Debt, Assets, Subscription Rights or
Convertible Securities. In case the Company shall fix a record date for the
making of a distribution, to all holders of shares of any class or series of
Common Stock, of evidences of indebtedness of the Company, assets (other than a
regularly scheduled cash dividend) or rights, options, warrants or convertible
or exchangeable securities containing the right to subscribe for or purchase
shares of any class or series of Common Stock, then in each case the number of
shares of Common Stock purchasable after such record date upon the exercise of
each Warrant shall be determined by multiplying the number of shares of Common
Stock purchasable upon the exercise of such Warrant immediately prior to such
record
14
date by a fraction, the numerator of which shall be the then Current Market
Value per share of Common Stock on the record date for such distribution and the
denominator of which shall be the then Current Market Value per share of Common
Stock on the record date for such distribution less the then fair value (as
determined by the Board of Directors of the Company, acting in good faith) of
the portion of such assets or evidences of indebtedness so distributed or of
such subscription rights, options or warrants, or of such convertible or
exchangeable securities applicable to one share of such class or series of
Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for the determination of stockholders entitled to receive such
distribution.
(3) Current Market Value. For the purposes of any computation
under this Section 4, the Current Market Value per share of Common Stock or of
any other security (herein collectively referred to as a "security") at the date
herein specified shall be (1) if the Company does not have a class of equity
securities registered under the Exchange Act, the value of the security (a)
determined in good faith in the most recently completed arm's-length transaction
between the Company and an unaffiliated third party in which such determination
is necessary and the closing of which occurs on such date or shall have occurred
within the six months preceding such date, (b) if no such transaction shall have
occurred on such date or within such six-month period, as most recently
determined as of a date within the six months preceding such date by an
Independent Financial Expert in accordance with the criteria set out below (in
the event of more than one such determination, the determination for the later
date shall be used) or (c) if no such determination shall have been made within
such six-month period, determined as of such date by an Independent Financial
Expert in accordance with the criteria for such valuation set out below, (2) if
the Company does have a class of equity securities registered under the Exchange
Act, deemed to be the average of the daily market prices of such security for 20
consecutive business days during the period commencing 30 business days before
such date or, if the Company has had a class of equity securities
15
registered under the Exchange Act for less than 30 consecutive business days
before such date, then the average of the daily market price for all of the
business days before such date for which daily market prices are available.
The market price for each such business day shall be: (A) in
the case of a security listed or admitted to trading on any securities exchange,
the last reported sale price on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day, (B) in the case of
a security not then listed or admitted to trading on any securities exchange,
the last reported sale price on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day, as reported by a
reputable quotation source designated by the Company, (C) in the case of a
security not then listed or admitted to trading on any securities exchange and
as to which no such reported sale price or bid and asked prices are available,
the average of the reported high bid and low asked prices on such day, as
reported by a reputable quotation service, or a newspaper of general circulation
in the Borough of Manhattan, City and State of New York, customarily published
on each business day, designated by the Company, or if there shall be no bid and
asked prices on such day, the average of the high bid and low asked prices, as
so reported, on the most recent day (not more than 30 days prior to the date in
question) for which prices have been so reported, and (D) if there are no bid
and asked prices reported during the 30 days prior to the date in question, the
Current Market Value of the security shall be determined as if the Company did
not have a class of equity securities registered under the Exchange Act.
Where so required herein, the value of the Common Stock shall
be determined by an "Independent Financial Expert," to be selected by the Board
of Directors of the Company and retained on customary terms and conditions,
using one or more valuation methods that the Independent Financial Expert, in
its best professional judgment, determines to be most appropriate but without
giving effect to the discount for any lack of liquidity of the Common Stock or
to the fact that the Company may
16
not have any class of equity securities registered under the Exchange Act. The
Company shall cause the Independent Financial Expert to deliver to the Company,
with a copy to the Warrant Agent, a value report (the "Value Report") stating
the methods of valuation considered or used and the value of said Common Stock
as of the date of the Value Report, and containing a statement as to the nature
and scope of the examination or investigation upon which the determination of
value was made. The Independent Financial Expert shall consult with management
of the Company in order to allow such management to comment upon such
Independent Financial Expert's valuation. The Indepen dent Financial Expert may
revise its Value Report based on such consultation, provided that the final
Value Report shall reflect both the initial valuation and the determination to
revise it. Any such Value Report or revision thereof shall be deemed final
unless revised within five days after delivery to the Company, with a copy to
the Warrant Agent. The Independent Financial Expert shall not be liable to the
Company or the Holders for the contents of the Value Report if the Independent
Financial Expert shall have prepared such Value Report in good faith. The
Warrant Agent shall have no other duty with respect to the Value Report except
to keep it on file and available for inspection by the Holders.
(4) Adjustment of Warrant Exercise Price. Whenever the number
of shares of Common Stock purchasable upon the exercise of each Warrant is
adjusted, as herein provided, the Warrant Exercise Price for each share of
Common Stock payable upon exercise of such Warrant shall be adjusted by
multiplying such Warrant Exercise Price immediately prior to such adjustment by
a fraction, the numerator of which shall be the number of shares purchasable
upon the exercise of each Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of shares so purchasable immediately
thereafter.
(5) Expiration of Rights, Options and Conversion Privileges.
Upon the expiration of any rights, options, warrants or conversion or exchange
privileges, if any thereof shall not have been exercised, the Warrant Exercise
Price and the number of shares of Common Stock purchasable upon the exercise of
each Warrant shall, upon
17
such expiration, be readjusted and shall thereafter, upon any future exercise,
be such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (A) the only
shares of any class or series of Common Stock so issued were the shares of such
class or series of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or exchange rights and
(B) such shares of such class or series of Common Stock, if any, were issued or
sold for the consideration actually received by the Company, upon such exercise
plus the consideration, if any, actually received by the Company for issuance,
sale or grant of all such rights, options, warrants or conversion or exchange
rights whether or not exercised; provided, further, that no such readjustment
shall have the effect of increasing the Warrant Exercise Price by an amount, or
decreasing the number of shares purchasable upon exercisable of each Warrant by
a number, in excess of the amount or number of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options, warrants or
conversion or exchange rights.
(6) De Minimis Adjustments. No adjustment in the number of
shares of Common Stock purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of at least one percent (1%) in
the number of shares of Common Stock purchasable upon an exercise of each
Warrant; provided however, that any adjustments which by reason of this Section
4A(6) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations shall be made to the
nearest one-thousandth of a share.
B. Notice of Adjustment. Whenever the number of shares of
Common Stock or other stock or property purchasable upon the exercise of each
Warrant or the Warrant Exercise Price is adjusted, as herein provided, the
Company shall cause the Warrant Agent promptly to mail by first class mail,
postage prepaid, to each Holder notice of such adjustment or adjustments and
shall deliver to the Warrant Agent a certificate of a firm of independent public
accountants selected by the Board of Directors of the Company, in the case of an
adjustment
18
affecting the Common Stock, setting forth the number of shares of Common Stock
or other stock or property purchasable upon the exercise of each Warrant and the
Warrant Exercise Price after such adjustment, setting forth a brief statement of
the facts requiring such adjustment and setting forth the computation by which
such adjustment was made. The Warrant Agent shall be entitled to rely on such
certificate and shall be under no duty or responsibility with respect to any
such certificate, except to exhibit the same from time to time, to any Holder
desiring an inspection thereof during reasonable business hours. The Warrant
Agent shall not at any time be under any duty or responsibility to any Holders
to determine whether any facts exist that may require any adjustment of the
Warrant Exercise Price or the number of shares of Common Stock or other stock or
property purchasable on exercise of the Warrants, or with respect to the nature
or extent of any such adjustment when made, or with respect to the method
employed in making such adjustment or the validity or value (or the kind or
amount) of any shares of Common Stock or other stock or property which may be
purchasable on exercise of the Warrants. The Warrant Agent shall not be
responsible for any failure of the Company to make any cash payment or to issue,
transfer or deliver any shares of Common Stock or stock certificates or other
common stock or properties upon the exercise of any warrant.
C. Statement on Warrant Certificates. Irrespective of any
adjustment in the Warrant Exercise Price or the number or kind of shares
purchasable upon the exercise of the Warrants, Warrant Certificates theretofore
or thereafter issued may continue to express the same price and number and kind
of shares as are stated in the Warrant Certificates initially issuable pursuant
to this Agreement.
D. Notice to Holders of Dissolution, Liquidation or Winding
Up. In case at any time after the date hereof there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company, then th
Company shall cause to be mailed (by first-class mail, postage prepaid) to each
Holder of an outstanding warrant at such Holder's address as shown on the
Warrant Register, at the earliest practicable time (and, in any event,
19
not less than 30 calendar days before any date set for definitive action) notice
of the date on which such dissolution, liquidation or winding up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of the shares of record of Common Stock or other securities issuable
upon exercise of the Warrants shall be entitled to exchange their shares for
securities, money or other property deliverable upon such dissolution,
liquidation or winding up, as the case may be, on which date each Holder of
outstanding warrants shall be entitled to receive upon surrender of the Warrants
the cash or other property, less the Warrant Exercise Price for such Warrants
then in effect, that such Holder would have been entitled to receive had the
Warrants been exercisable and exercised immediately prior to such dissolution,
liquidation or winding up and any and all rights of a Holder to exercise the
Warrants shall terminate in their entirety. In case of any such voluntary or
involuntary dissolution, liquidation or winding up of the Company), the Company
shall deposit with the Warrant Agent any funds or other property which the
Holders are entitled to receive under this Agreement. After receipt of such
deposit from the Company and after receipt of surrendered Warrants, the Warrant
Agent shall make payment in appropriate amount to such Person or Persons as it
may be directed in writing by the Holder surrendering such Warrants.
E. Fractional Interests. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full shares of Common Stock or other securities which
shall be issuable upon such exercise thereof shall be computed on the basis of
the aggregate number of shares of Common Stock or other securities purchasable
on exercise of the Warrants so presented. If any fraction of a share of Common
Stock would, except for the provisions of this Section 4E, be issuable on the
exercise of any Warrant (or specified portion thereof), the Company shall pay an
amount in cash calculated by it to be equal to the then Current Market Value per
share of Common Stock multiplied by such fraction computed to the nearest
one-hundredth of a Swiss Franc.
20
F. Other Notices. In the event:
(1) The Company shall declare any dividend on the Common Stock
payable in shares of capital stock of the Company, cash or other property; or
(2) The Company shall authorize the issue of any options,
warrants or rights pro rata to all holders of Common Stock entitling them to
subscribe for or purchase any shares of stock of the Company or to receive any
other rights; or
(3) The Company shall authorize the distribution pro rata to
all holders of Common Stock of a cash dividend payable otherwise than out of
earnings or surplus legally available therefor under the laws of the State of
Delaware, shares of its capital stock (other than Common Stock), stock or other
securities of other persons, evidences of indebtedness issued by the Company or
other persons, assets (excluding regularly scheduled cash dividends) or options
or rights (excluding options to purchase and rights to subscribe for Common
Stock or other securities of the Company convertible into or exchangeable for
Common Stock); or
(4) There shall occur any reclassification of the Common Stock
or any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassifi cation of the Common
Stock) or a sale or transfer to another corporation of all or substantially all
of the properties of the Company;
then the Company shall cause to be filed with the Warrant Agent pursuant hereto
and shall cause to be delivered promptly to the holders at their addresses as
they shall appear in the Warrant Register, at least 20 days (or 10 in any case
specified in clause (a) or (b) above) prior to the applicable date hereinafter
specified, a notice stating (i) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights, 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
21
dividend, distribution or rights are to be determined, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective, 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 or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up.
22
5. LOSS OR MUTILATION
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them (in the exercise of reasonable discretion) of the ownership
of and the loss, theft, destruction or mutilation of any Warrant Certificate and
of indemnity satisfactory to them (in the exer cise of reasonable discretion),
and (in the case of mutilation) upon surrender and cancellation thereof, then,
in the absence of notice to the Company or the Warrant Agent that the warrants
represented thereby have been acquired by a bona fide purchaser, the Warrant
Agent shall countersign and deliver to the registered Holder of the lost,
stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu
thereof, a new Warrant Certificate of the same tenor and for a like aggregate
number of Warrants. Upon the issuance of any new Warrant Certificate under this
Section 5, the Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
other expenses (including the fees and expenses of the Warrant Agent) in
connection herewith. Every new Warrant Certificate executed and delivered
pursuant to this Section 5 in lieu of any lost, stolen or destroyed Warrant
Certificate shall constitute a contractual obligation of the Company, whether or
not the allegedly lost, stolen or destroyed Warrant Certificate shall be at any
time enforceable by anyone, and shall be entitled to the benefits of this
Agreement equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder. The provisions of this
Section 5 are exclusive and shall preclude (to the extent lawful) all other
rights or remedies with respect to the replacement of mutilated, lost, stolen,
or destroyed Warrant Certificates.
6. RESERVATION AND AUTHORIZATION OF COMMON STOCK
The Company shall at all times reserve and keep
available for issue upon the exercise of Warrants such number of its authorized
but unissued shares of Common Stock or other securities of the Company
deliverable upon exercise of Warrants as will be sufficient to permit the
exercise in full of all outstanding Warrants, and will
23
cause appropriate evidence of ownership of such Common Stock or other securities
of the Company to be delivered to the Warrant Agent upon request for delivery
upon the exercise of Warrants, and all shares of Common Stock will, at all times
that Warrants are exercisable, be duly approved for listing subject to official
notice of issuance on Nasdaq or such other securities exchange on which the
Common Stock is then listed.
7. WARRANT REGISTER
The Warrant Certificates shall be issued in registered form
only. The Company shall cause to be kept at the office of the Warrant Agent a
Warrant Register in which, subject to such reasonable regulations as they may
prescribe, the Company shall provide for the registra tion of Warrant
Certificates and transfers or exchanges of Warrant Certificates as herein
provided, subject to Section 2C.
At the option of the Holder, Warrant Certificates may be
exchanged at such office or the office of any Subagent, and upon payment of the
charges hereinafter provided. Whenever any Warrant Certificates are so
surrendered for exchange, the Company shall execute, and the Warrant Agent shall
countersign and deliver, the Warrant Certificates that the Holder making the
exchange is entitled to receive.
All Warrant Certificates issued upon any registration of
transfer or exchange of Warrant Certificates shall be the valid obligations of
the Company, evidencing the same obligations, and entitled to the same benefits
under this Agreement, as the Warrant Certificates surren dered for such
registration of transfer or exchange.
Every Warrant Certificate surrendered for registration of
transfer or exchange shall (if so required by the Company or the Warrant Agent)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Warrant Agent duly executed by the Holder
thereof or his or her attorney duly authorized in writing.
24
No charge shall be made for any registration of transfer or
exchange of Warrant Certificates.
Any Warrant Certificate when duly endorsed in blank shall be
deemed negotiable, and when a Warrant Certificate shall have been so endorsed,
the Holder thereof may be treated by the Company, the Warrant Agent and all
other persons dealing therewith as the absolute owner thereof for any purpose
and as the person entitled to exercise the rights represented thereby, or to the
transfer thereof on the Warrant Register, any notice to the contrary
notwithstanding; but until such transfer on the Warrant Register, the Company,
and the Warrant Agent may treat the registered Holder thereof as the owner for
all purposes.
8. WARRANT HOLDERS
A. No Voting or Dividend Rights. Prior to the exercise of the
Warrants, no Holder of a Warrant Certificate, as such, shall be entitled to any
rights of a stockholder of the Company, including, without limitation, the right
to vote, to recei dividends or other distributions, to exercise any preemptive
right or to receive any notice of meetings of stockholders or any notice of any
proceedings of the Company except as may be specifically provided for herein.
B. Right of Action. All rights of action in respect of this
Agreement are vested in the Holders of the Warrants, and any Holder of any
Warrant, without the consent of the Warrant Agent or the Holder of any other
Warrant, may, in such Holder's own behalf and for such Holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, or otherwise in respect of, such Holder's right
to exercise, exchange or tender for purchase such Holder's Warrants in the
manner provided in this Agree ment.
9. CONCERNING THE WARRANT AGENT
A. Nature of Duties and Responsibilities Assumed. The Company
hereby appoints the Warrant Agent to act as agent of the Company as set forth in
this Agree
25
ment. The Warrant Agent hereby accepts the appointment as agent of th Company
and agrees to perform that agency upon the terms and conditions herein set
forth, by all of which the Company and the Holders of Warrants, by their
acceptance thereof, shall be bound. It shall not by countersigning Warrant
Certificates or by any other act hereunder be deemed to make any representations
as to validity or authorization of the Warrants or the Warrant Certificates
(except as to its countersignature thereon) or of any securities or other
property delivered upon exercise or tender of any warrant, or as to the accuracy
of the computation of the Warrant Exercise Price or the number or kind or amount
of stock or other securities or other property deliverable upon exercise of any
warrant, the independence of any Independent Financial Expert or the correctness
of any of the representations of the Company made in such certificates that the
Warrant Agent receives. The Warrant Agent shall not have any duty to calculate
or determine any adjustments with respect either to the Warrant Exercise Price
or the kind and amount of shares or other securities or any property receivable
by Holders upon the exercise or tender of Warrants required from time to time,
and the Warrant Agent shall have no duty or responsibility in determining the
accuracy or correctness of such calculation. The Warrant Agent shall not (i) be
liable for any recital or statement of fact contained herein or in the warrant
Certificates or for any action taken, suffered or omitted by it in good faith on
the belief that any Warrant Certificate or any other documents or any signatures
are genuine or properly authorized, (ii) be responsible for any failure on the
part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in the Warrant Certificates, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
gross negligence or willful misconduct. The Warrant Agent is hereby authorized
to accept instructions with respect to the performance of its duties hereunder
from the President, any Vice President, Treasurer or the Secretary of the
Company and to apply to any such officer for instructions (which instructions
will be promptly given in writing when requested), and the Warrant Agent shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with the instructions of any such officer, but
26
in its discretion the Warrant Agent may in lieu thereof accept other evidence of
such or may require such further or additional evidence as it may deem
reasonable.
The Warrant Agent may execute and exercise any of the rights
and powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys, agents or employees, provided reasonable care has been
exercised in the selection and in the continued employment of any such attorney,
agent or employee. The Warrant Agent shall not be under any obligation or duty
to institute, appear in or defend any action, suit or legal proceeding in
respect hereof, unless first indemnified to its satisfaction, but this provision
shall not affect the power of the Warrant Agent to take such action as the
Warrant Agent may consider proper, whether with or without such indemnity. The
Warrant Agent shall promptly notify the Company in writing of any claim made or
action, suit or proceeding instituted against it arising out of or in connection
with this Agreement.
The Company will perform, execute, acknowledge and deliver or
cause to be performed, executed, acknowledged and delivered all such further
act, instruments and assurances as may reasonably be required by the Warrant
Agent in order to enable it to carry out or perform its duties under this
Agreement.
The Warrant Agent shall act solely as agent of the Company
hereunder. The Warrant Agent shall not be liable except for the failure to
perform such duties as are specifically set forth herein, and no implied
covenants or obligations shall be read into this Agreement against the Warrant
Agent whose duties and obligations shall be determined solely by the express
provisions hereof.
The Company shall cause to be maintained an office or agency
in one or more European cities, which shall include Luxembourg if required by
applicable law or regulation, where the Warrants may be presented for
registration of transfer or exercise (each, a "Subagent").
27
Any Subagent has the power and authority granted to and
conferred upon it herein and in the Warrants and such further powers and
authority, acceptable to it, as the Company may hereafter respectively grant to
or confer upon it. The Company reserves the right to vary or terminate the
appointment of any Subagent, or to appoint additional or other subagents.
The Company shall enter into an appropriate agency agreement
with any Subagent not a party to this Warrant Agreement. Such agreement shall
implement the provisions of this Warrant Agreement that relate to such Subagent.
The Company shall notify the Warrant Agent of the name and address of any
Subagent not a party to this Warrant Agreement.
The Company has initially appointed Banca Commerciale Lugano
as sole Subagent for the purposes set forth in this Warrant Agreement. Any
Subagent in acting hereunder shall be subject at all times and in all respects
to the directions of the Warrant Agent, subject to and in accordance with
applicable laws, and shall be responsible solely to the Warrant Agent.
B. Right to Consult Counsel. The Warrant Agent may at any time
consult with legal counsel satisfactory to it (who may be legal counsel for the
Company), and the Warrant Agent shall incur no liability or responsibility to
the Company or to any Holder for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
C. Compensation and Reimbursement. The Company agrees to pay
the Warrant Agent from time to time compensation for its services hereunder as
its Warrant Agent at its rates as in effect from time to time, and to reimburse
it for reasonable expenses and counsel fees incurred in connection with the
execution and administration of this Agreement, and further agrees to indemnify
the Warrant Agent and save it harmless against any losses, liabilities or
expenses arising out of or in connection with the acceptance and administration
of this Agreement, including the costs and expenses of investigating or
defending any claim of such liability, except that the Company shall have no
liability hereunder to the
28
extent that any such loss, liability or expense results from the Warrant Agent's
own gross negligence or willful misconduct.
D. Warrant Agent May Hold Company Securities. The Warrant
Agent and any stockholder, director, officer or employee of the Warrant Agent
may buy, sell or deal in any of the Warrants or other securities of the Company
or its respective Affiliates or become pecuniarily interested in transactions in
which the Company or its respective Affiliates may be interested, or contract
with or lend money to the Company or its respective Affiliates or otherwise act
as fully and freely as though it were not the Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
E. Resignation and Removal; Appointment of Successor. (1) The
Warrant Agent may resign its duties and be discharged from all further duties
and liability hereunder (except liability arising as a result of the Warrant
Agent's own gross negligence or willful misconduct) after giving one month's
prior written notice to the Company. The Company may remove the Warrant Agent
upon one month's written notice, and the Warrant Agent shall thereupon in like
manner be discharged from all further duties and liabilities hereunder, except
as aforesaid. The Warrant Agent shall, at the expense of the Company, cause to
be mailed (by first class mail, postage prepaid) to each Holder of a Warrant at
his or her last address as shown on the Warrant Register a copy of said notice
of resignation or notice of removal, as the case may be. Upon such resignation
or removal, the Company shall appoint in writing a new warrant agent. If the
Company shall fail to make such appointment within a period of 30 calendar days
after it has been notified in writing of such resignation by the resigning
Warrant Agent or after such removal, then the Holder of any Warrant may apply to
any court of competent jurisdiction for the appointment of a new warrant agent.
Any new warrant agent, whether appointed by the Company or by such a court,
shall be a corporation in good standing in the jurisdiction of its organization
and all other jurisdictions in which it conducts business and having a combined
capital and surplus of not less than $1,000,000.
29
The combined capital and surplus of any such new warrant agent shall be deemed
to be the combined capital and surplus as set forth in the most recent annual
report of its condition published by such warrant agent prior to its
appointment, provided that such reports are published at least annually pursuant
to law or to the requirements of a Federal or state supervising or examining
authority. After acceptance in writing of such appointment by the new warrant
agent, it shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act of deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning or
removed Warrant Agent. Not later than the effective date of any such
appointment, the Company shall file notice thereof with the resigning or removed
Warrant Agent. Failure to give any notice provided for in this Section 9E(l),
however, or any defect therein, shall not affect the legality or validity of the
resignation of the Warrant Agent or the appointment of a new warrant agent, as
the case may be.
(1) Any corporation into which the Warrant Agent or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party, shall be a
successor Warrant Agent under this Agreement without any further act, provided
that such corporation would be eligible for appointment as successor to the
Warrant Agent under the provisions of Section 9E(l). 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 each Holder of a Warrant at
such Holder's last address as shown on the Warrant Register.
10. REPORTS TO HOLDERS
The Company will file with the Warrant Agent within 15 days
after the date by which the Company is required to file the same with the
Commission (including any extension of time to which the Company is entitled),
30
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as said Commission may from
time to time by rules and regulations prescribe) which the Company may be
required to file with said Commission pursuant to Section 13 or Section 15(d) of
the Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of such sections, then to file with the
Warrant Agent and said Commission, in accordance with rules and regulations
prescribed from time to time by said Commission, such of the supplementary and
periodic information, documents and reports which may be required pursuant to
Section 13 of the Exchange Act in respect of a security listed and registered on
a national securities exchange as may be prescribed from time to time in such
rules and regulations.
11. NOTICES
Any notice, demand or delivery authorized by this Agreement
shall be sufficiently given or made when mailed if sent by first-class mail,
postage prepaid, addressed to any Holder of a Warrant at such Holder's address
shown on the Warrant Register and to the Company or the Warrant Agent as
follows:
If to the Company:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
Attention: Corporate Controller
If to the Warrant Agent:
American Stock Transfer & Trust Company
6201 15th Avenue
3rd Floor
Brooklyn, New York 11219
or such other address as shall have been furnished to the party given or making
such notice, demand or delivery.
31
12. APPLICABLE LAW
This Agreement and each Warrant shall be deemed to be a
contract made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the internal laws of said
State. Under the Judiciary Law of the State of New York, a judgment or decree in
an action based upon an obligation denominated in a currency other than U.S.
dollars shall be rendered in the foreign currency of the underlying obligation
and converted into U.S. dollars at a rate of exchange prevailing on the date of
the entry of the judgment or decree.
13. PERSONS BENEFITTING
This Agreement shall be binding upon and inure to the benefit
of the Company and the Warrant Agent, and their respective successors, assigns,
beneficiaries, executors and administrators, and the Holders from time to time
of the Warrants. Nothing in this Agreement is intended or shall be construed to
confer upon any Person, other than the Company, the Warrant Agent and the
Holders of the Warrants, any right, remedy or claim under or by reason of this
Agreement or any part hereof.
14. COUNTERPARTS
This Agreement may be executed in any number of counterparts
and each of said counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
32
15. AMENDMENTS
The Company may, without the consent or concurrence of the
Holders of the Warrants, by supplemental agreement or otherwise, make any
changes or corrections in this Agreement that it shall have been advised by
counsel (i) are required to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained or (ii) add to the covenants and agreements of the Company in this
Agreement further covenants and agreements of the Company thereafter to be
observed, or surrender any rights or power reserved to or conferred upon the
Company in this Agreement, provided that in either case such changes or
corrections do not and will not adversely affect, alter or change the rights,
privileges or immunities of the Holders of the Warrants. The Warrant Agent shall
join with the Company in the execution and delivery of any such supplemental
agreements unless it affects the Warrant Agent's own rights, duties or
immunities hereunder, in which case the Warrant Agent may, but shall not be
required to, join in such execution and delivery.
With the consent of the Holders (or persons entitled to vote,
or to give consents respecting the same) of not less than 66 2/3% of the
Warrants at the time outstanding, the Company, when authorized by a resolution
of its Board of Directors, and the Warrant Agent may, from time to time and at
any time, enter into an amendment hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of any amendment hereto or of modifying in any manner the
rights and obligations of the Holders of the Warrants and of the Company;
provided that, without the consent of the Holders of all Warrants then
outstanding, no such amendment shall affect the Warrants adversely, or modify
any of the provisions of this Agreement in a manner adverse to the Holders
thereof, or reduce the aforesaid percentage of Warrants, the Holders of which
are required to consent to any such amendment.
33
Upon the request of the Company, accompanied by a copy of a
resolution of its Board of Directors certified by the Secretary or an Assistant
Secretary of the Company authorizing the execution of any such agreement, and
upon the filing with the Warrant Agent of evidence of the consent of Warrant
Holders as aforesaid, the Warrant Agent shall join with the Company in the
execution of such agreement unless such agreement affects the Warrant Agent's
own rights, duties or immunities under this Agreement or otherwise, in which
case the Warrant Agent may in its discretion, but shall not be obligated to,
enter into such amendment.
It shall not be necessary for the consent of the Warrant
Holders under this Section to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof.
Promptly after the execution by the Company and the Warrant
Agent of any agreement pursuant to the provisions of this Section, the Company
shall provide for notice to be delivered to the Holders, setting forth in
general terms the substance of such agreement, at the last addresses of such
Holders appearing upon the Warrant Register. Any failure of the Company to
provide such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such amendment.
16. HEADINGS
The descriptive headings of the several Sections of this
Agreement are inserted for convenience and shall not control or affect the
meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
PALOMAR MEDICAL
TECHNOLOGIES, INC.
34
By: /s/ Steven Georgiev
---------------------------
Title: Chairman & CEO
---------------------------
AMERICAN STOCK TRANSFER
& TRUST COMPANY,
as Warrant Agent
By: /s/ Herbert J. Lemmer
---------------------------
Title: Vice President
---------------------------
35
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED HEREBY ARE PART OF A NONDETACHABLE UNIT, EACH
UNIT CONSISTING OF ONE SF 1,000 PRINCIPAL AMOUNT 4.5% CONVERTIBLE SUBORDINATED
DEBENTURE AND 24 COMMON STOCK PURCHASE WARRANTS. SAID DEBENTURE AND WARRANTS MAY
NOT BE TRANSFERRED OR TRADED SEPARATELY, AND ANY PURPORTED TRANSFER OF EITHER OF
SUCH SECURITIES SEPARATELY FROM THE OTHER SHALL BE VOID AND SHALL NOT BE
RECORDED ON THE BOOKS AND RECORDS OF THE COMPANY. WARRANTS MAY ONLY BE EXERCISED
IN LOTS OF 24 WARRANTS OR INTEGRAL MULTIPLES THEREOF; AND EACH 24 WARRANTS TO BE
EXERCISED MUST BE ACCOMPANIED BY SF 1,000 PRINCIPAL AMOUNT OF DEBENTURES,
PRESENTED FOR CONVERSION OR REDEMPTION OR REPURCHASE IN ITS ENTIRETY, AS THE
CASE MAY BE, PURSUANT TO THE TERMS OF THE DEBENTURES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
PURSUANT TO REGULATION S, AN EXEMPTION FROM REGISTRATION PURSUANT TO THE
PROVISIONS UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THESE SECURITIES MAY NOT BE TRANSFERRED, OFFERED OR SOLD
PRIOR TO THE END OF THE FORTY (40)-DAY PERIOD (THE "RESTRICTED PERIOD")
COMMENCING ON THE LATER OF (I) THE DATE THE SECURITIES ARE FIRST OFFERED TO
PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) OR (II) THE DATE OF
THE FINAL CLOSING OF THE OFFERING OF THE UNITS BY THE COMPANY, UNLESS SUCH
TRANSFER, OFFER OR SALE (I) IS MADE IN AN "OFFSHORE TRANSACTION" AND NOT TO A
"U.S. PERSON" (OTHER THAN A "DISTRIBUTOR") (AS SUCH TERMS ARE DEFINED IN
REGULATION S) OR (II) IS MADE PURSUANT TO REGISTRATION OR AN APPLICABLE
EXEMPTION UNDER THE SECURITIES ACT. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE CANNOT BE SOLD EXCEPT PURSUANT TO THE TERMS AND CONDITIONS OF THE
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT BETWEEN THE COMPANY AND THE INITIAL
HOLDER OF THE SHARES REPRESENTED BY THIS CERTIFICATE, A COPY OF WHICH IS ON FILE
AT THE OFFICES OF THE COMPANY.
A-1
BY REQUESTING THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
AFTER THE RESTRICTED PERIOD, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IF
SUCH TRANSFER IS MADE TO A U.S. PERSON, THAT AT THE TIME OF SUCH TRANSFER THE
HOLDER IS NOT AN "AFFILIATE" OF THE COMPANY (AS SUCH TERM IS DEFINED IN THE
SECURITIES ACT) OR AN "UNDERWRITER" OR "DEALER" (AS SUCH TERMS ARE DEFINED IN
THE ACT), HAS NOT ENGAGED IN ANY SHORT SALES OR SIMILAR HEDGE TRANSACTIONS WITH
RESPECT TO THE COMPANY'S SHARES OF COMMON STOCK DURING THE RESTRICTED PERIOD, IS
NOT A "DISTRIBUTOR" AND SUCH TRANSFER IS NOT BEING MADE AS PART OF A PLAN OR
SCHEME TO EVADE THE REGISTRATION PROVISIONS OF THE SECURITIES ACT.
PALOMAR MEDICAL TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
No. __________ __________Warrants
This certifies that __________________________, or
registered assigns, is the owner of the number of Warrants set forth above, each
of which represents the right, at any time during the period commencing 120 days
following the Initial Closing, to purchase from Palomar
Medical Technologies, Inc., a Delaware corporation (the "Company"), one share of
Common Stock, par value $.01 per share, of the Company ("Common Stock"), such
shares of Common Stock issuable upon exercise of the Warrants being hereinafter
called the "Warrant Shares", each such Warrant entitling the registered owner
thereof to purchase one Warrant Share at the Swiss Franc equivalent on the date
of exercise of $16.50 per share, subject to adjustment, upon surrender hereof at
the office of American Stock Transfer & Trust Company, or to its successor as
the warrant agent under the Warrant Agree ment hereinafter referred to (any such
warrant agent being herein called the "Warrant Agent"), with the Exercise
Subscription Form on the reverse hereof or attached hereto duly executed and
simultaneous payment in full (in cash or by check payable to the order of the
Company) of the purchase price for the Warrant Shares as to which the Warrants
represented by this Warrant Certificate are exercised,
A-2
all subject to the terms and conditions hereof and of the Warrant Agreement.
This Warrant Certificate is issued under and in
accordance with a Warrant Agreement dated as of June 24, 1996 (the "Warrant
Agreement"), between the Company and American Stock Transfer & Trust Company, as
Warrant Agent, and is subject to the terms and provisions contained
therein to all of which terms and provisions the Holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is hereby
incorporated herein by reference and made a part hereof. Reference is hereby
made to the Warrant Agreement for a full description of the rights, limitations
of rights, obligations, duties and immunities thereunder of the Company and the
Holders of the Warrants. Capitalized defined terms used herein have the same
meanings as in the Warrant Agreement. Copies of the Warrant Agreement are on
file at the office of the Warrant Agent and may be obtained by writing to the
Warrant Agent at the following address: 6201 15th Avenue, 3rd Floor, Brooklyn,
New York 11219.
All outstanding Warrants will terminate and become
void (the "Warrant Expiration Date") on the earlier of (i) 5:00 p.m., New York
City time, seven years from the Initial Closing or (ii) upon conversion,
redemption, or repayment of the Debentures, in which case the Warrants attached
to such Debentures will expire upon such conversion, redemption, or repayment
unless then exercised. In the event the aforesaid expiration dates of the
Warrants fall on a Saturday, Sunday, or on a legal holiday on which the New York
Stock Exchange is closed, then the Warrants shall expire at 5:00 p.m., New York
City time, on the next succeeding business date.
A holder of Debentures desiring to convert Debentures
will not be required to exercise the attached Warrants. However, if the Warrants
are unexercised, they will expire upon such conversion by the holder of
Debentures or upon conversion or redemption at the option of the Company.
Holders of Debentures whose Debentures are redeemed through operation of the
sinking fund pertaining thereto will not be required to exercise the Warrants
attached to such Debentures. However, any unexercised Warrants will expire upon
such payment of the Debentures.
A-3
Any tender of Deben tures for repurchase, pursuant to the terms of the
Debentures, will be accompanied by the attached Warrants, which may either be
exercised or, upon failure of such exercise, will expire upon such repurchase.
In addition, during the period beginning 90 days after the Initial Closing and
ending 119 days following the Initial Closing, any conversion of Debentures will
necessarily result in the expiration of the Warrants attached thereto.
All shares of Common Stock issuable by the Company
upon the exercise of Warrants shall be validly issued, fully paid and
non-assessable, and the Company shall pay all taxes and other governmental
charges that may be imposed in respect of the issue or delivery thereof or
of other securities deliverable upon exercise of Warrants. The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for shares of Common
Stock, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the Company's satisfaction that no tax or other charge is
due.
The Warrants are not separately transferable from the
Debentures. This Warrant Certificate and all rights hereunder are transferable,
only as a Unit along with transfer of the Debentures, by the registered holder
hereof, in whole or in part, on the Warrant Register maintained by the Warrant
Agent for such purpose at its office in Luxembourg, upon surrender of this
Warrant Certificate duly endorsed, or accompanied by written instrument of
transfer in form satisfactory to the Company and the Warrant Agent duly executed
and accompanied by transfer of the Debentures in the Unit, by the registered
holder hereof or his or her attorney duly authorized in writing. Upon any
partial transfer the Company will issue and deliver to such holder a new Warrant
Certificate or Certificates with respect to any portion not so transferred. Each
taker and holder of this Warrant Certificate, and the accompanying Debentures in
the Unit, by taking or holding the same, consents and agrees that his or her
Warrant Certificate when duly endorsed in blank shall be deemed negotiable and
that when this
A-4
Warrant Certificate shall have been so endorsed, the holder hereof may be
treated by the Company and all other persons dealing with this Warrant
Certificate as the absolute owner hereof for any purpose and as the person
entitled to exercise the rights represented hereby, or to the transfer hereof in
the Warrant Register maintained by the Warrant Agent, any notice to the contrary
notwithstanding, but until such transfer on such register, the Company and the
Warrant Agent may treat the registered holder hereof as the owner for all
purposes.
The Debentures, Warrants, and Units have not been registered
under the Securities Act, nor qualified for sale under any other securities
laws, and therefore are subject to certain restrictions on transfer. The Company
will enter into a Registration Rights Agreement with the purchasers of the Units
(the "Registration Agreement") pursuant to which the Company will, at the
Company's expense, for the benefit of the holders of the Warrants, and with
respect to the Warrant Shares issuable upon exercise of the Warrants (the
"Registrable Securities"), (i) file with the Commission within 60 days after the
Initial Closing, a Registration Statement covering the issuance of the
Registrable Securities, (ii) use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as soon as possible
thereafter, and (iii) use its best efforts to keep effective the Registration
Statement until the Expiration Date. The Company will provide to each holder of
Registrable Securities copies of the Prospectus which is a part of the
Registration Statement and notify each Holder when the Registration Statement
has become effective. The purpose of the Registration Statement shall be to
enable each Holder which (i) receives Warrant Shares as the result of the
exercise of Warrants and (ii) is not an Affiliate of the Company and is not
engaging in a distribution of securities (within the meaning of the Securities
Act) to trade such Warrant Shares from and after the date of issuance thereof
without any limitations or restrictions under the Securities Act. The Company
will agree in the Registration Agreement to use its best efforts to cause the
Warrant Shares issuable upon exercise of the Warrants to be listed on Nasdaq
upon effectiveness of the Registration Statement.
A-5
This Warrant Certificate shall not be valid for any purpose
until it shall have been countersigned by the Warrant Agent.
Dated:____________________, 19__
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:_______________________________
Title:
A-6
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
Authorized Signature
A-7
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant for shares of Common Stock of
Palomar Medical Technologies, Inc.)
To: Palomar Medical Technologies, Inc.
The undersigned irrevocably exercises of the Warrants
for the purchase of one share (subject to adjustment) of Common Stock, par value
$.01 per share, of Palomar Technologies, Inc., for each Warrant represented by
the Warrant Certificate and herewith makes payment of SF_______ (such payment
being in cash or by check payable to the order of Palomar Medical Technologies,
Inc.), all at the exercise price and on the terms and conditions specified in
the within Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein to
Palomar Medical Technologies, Inc., and directs that the shares of such Common
Stock deliverable upon the exercise of said Warrants be registered or placed in
the name and at the address specified below and delivered thereto.
Date: __________________________, 19__
_______________________________ (1)
(Signature of Holder)
____________________________________
(Printed Name of Holder)
____________________________________
(Street Address)
____________________________________
(City) (State) (Zip Code)
A-8
TRANSFER FORM
This is to certify that as of the date hereof with
respect to ________ Warrants (the "Surrendered Warrants") for registration of
transfer, or for exchange or conversion where the securities issuable upon such
exchange or conversion are to be registered in a name other than that of the
undersigned Holder (each such transaction being a "transfer"), the undersigned
Holder (as defined in the Indenture) certifies that the transfer of Surrendered
Warrants complies with the restrictive legend set forth on the face of the
Surrendered Warrants for the reason checked below:
___ The transfer of the Surrendered Warrants
complies with Rule 144 under the U.S. Securities
Act of 1933, as amended (the "Securities Act"); or
___ The transfer of the Surrendered Warrants
complies with Rule 144A under the Securities Act;
or
___ The transfer of the Surrendered Warrants
complies with Rule 903 or 904 of Regulation S under
the Securities Act.
[Name of Holder]
Dated: __________, ___*
* To be dated the date of presentation or surrender
A-9
Securities to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Any unexercised Warrants evidenced by the within Warrant Certificate to
be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
A-10
EXHIBIT 10(bbb)
PALOMAR MEDICAL TECHNOLOGIES, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Trustee
------------------------
Indenture
Dated as of June 24, 1996
------------------------
SF 25,000,000
4.5% Convertible Subordinated Debentures
due 2003
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
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Section 1.1. Definitions............................................................... 2
Section 1.2. Trust Indenture Act....................................................... 14
Section 1.3. Rules of Construction..................................................... 14
ARTICLE II
FORM OF DEBENTURES
Section 2.1. Title and Terms........................................................... 15
Section 2.2. Date of Debentures and Denominations; Payment of
Interest......................................................... 15
Section 2.3. Ranking of Debentures..................................................... 18
Section 2.4. Execution and Authentication of Debentures................................ 18
Section 2.5. Form of Debentures and Trustee's Certificate.............................. 19
Section 2.6. Registrar, Paying Agent, and Conversion Agent............................. 20
Section 2.7. Paying Agent to Hold Money in Trust....................................... 22
Section 2.8. Exchange, Registration and
Transfer of Debentures ......................................... 22
Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures........................... 25
Section 2.10. Cancellation of Surrendered Debentures.................................... 26
Section 2.11. Provisions of Indenture and Debentures for Sole
Benefit of Persons Identified.................................... 26
Section 2.12. Temporary Debentures...................................................... 27
Section 2.13. Appointment to Fill Vacancy in Office of Trustee.......................... 27
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ARTICLE III
REDEMPTION OF DEBENTURES
Section 3.1. Debentures Redeemable..................................................... 28
Section 3.2. Mailing of Notice of Redemption; Selection of
Debentures in Case Less Than All
Debentures to be Redeemed........................................ 28
Section 3.3. When Debentures Called for Redemption Become Due
and Payable...................................................... 31
Section 3.4. Discharge of Company's Obligations Upon Deposit
of Redemption Moneys............................................. 31
Section 3.5. Issuance of Debentures for Unredeemed Portions of
Debentures. ..................................................... 32
Section 3.6. Sinking Fund.............................................................. 32
ARTICLE IV
CONVERSION OF DEBENTURES
Section 4.1. Right of Debentureholders to Convert Debenture
Into Common Stock of Company..................................... 34
Section 4.2. Right of Company to Convert Debenture into Common
Stock of Company................................................. 36
Section 4.3. Exercise of Conversion Privilege.......................................... 37
Section 4.4. Issuance of Shares of Common Stock on Conversion.......................... 38
Section 4.5. Adjustment of Antidilution Factor......................................... 39
Section 4.6. No Fractional Shares to be Issued; Cash Payments
in Lieu Thereof.................................................. 43
Section 4.7. Accountants' Certificate Evidence of Correctness
of Computation................................................... 43
Section 4.8. Notice of Corporate Action................................................ 44
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Section 4.9. Covenant to Reserve Shares of Common Stock for
Issuance on Conversion of Debentures and
Exercise of Warrants............................................. 45
Section 4.10. Issuance of Certificates for Shares of Common
Stock, in Name of, or in Name Directed
by, Debentureholder.............................................. 46
Section 4.11. Mailing of Notice Upon Adjustment Pursuant to
Section 4........................................................ 46
Section 4.12. Responsibility of Trustee................................................. 47
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1. Payment of Principal of and Interest on Debentures........................ 47
Section 5.2. Taxes, Assessments, Governmental Charges and
Certain Claims................................................... 48
Section 5.3. Reporting Requirements.................................................... 48
Section 5.4. Books and Records......................................................... 48
Section 5.5. Maintenance of Insurance.................................................. 49
Section 5.6. Maintenance of Corporate Existence, Properties,
Etc.............................................................. 49
Section 5.7. Type of Business.......................................................... 50
Section 5.8. Merger or Sale of Assets.................................................. 50
Section 5.9. Investments............................................................... 50
Section 5.10. Transactions with Affiliates.............................................. 51
Section 5.11. Use of Proceeds........................................................... 51
Section 5.12. Dividends, Etc............................................................ 52
Section 5.13. Limitation on Liens....................................................... 52
Section 5.14. Compliance with Laws, Etc................................................. 52
ARTICLE VI
DEBENTUREHOLDER'S LISTS AND REPORTS BY
THE COMPANY AND THE TRUSTEE
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Section 6.1. Company to Furnish Trustee Information as to
Names and Addresses of Debentureholders.......................... 53
Section 6.2. Trustee to Preserve Information as to Names and
Addresses of Debentureholders.................................... 53
Section 6.3. Reports from the Company.................................................. 55
Section 6.4. Reports from the Trustee.................................................. 56
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
Section 7.1. Events of Default Defined................................................. 57
Section 7.2. Covenant of Company to Pay to Trustee Whole
Amount Due on Debentures on Default in
Payment of Interest or Principal................................. 61
Section 7.3. Application of Moneys Collected by Trustee................................ 63
Section 7.4. Limitation on Suits by Holders of Debentures.............................. 64
Section 7.5. Delay or Omission in Exercise of Rights Not
Waiver of Default................................................ 66
Section 7.6. Rights of Holders of Majority in Principal Amount
of Debentures to Direct Trustee and
Waive Defaults................................................... 66
Section 7.7. Trustee to Give Notice of Defaults Known to it,
but May Withhold in Certain Circumstances........................ 67
Section 7.8. Requirement of an Undertaking to Pay Costs in
Certain Suits Under Indenture or Against
Trustee.......................................................... 68
Section 7.9. Company Covenants......................................................... 68
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ARTICLE VIII
CONCERNING THE TRUSTEE
Section 8.1. Duties of Trustee Prior to and After Event of
Default.......................................................... 69
Section 8.2. Rights of Trustee......................................................... 70
Section 8.3. Trustee Not Liable for Recitals in Indenture or
in Debentures.................................................... 72
Section 8.4. Trustee, Paying Agent, Conversion Agent or
Debenture Registrar May Own Debentures........................... 72
Section 8.5. Moneys Received by Trustee to be Held in Trust............................ 73
Section 8.6. Trustee Entitled to Compensation, Reimbursement
and Indemnity.................................................... 73
Section 8.7. Right of Trustee to Rely on Certificate of
Officers of Company Where no Other
Evidence Specifically Prescribed................................. 74
Section 8.8. Conflict of Interest...................................................... 74
Section 8.9. Requirements for Eligibility of Trustee................................... 75
Section 8.10. Resignation or Removal of
Trustee.......................................................... 75
Section 8.11. Acceptance by Successor to Trustee........................................ 77
Section 8.12. Successor to Trustee by Merger, Consolidation or
Succession to Business........................................... 78
Section 8.13. Trustee as a Creditor..................................................... 78
ARTICLE IX
CONCERNING THE DEBENTUREHOLDERS
Section 9.1. Evidence of Action by Debentureholders.................................... 84
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Section 9.2. Proof of Execution of Instruments and of Holding
of Debentures.................................................... 85
Section 9.3. Who May be Deemed Owners of Debentures.................................... 86
Section 9.4. Debentures Owned by Company or Controlled or
Controlling Companies Disregarded for
Certain Purposes................................................. 86
Section 9.5. Action by Debentureholders Binds Future Holders........................... 87
ARTICLE X
DEBENTUREHOLDERS' MEETINGS
Section 10.1. Purposes for Which Meetings May be Called................................. 87
Section 10.2. Manner of Calling Meetings................................................ 88
Section 10.3. Call of Meetings by Company or Debentureholders........................... 88
Section 10.4. Who May Attend and Vote at Meetings....................................... 89
Section 10.5. Regulations May be Made by Trustee........................................ 89
Section 10.6. Manner of Voting at Meetings and Record to be Kept........................ 90
Section 10.7. Exercise of Rights of Trustee or Debentureholders
May Not be Hindered or Delayed by Call
of Meeting of Debentureholders................................... 91
Section 10.8. Notice to Debentureholders................................................ 92
ARTICLE XI
SUPPLEMENTAL INDENTURES
Section 11.1. Purposes for Which Supplemental Indentures May be
Entered into Without Consent of
Debentureholders................................................. 92
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Section 11.2. Modification of Indenture with Consent of Holders
of 66-2/3% in Principal Amount of
Debentures....................................................... 93
Section 11.3. Effect of Supplemental Inden-
tures............................................................ 95
Section 11.4. Debentures May Bear Notation of Changes................................... 95
Section 11.5. Opinion of Counsel........................................................ 95
ARTICLE XII
CONSOLIDATION OR MERGER
Section 12.1. When Company May Merge, Etc............................................... 96
Section 12.2. Successor Corporation..................................................... 97
ARTICLE XIII
SUBORDINATION OF DEBENTURES
Section 13.1. Agreement of Debentureholders that Debentures
Subordinate to All Senior Indebtedness........................... 97
Section 13.2. Company Not to Make Payment with Respect to
Debentures in Certain Circumstances.............................. 98
Section 13.3. Debentures Subordinated to Prior Payment of All
Senior Indebtedness on Dissolution,
Liquidation or Reorganization of the
Company.......................................................... 99
Section 13.4. Debentureholders to be Subrogated to Right of
Holders of Senior Indebtedness................................... 101
Section 13.5. Obligations of Company Unconditional...................................... 101
Section 13.6. Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice.................................. 102
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Section 13.7. Application by Trustee of Monies Deposited................................ 103
Section 13.8. Subordination Rights Not Impaired......................................... 104
Section 13.9. Trustee to Effectuate Subordination....................................... 104
Section 13.10. Rights of Trustee as Holder of Senior Indebtedness........................ 105
Section 13.11. Article Thirteen Not to Prevent Event of Default.......................... 105
ARTICLE XIV
SATISFACTION AND DISCHARGE OF INDENTURE;
DEPOSITED MONEYS
Section 14.1. Satisfaction and Discharge of Indenture................................... 105
Section 14.2. Application by Trustee of Funds Deposited for
Payment of Debentures............................................ 107
Section 14.3. Repayment of Moneys Held by Paying Agent......................... 107
Section 14.4. Moneys Deposited for Redemption of Debentures
Subsequently Converted to be Returned to
Company.......................................................... 107
Section 14.5. Payment of Deposited Money to Company After Lapse
of Time.......................................................... 108
108
ARTICLE XV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 15.1. Immunity of Incorporators, Stockholders, Officers
and Directors.................................................... 108
ARTICLE XVI
RIGHT TO REQUIRE REPURCHASE
109
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Section 16.1. Right to Require Repurchase............................................... 109
Section 16.2. Notice; Method of Exercising
Repurchase Right 110
Section 16.3. Deposit of Repurchase Price............................................... 112
Section 16.4. Debentures Not Repurchased on Repurchase Date............................. 112
Section 16.5. Debentures Repurchased in Part............................................ 112
Section 16.6. Purchase of Warrants...................................................... 113
ARTICLE XVII
MISCELLANEOUS PROVISIONS
113
Section 17.1. Successors and Assigns of Company Bound by
Indenture........................................................ 113
Section 17.2. Acts of Board, Committee or Officer of Successor
Corporation Valid................................................ 113
Section 17.3. Surrender of Powers by Company............................................ 113
Section 17.4. Required Notices or Demands May be Served by Mail......................... 114
Section 17.5. Indenture and Debentures to be Construed in
Accordance with Laws of State of New York........................ 114
Section 17.6. Officers' Certificate and Opinion of Counsel to
be Furnished upon Applications or
Demands by Company............................................... 114
Section 17.7. Payments Due on Non-Business Days......................................... 116
Section 17.8. Effect of Invalidity of Provisions........................................ 116
Section 17.9. Execution of Counterparts................................................. 116
EXHIBIT A FORM OF REGISTERED DEBENTURE
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INDENTURE, dated as of June 24, 1996, between Palomar Medical
Technologies, Inc. (the "Company"), a Delaware corporation having its principal
office at 66 Cherry Hill Drive, Beverly, Massachusetts 01915, and American Stock
Transfer & Trust Company, a New York corporation, as Trustee (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company is empowered to issue debentures for any
of the objects and purposes of the Company;
WHEREAS, for its lawful corporate purposes, the Company has
duly authorized the creation of an issue of its 4.5% Convertible Subordinated
Debentures due 2003 (the "Debentures") of substantially the same tenor and
amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture; and
WHEREAS, all acts and things necessary to be done by the
Company to make the Debentures, when executed by the Company and authenticated
and delivered hereunder and duly issued by the Company upon payment therefor by
the purchasers thereof, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms, respectively have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Debentures are
and are to be authenticated, issued and delivered, and for and in consideration
of the premises and the purchase of the Debentures by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Debentures as follows:
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I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
I.1. Definitions.
"Additional Payments" has the meaning specified in Section
2.2(b).
"Affiliate" means, when used with reference to any specified
Person, any other Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such specified Person. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct or cause the direction of the management or policies
of such Person, directly or indirectly, whether through the ownership or voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Agent" has the meaning specified in Section
2.6.
"Antidilution Factor" means a number that is initially equal
to one and that may be adjusted from time to time as provided in Section 4.5.
"Authorized Newspaper" means, so long as the Debentures are
listed on a securities exchange and such exchange so requires, a newspaper
published in the city in which such securities exchange is located; provided
that for so long as the Debentures are listed on the Luxembourg Stock Exchange,
"Authorized Newspaper" shall include the Luxembourg Wort; provided, further,
that if, because of temporary or permanent suspension of publication or general
circulation of any newspaper or for any other reason, it is impossible or, in
the opinion of the Trustee, impracticable to make reasonable publication of any
notice required herein in a newspaper published in the city in which the
securities exchange is located, then "Authorized Newspaper" shall mean any
publication in an English language newspaper of general circulation.
2
"Bankruptcy Code" means the Bankruptcy Code of 1978, as
amended (11 U.S.C. 101 et seq.).
"Board of Directors" means the Board of Directors of the
Company or any duly authorized committee of such Board of Directors.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions are authorized or obligated by law,
executive order or regulation to close, in the Borough of Manhattan, The City of
New York and, with respect to any payment on the Debentures, if there is a
Paying Agent in Luxembourg, in Luxembourg and, with respect to any other place
of payment, in such other place of payment.
"Capitalized Lease Obligations" means, with respect to any
Person, any Indebtedness of such Person represented by obligations under a lease
or other rental agreement that are required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
for purposes hereof shall be the capitalized amount of such obligations as
determined in accordance with GAAP on a consolidated basis.
"Change of Control" has the meaning specified in Section 16.1.
"Closing Price" for any day means the last reported sale price
of the Common Stock, regular way, on such day or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices, regular way, on such day, in either case on the New York Stock Exchange
or, if the Common Stock is not listed or admitted to trading on such Exchange,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or admitted to trading on any
national securities exchange, on the Nasdaq National Market System or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on such National Market System, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any
3
New York Stock Exchange member firm selected from time to time by the Company
for that purpose. If the Common Stock is not listed or admitted to trading on
any national securities exchange, quoted on such National Market System or
listed in any list of bid and asked prices in the over-the-counter market,
"Closing Price" shall mean the fair market value of the Common Stock as
determined in good faith by the Board of Directors of the Company.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" or "Shares" means the Common Stock, $.01 par
value, of the Company as presently authorized by its Certificate of
Incorporation or any other stock of the Company into which such Common Stock may
hereafter be changed from time to time.
"Company" means the Person named as such in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Conversion Percentage Factor" has the meaning
specified in Section 4.2.
"Company Conversion Price" has the meaning specified in
Section 4.2.
"Continuing Director" means at any date a member of the Board
of Directors who (i) was a member of the Board of Directors for the period of 24
months prior to such date or (ii) was nominated for election or elected to the
Board of Directors with the affirmative vote of at least two-thirds of the
Continuing Directors.
"Contractual Obligation" of any Person means any provision of
any agreement, instrument, Security or under-
4
taking to which such Person is a party or by which it or any of the property
owned by it is bound.
"Conversion Agent" has the meaning specified in Section 2.6.
"Conversion Notice" has the meaning specified in Section 4.3.
"Conversion Price" means Holder Conversion Price and Company
Conversion Price, as applicable.
"Debenture Conversion Shares" has the meaning specified in
Section 4.1
"Debentures" has the meaning specified in the first recital of
this Indenture and more particularly means any of the Debenture authenticated
and delivered under this Indenture.
"Default" means any event, act or condition the occurrence of
which is, or after notice or the passage of time or both would be, an Event of
Default.
"Dollar," "U.S.$," "United States dollar" or the sign "$"
means a Dollar or other equivalent unit in such coin or currency of the United
States as at the time shall be legal tender for the payment of public and
private debts.
"Event of Default" has the meaning specified in Section 7.1.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended from time to time, and the rules and regulations promulgated
thereunder, and any successor statute thereto.
"Exchange Rate Factor" has the meaning specified in Section
4.1.
"Existing Control Group" means the Principal Shareholders as
of the date of this Indenture.
5
"GAAP" means generally accepted accounting principles set
forth in the opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board or such other statements by any such
other entity as may be approved by a significant segment of the accounting
profession in the United States, and which are applicable to the circumstances
as of the date of this Indenture.
"Guaranty" means any contractual obligation, contingent or
otherwise, of a Person with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation, any such
Indebtedness, obligation or liability directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable,
including Contractual Obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase, or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or any agreement to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition, or to make any
payment other than for value received.
"Holder," "Debentureholder," "holder of Debentures" or other
similar terms mean any Person that is the registered holder of any Debenture on
the books of the Company.
"Holder Conversion Price" has the meaning specified in Section
4.1.
"Indebtedness" means (i) any liability of any Person (A) for
borrowed money, or (B) evidenced by a note, debenture or similar instrument
(including a purchase money obligation and a letter of credit) whether issued in
connection with the acquisition of any property, assets (other than inventory or
similar property acquired in the ordinary course of business) or
6
ties, or otherwise, (ii) Capitalized Lease Obligations of any Person, (iii) any
Guaranty of any liability of others described in the preceding clause (i) or
(ii), and (iv) any amendment, renewal, extension or refunding of any liability
of the types referred to in clauses (i), (ii) and (iii) above.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Independent Director" means a Person serving as a member of
the Board of Directors who is not an officer or employee of the Company or a
Subsidiary or owner, directly or through an Affiliate of such Person, of in
excess of 5% of the outstanding Common Stock of the Company or a Subsidiary or
who has a relationship with the Company or a Subsidiary that would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a Director, including, without limitation, any Person who is a party directly
or indirectly to a material agreement or transaction or series of transactions
with the Company or a Subsidiary.
"Initial Closing Date" means the first date on which the
offering of Debentures is closed.
"Interest Expense" means, for any period and for any Person,
the total interest expense of such Person and its Subsidiaries for such period,
including, without limitation, interest expense attributable to Capitalized
Lease Obligations in accordance with GAAP, all capitalized interest, all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptance financing, and total interest expense, whether shown as interest
expense, all as determined on a consolidated basis in accordance with GAAP.
7
"Interest Payment Date" has the meaning specified in Section
2.2.
"Lien" means any mortgage, pledge, security interest, security
deposit, encumbrance, lien or charge of any kind, including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any applicable
jurisdiction.
"Luxembourg Stock Exchange" means the Bourse de Luxembourg.
"Noon Buying Rate" means the exchange rate for one U.S. dollar
expressed in Swiss Francs, based upon the noon buying rate in New York City for
cable transfers in Swiss Francs, as certified for customs purposes by the
Federal Reserve Bank of New York.
"Offering Memorandum" means the final Offering Memorandum
dated June 24, 1996 pursuant to which the Debentures were initially offered and
sold.
"Officer" means the Chairman of the Board of Directors, the
President, any Vice President, the Chief Executive Officer, the Chief Financial
Officer, or the Treasurer of the Company.
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and the Secretary, an Assistant Treasurer or an
Assistant Secretary of the Company.
"Opinion of Counsel" means a written opinion from independent
legal counsel who is acceptable to the Trustee.
"Outstanding" means, with respect to the Debentures as of the
date of determination, all Debentures theretofore authenticated and delivered
under this Indenture, except:
8
(i) Debentures theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Debentures, or portions thereof, for whose payment money
or securities in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the Holders of such Debentures; provided that, if such Debentures are
to be redeemed (as provided in Article Three), notice of such redemption has
been duly given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made; and
(iii) Debentures in exchange for or in lieu of which other
Debentures have been authenticated and delivered pursuant to this Indenture;
provided that in determining whether the Holders of the requisite principal
amount of Outstanding Debentures have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Debentures owned by the Company
or any Affiliate of the Company shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon such request, demand, authorization, direction, notice, consent
or waiver, only Debentures that the Trustee knows to be so owned shall be so
disregarded. Debentures so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Debentures and that
the pledgee is not the Company or any Affiliate of the Company.
"Paying Agent" has the meaning specified in Section 2.6.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
9
"Predecessor Debenture" of any particular Debenture means
every previous Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Debenture; and, for the purposes of this
definition, any Debenture authenticated and delivered under Section 2.9 in
exchange for or in lieu of a mutilated, lost, destroyed or stolen Debenture
shall be deemed to evidence the same debt as the mutilated, lost, destroyed or
stolen Debenture.
"Principal Shareholders" means all Persons who are both (x)
members of, or enjoy representation on, the Board of Directors as of the date of
this Indenture, and (y) as of the date or this Indenture are the ultimate
beneficial owners of shares of the Company's Common Stock, until such time as
such Persons, together, cease to have beneficial ownership of at least 25% of
the combined voting power of the Voting Stock of the Company.
"Record Date" has the meaning specified in Section 2.2(a).
"Register" has the meaning specified in Section 2.8.
"Registrar" has the meaning specified in Section 2.6.
"Regulation S" means Regulation S under the Securities Act and
any successor regulation thereto.
"Requirement of Law" for any Person means the articles or
certificate of incorporation and by-laws or other organizational or governing
documents of such Person and any law, treaty, rule or regulation, or
determination of an arbitrator or a court or other governmental authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer" means, with respect to the Trustee, the
chairman or vice-chairman of the board of directors or trustees, the chairman of
the executive committee, the chairman of the trust committee, the presi-
10
dent, any vice-president, the secretary, the treasurer, any trust officer, the
cashier, any second or assistant vice-president, any assistant trust officer,
any assistant secretary, any assistant treasurer, any assistant cashier, or any
other officer or assistant officer of the Trustee customarily performing such
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his knowledge of and familiarity with the particular subject.
"Reset Date" has the meaning specified in Section 4.1.
"Securities Act" means the United States Securities Act of
1933, as amended, and any successor statute.
"Security" shall have the same meaning as in Section 2(1) of
the Securities Act.
"Senior Indebtedness" means all loans, advances, reimbursement
obligations regarding letters of credit, liabilities, covenants and duties
existing on the date hereof or arising from time to time hereafter and renewals,
extensions and refundings of any such indebtedness, that are secured, whether
for principal, premium or interest or otherwise, of the Company to any bank or
other lending institution, whether direct or indirect, absolute or contingent,
due or to become due, including, without limitation, (a) any debt, liability or
obligation owing from the Company to others which such bank or other lending
institution may have obtained by assignment, pledge, purchase, or otherwise, (b)
any overdraft or overadvance to the Company, and (c) all interest, charges,
expenses and attorney's fees for which the Company is now or hereafter becomes
liable to any such bank or other lending institution under any agreement or by
law; unless the instrument or instruments creating, evidencing or securing any
such indebtedness or pursuant to which the same is outstanding, provide that
such indebtedness is not superior in right of payment to the Debentures.
"Sinking Fund Payment Date" has the meaning specified in
Section 3.6 (a).
11
"Sinking Fund Redemption Price" has the meaning specified in
Section 3.6 (a).
"Stock Price Factor" has the meaning specified in Section 4.1.
"Subsidiary" means, with respect to any Person, (i) any
corporation of which 50% of more of the combined voting power of the outstanding
Voting Stock is owned, directly or indirectly, by such Person or by one or more
other Subsidiaries of such Person or by such Person and one or more Subsidiaries
thereof or (ii) any other Person (other than a corporation) in which such
Person, or one or more other Subsidiaries of such Person or such Person and one
or more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and affairs
thereof. Unless otherwise specified, "Subsidiary" means a Subsidiary of the
Company.
"Swiss Franc" or the abbreviation "SF" means a Swiss Franc or
other equivalent unit in such coin or currency of Switzerland as at the time
shall be legal tender for the payment of public and private debts.
"Taxes" means any present or future taxes, levies, imposts,
duties, fees, assessments, deductions, withholdings or other charges of whatever
nature, including, without limitation income, gross receipts, excise, property,
sales, transfer, license, payroll, withholding, social security, and franchise
taxes, now or hereafter imposed or levied by the United States of America or any
state, local or foreign government or by any department, agency or other
political subdivision or taxing authority thereof or therein and all interest,
penalties, additions to tax and other similar liabilities with respect thereto.
"Total Liabilities" means, as of any date, the amount at which
all of the liabilities of such Person should be shown in accordance with GAAP on
a balance sheet of such Person at such date, all as determined on a consolidated
basis.
12
"Trust Indenture Act" means the United States Trust Indenture
Act of 1939 including any successor act thereto, as it may be amended from time
to time, and includes the rules and regulations of the Commission thereunder.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
A "Unit" consists of SF 1,000 principal amount of Debentures
and 24 Warrants.
"United States" means the United States of America (including
the States thereof and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction.
"United States Alien" means any Person who, as to the United
States, is a foreign corporation, a non-resident alien individual, a
non-resident alien fiduciary of a foreign estate or trust, or a foreign
partnership one or more of the members of which is, as to the United States, a
foreign corporation, a non-resident alien individual or a non-resident alien
fiduciary of a foreign estate or trust.
"United States Person" means (1) any natural person resident
in the United States, (2) any partnership or corporation organized or
incorporated under the laws of the United States, (3) any estate of which any
executor or administrator is a United States Person, (4) any trust of which any
trustee is a United States Person, (5) any agency or branch of a foreign entity
located in the United States, (6) any non-discretionary account or similar
account (other than an estate or trust) held by a dealer or other fiduciary
organized, incorporated or (if an individual) resident in the United States and
(7) any partnership or corporation if (i) organized or incorporated under the
laws of any foreign jurisdiction and (ii) formed by a United States Person
principally for the purpose of investing in securities not registered under the
Securi-
13
ties Act, unless it is organized or incorporated, and owned, by accredited
investors (as defined in Rule 501(a) of the Securities Act) who are not natural
persons, estates or trusts.
"Voting Stock" means the securities of any class or classes of
a corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors of such
corporation or Persons performing similar functions.
"Warrant" means the nondetachable security issued pursuant to
a Warrant Agreement, dated as of June 24, 1996, between the Company and American
Stock Transfer & Trust Company and offered in lots of 24 Warrants per Unit, that
entitles the holder to purchase one share of Common Stock per Warrant.
I.2. Trust Indenture Act.
This Indenture has not been registered under, and is not
subject to any of the protections of, the Trust Indenture Act of 1939.
I.3. Rules of Construction.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the
meanings assigned to them in this Article, and include the plural as well as the
singular;
(2) or is not exclusive;
(3) all other terms used herein which are defined in
the Trust Indenture Act, or which are by reference in such Act defined in the
Securities Act, have the meanings assigned to them therein;
(4) all accounting terms not otherwise defined herein
have the meaning assigned to them in accordance with GAAP;
14
(5) unless the context otherwise requires, any
reference to an "Article" or a "Section" refers to an Article or a Section, as
the case may be, of this Indenture;
(6) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision; and
(7) provisions apply to successive events and
transactions.
II
FORM OF DEBENTURES
II.1. Title and Terms.
The Debentures shall be designated as 4.5% Subordinated
Convertible Debentures due 2003 and shall not exceed the aggregate principal
amount of Twenty-Five Million Swiss Francs (SF 25,000,000).
The Debentures shall be issued as part of Units, each
consisting of SF 1,000 principal amount of Debentures and 24 Warrants. A minimum
of 10,000 Units and a maximum of 25,000 Units shall be offered.
II.2. Date of Debentures and Denomi
nations; Payment of Interest.
(a) Denominations and Payment Generally.
The Debentures shall be issuable in fully registered, certificated
form, without coupons, in denominations of SF 1,000 and any integral multiples
thereof.
The Debentures shall be dated as of the date of authentication
and shall bear interest at the rate of 4.5% per annum, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 in each year (each an
15
"Interest Payment Date"), commencing on September 30, 1996, to the Holders
thereof as of the March 15, June 15, September 15 or December 15, as the case
may be, next preceding such Interest Payment Date (each, a "Record Date").
The interest on the Debentures shall be computed on the basis
of a 360-day year of twelve 30-day months and in any case where the date for any
payment on the Debentures is not a Business Day, such payment may be made on the
next succeeding Business Day and have the same force and effect as if made on
such original payment date, and no interest shall accrue for the period from and
after such original payment date. The principal, or premium, if any, and
interest on the Debentures shall be payable in Swiss Francs. At the option of
the Company, payment of interest may be made by check mailed to the address of
the person entitled thereto as such address shall appear in the Register.
The Person in whose name any Debenture is registered at the
close of business on the Record Date with respect to an Interest Payment Date
shall be entitled to receive the interest payable on such interest payment date
notwithstanding the cancellation of such Debenture upon any transfer, exchange
or conversion thereof subsequent to such Record Date and prior to such Interest
Payment Date; provided that if and to the extent the Company shall default in
the payment of the interest due on such Interest Payment Date, such defaulted
interest shall be paid to the persons in whose names the Debentures are
registered on a subsequent record date established by notice given by mail by or
on behalf of the Company to the Holders of Debentures not less than 15 days
preceding such subsequent record date, such Record Date to be not less than five
days preceding the date of payment of such defaulted interest. Notwithstanding
the foregoing, such defaulted interest may be paid at any time in any other
lawful manner not inconsistent with the terms of the Debentures or the
requirements of any securities exchange on which the Debentures may be listed,
and upon such notice as may be required by such exchange.
If any Debenture or portion thereof is called for redemption
on a redemption date after the close of
16
business on the Record Date preceding an Interest Payment Date and notice of
such redemption has been mailed and funds for such redemption have been duly
provided, interest accrued to the redemption date on such Debenture or portion
so called shall be paid only against surrender of the Debenture for redemption
in accordance with said notice.
(b)Additional Payments. Subject to the Company's rights as set
forth in Section 3.1(b), the Company shall pay to any "United States Alien"
certain customary additional amounts in the event of changes in the United
States income tax laws affecting withholding taxes on payments under the
Debentures ("Additional Payments"), in order that every new payment of principal
and interest on such Debenture, after deduction or withholding for or on account
of any present or future tax, assessment or governmental charge imposed upon or
as a result of such payment by the government of the United States or any state
thereof or by any authority or agency thereof shall not be less that the amount
provided for in such Debenture to be then due and payable, subject to certain
customary exceptions. The Company shall provide customary indemnification for
Holders affected by the foregoing.
If the Company is required to make additional payments to
Holders thereof by reason of deductions or withholdings for or on account of any
taxes, assessments or other governmental charges (the "withholding taxes"), the
Company shall deliver to the Trustee for delivery to the Holders at the time of
any such payment a statement specifying the amount of taxes so paid by the
Company as additional interest. The Company covenants that if the Company or the
Trustee is required by law to make any deduction or withholding on payments of
principal of or interest on the Debentures for or on account of any withholding
taxes, the Company shall furnish to the Trustee and the Paying Agent, at least
five Business Days prior to the date on which the first payment of principal or
interest is due with respect to the Debentures as to which such deduction or
withholding applies (and at least five Business Days prior to each date of
payment of principal or interest thereafter if there has been any change with
respect to the matters set forth in the below-mentioned
17
certificate), a certificate of an Officer of the Company giving instructions as
to whether payment of the amounts due on such date shall be made without any
such deduction or withholding and specifying the amount, if any, so required to
be deducted or withheld and certifying that the Company shall pay such deduction
or withholding; the Company shall, prior to the due date for the payment
thereof, pay any such withholding tax, together with any penalties or interest
applicable thereto; and within 15 days after paying such withholding tax,
penalties or interest, the Company shall deliver to the Trustee the evidence of
such payment and of the remittance thereof to the relevant taxing or other
authority. In the absence of any such certification, the Trustee and the Paying
Agent shall make payments to Holders of Debentures and coupons without deduction
or withholding.
The Company hereby agrees to indemnify the Trustee and the
Paying Agent for, and to hold them harmless against, any loss, liability or
expense reasonably incurred without negligence or bad faith on their part,
arising out of or in connection with actions taken or omitted by either of them
in reliance on any certificate furnished pursuant to this Section 2.2(b) or the
failure of the Trustee for any reason (other than its own negligence or willful
misconduct) to receive on a timely basis such Officer's certificate or any
information or documentation requested by it or otherwise required by applicable
law or regulations to be obtained, furnished or filed in respect of withholding
tax pursuant to the first paragraph of this Section 2.2(b). Any Officer's
certificate required by this Section 2.2(b) to be provided to the Trustee shall
be deemed to be duly provided if telecopied to the Trustee.
II.3 Ranking of Debentures.
The Debentures shall constitute general unsecured obligations
of the Company and shall be subordinated as provided in Article XIII.
II.4 Execution and Authentication of Debentures.
18
The Debentures shall be signed on behalf of the Company by, or
bear the facsimile signature of its Chairman or President, under its corporate
seal. Such facsimile signatures may be imprinted or otherwise reproduced on the
Debentures. In case any officer of the Company who shall have signed any
Debenture shall cease to be such officer before the Debenture so signed shall
have been authenticated and delivered by the Trustee or disposed of the Company,
such Debenture nevertheless may be authenticated and delivered or disposed of as
though the person who signed the Debenture had not ceased to be such officer of
the Company. The seal of the Company may be in the form of a facsimile of the
seal of the Company and may be impressed, affixed, imprinted or otherwise
reproduced on the Debentures.
Only such Debentures as shall bear thereon a certificate of
authentication substantially in the form set forth in Exhibit A to this
Indenture, executed by the Trustee, shall be entitled to the benefits of this
Indenture or be valid or obligatory for any purpose. Such certificate by the
Trustee upon any Debenture executed by the Company shall be conclusive evidence
that the Debenture has been duly authenticated and delivered hereunder and that
the Holder is entitled to the benefits of this Indenture.
The Trustee shall, upon receipt of an Officer' Certificate
directing it do so, authenticate Debentures for original issue up to an
aggregate principal amount as stated in Section 2.1. The aggregate principal
amount of Debentures outstanding at any time may not exceed such amount, except
as otherwise provided in this Indenture.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Debentures. An authenticating agent may authenticate
Debentures whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
19
Unless otherwise specifically provided herein or in the
Debentures, any order, certificate, notice, request, direction or other
communication from the Company made or given by the Company under any provision
of this Indenture shall be sufficient if signed by an Officer of the Company.
II.5. Form of Debentures and Trustee's Certificate.
The Debentures and the Trustee's certificate of authentication
shall be engraved, lithographed or printed, and shall be substantially as set
forth in Exhibit A to this Indenture and made a part hereof and may have such
letters, numbers or other marks of identification or designation and such
legends or endorsements printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Debentures may be listed, or to conform to usage.
II.6. Registrar, Paying Agent, and Conversion Agent.
The Company shall maintain an office or agency where the
Debentures may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency where Debentures may be presented for payment
(the "Paying Agent"), and an office where Debentures may be presented for
conversion (the "Conversion Agent"). The Registrar shall keep a register of the
Debentures and of their transfer and exchange. The Company may appoint one or
more co-registrars, one or more additional paying agents, and one or more
additional conversion agents. The term "Paying Agent" includes any additional
paying agent and the term "Conversion Agent" includes any additional conversion
agent.
The Registrar, the Paying Agent, and the Conversion Agent are
sometimes referred to herein as the "Agents." The Agents have the powers and
authority grant-
20
ed to and conferred upon them herein and in the Debentures and such further
powers and authority, acceptable to them, as the Company may hereafter
respectively grant to or confer upon them. The Company reserves the right to
vary or terminate the appointment of the Registrar or any Conversion or Paying
Agent, or to appoint additional or other registrars or conversion or paying
agents, or to approve any change in the office through which the Registrar or
any such agent acts, provided that there shall at all times be a Registrar in
New York City and a Paying Agent and Conversion Agent in one or more European
cities which, so long as the Debentures are listed on the Luxembourg Stock
Exchange and so long as the Luxembourg Stock Exchange so requires, shall include
Luxembourg.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture. Such agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any Agent not a party to this Indenture.
If the Company fails to maintain a Registrar, Paying Agent, or Conversion Agent,
the Trustee shall act as such.
The Company initially appoints the Trustee as Registrar. The
Company has initially appointed Banca Commerciale Lugano as Paying Agent and
Conversion Agent for the purposes set forth in this Indenture. The Paying Agent
and Conversion Agent in acting hereunder shall be subject at all times and in
all respects to the directions of the Trustee, subject to and in accordance with
applicable laws, and shall be responsible solely to the Trustee. The Paying
Agent and Conversion Agent may resign and be discharged from its duties
hereunder by notice of such resignation delivered to the Company at least 60
days prior to the date on which such resignation is to become effective. The
Company shall, promptly after receiving such notice, appoint a substitute paying
agent and conversion agent which shall thereafter be the Paying Agent and
Conversion Agent hereunder. Whenever the Company in its discretion determines
that it is in the best interest of the Holders to do so, it may appoint a
substitute paying agent and conversion agent, which shall thereafter be the
Paying Agent and Conversion Agent hereunder. Each such
21
substitute paying agent and conversion agent shall deliver to the Company
forthwith upon its appointment an acceptance of such appointment satisfactory in
form and substance to the Company. Immediately upon any such change, the Company
shall inform the Trustee, which shall thereafter cause prompt notice thereof in
writing to be provided to all Holders.
Upon the appointment of any successor trustee hereunder, the
Paying Agent and Conversion Agent then acting hereunder shall forthwith become,
without any further act or writing, subject to the direction of such successor
trustee and the appointment of such successor trustee shall in no way impair the
authority of the Paying Agent and Conversion Agent hereunder; but the successor
trustee so appointed shall, nevertheless, on the written request of the Paying
Agent and Conversion Agent, execute and deliver to the Paying Agent and
Conversion Agent all such instruments as may be proper to give to the Paying
Agent and Conversion Agent full and complete power and authority as agent
hereunder of such successor trustee.
Each of the Agents shall be obligated to perform such duties
and only such duties as are herein and in the Debentures specifically set forth
and as are required by applicable law and no implied duties or obligations shall
be read into this Indenture or the Debentures against the Agents. Upon notice to
the Company, none of the Agents shall be under any obligation to take any action
hereunder which may tend to involve them in any expense or liability, the
payment of which within a reasonable time is not, in their reasonable opinion,
assured to them.
22
II.7. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that, subject to Article XIII, the Paying Agent
shall hold in trust for the benefit of Holders or the Trustee all money held by
the Paying Agent for the payment of principal of or interest on the Debentures,
and shall notify the Trustee of any default by the Company or any other obligor
upon the Debentures in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company) shall have no further liability for the money. If
the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold as
a separate trust fund all money held by it as Paying Agent.
23
II.8. Exchange, Registration and Transfer of Debentures.
The Company shall keep, or cause to be kept, at the office or
agency to be maintained by the Company as provided in Section 2.6, a "Register"
or "Registers" in which, subject to such reasonable regulations as it may
prescribe, it shall register all Debentures and transfers and exchanges of
Debentures. The Registrar shall keep records of the Debentures at its office in
New York City, which records shall indicate the dates on which any Debentures
have been redeemed or otherwise paid, canceled or, in the case of mutilated,
defaced, destroyed, stolen or lost Debentures, replaced and the dates on which
interest on Debentures has been paid. Upon surrender at such office or agency of
any Debentures for registration of transfer, the Company shall execute and
register and the Trustee shall authenticate and deliver in the name of the
transferee or transferees a new Debenture or Debentures for the same aggregate
principal amount, and no registration of transfer of any Debentures shall be
valid as against the Company or the Trustee unless made at such office or
agency.
The authorized denominations of Debentures shall be
interchangeable in equal aggregate principal amounts. Debentures to be exchanged
shall be surrendered at the office or agency to be maintained by the Company for
the purpose as provided in Section 2.6, and the Company shall execute and
register and the Trustee shall authenticate and deliver in exchange therefor the
Debenture or Debentures that the Holder making the exchange shall be entitled to
receive.
The Registrar may decline to effect any exchange or transfer
of Debentures during the period of 15 days preceding the due date for any
payment of principal of, or premium, if any, or interest on, the Debentures or
the redemption of the Debentures.
The Debentures have not been registered under the Securities
Act in reliance upon Regulation S.
24
Each Debenture issued under this Indenture (and all Debentures
issued under the transfer thereof, in exchange therefor or in substitution
thereof) shall bear a legend in substantially the following form:
THE DEBENTURE(S) REPRESENTED HEREBY ARE EACH PART OF A NONDETACHABLE UNIT, EACH
UNIT CONSISTING OF ONE SF 1,000 PRINCIPAL AMOUNT 4.5% CONVERTIBLE SUBORDINATED
DEBENTURE AND 24 COMMON STOCK PURCHASE WARRANTS. SAID DEBENTURE AND WARRANTS MAY
NOT BE TRANSFERRED OR TRADED SEPARATELY, AND ANY PURPORTED TRANSFER OF EITHER OF
SUCH SECURITIES SEPARATELY FROM THE OTHER SHALL BE VOID AND SHALL NOT BE
RECORDED ON THE BOOKS AND RECORDS OF THE COMPANY. DEBENTURES MAY ONLY BE
CONVERTED IN THEIR ENTIRETY; AND EACH DEBENTURE TO BE CONVERTED MUST BE
ACCOMPANIED BY THE RELATED 24 WARRANTS FOR EXERCISE OR CANCELLATION IN
ACCORDANCE WITH THE TERMS THEREOF.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO
REGULATION S, AN EXEMPTION FROM REGISTRATION PURSUANT TO THE PROVISIONS UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THESE SECURITIES MAY NOT BE TRANSFERRED, OFFERED OR SOLD PRIOR TO THE END OF THE
FORTY (40)-DAY PERIOD (THE "RESTRICTED PERIOD") COMMENCING ON THE LATER OF (I)
THE DATE THE SECURITIES ARE FIRST OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS
DEFINED IN REGULATION S) OR (II) THE DATE OF THE FINAL CLOSING OF THE OFFERING
OF THE SECURITIES BY THE COMPANY, UNLESS SUCH TRANSFER, OFFER OR SALE (I) IS
MADE IN AN "OFFSHORE TRANSACTION" AND NOT TO A "U.S. PERSON" (OTHER THAN A
"DISTRIBUTOR") (AS SUCH TERMS ARE DEFINED IN REGULATION S) OR (II) IS MADE
PURSUANT TO REGISTRATION OR AN APPLICABLE EXEMPTION UNDER THE SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE CANNOT BE SOLD EXCEPT PURSUANT TO
THE TERMS AND CONDITIONS OF THE OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
BETWEEN THE COMPANY AND THE INITIAL HOLDER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY.
BY REQUESTING THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
AFTER THE RESTRICTED PERIOD, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IF
SUCH TRANSFER IS MADE TO A U.S. PERSON, THAT AT THE TIME OF SUCH TRANSFER
25
THE HOLDER IS NOT AN "AFFILIATE" OF THE COMPANY (AS SUCH TERM IS DEFINED IN THE
SECURITIES ACT) OR AN "UNDERWRITER" OR "DEALER" (AS SUCH TERMS ARE DEFINED IN
THE SECURITIES ACT), HAS NOT ENGAGED IN ANY SHORT SALES OR SIMILAR HEDGE
TRANSACTIONS WITH RESPECT TO THE COMPANY'S SHARES OF COMMON STOCK DURING THE
RESTRICTED PERIOD, IS NOT A "DISTRIBUTOR" AND SUCH TRANSFER IS NOT BEING MADE AS
PART OF A PLAN OR SCHEME TO EVADE THE REGISTRATION PROVISIONS OF THE SECURITIES
ACT.
All Debentures presented or surrendered for registration of
transfer or exchange, shall (if so required by the Company or the Trustee) be
duly endorsed by, or be accompanied by written instrument or instruments of
transfer in form satisfactory to the Company and the Trustee duly executed by,
the registered Holder or his attorney duly authorized in writing.
For any exchange or registration of transfer of Debentures,
the Company, at its option, may require the payment of a sum sufficient to
reimburse it for any tax or other governmental charge that may be imposed in
relation thereto. No service charge shall be made for any such transaction.
II.9. Mutilated, Destroyed, Lost or Stolen Debentures.
In case any Debenture shall become mutilated or be destroyed,
lost or stolen, the Company in its discretion may execute, and upon its request
the Trustee shall authenticate and deliver, a new Debenture, bearing a number
not contemporaneously outstanding, in exchange and substitution for the
mutilated Debenture or in lieu of and substitution for the Debenture so
destroyed, lost or stolen.
In every case, the applicant for a substituted Debenture shall
furnish to the Company and to the Trustee such security or indemnity as may be
required by them to save each of them, and, if requested, any Paying Agents, any
Conversion Agents and Debenture Registrars of the Company, harmless from all
risk, and the applicant shall also furnish to the Company and to the Trustee
evidence to
26
their satisfaction of the mutilation, destruction, loss or theft of the
applicant's Debenture and of the ownership thereof. Upon the issuance of any
substituted Debenture, the Company may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses, including counsel fees, of the Company, the
Trustee, and any Paying Agent, any Conversion Agent or Debenture Registrar,
connected therewith.
In case any Debenture, the principal amount of which has
become due and payable, shall become mutilated or be destroyed, lost or stolen,
the Company may, instead of issuing a substitute Debenture, pay or authorize the
payment of the same (without surrender thereof except in the case of a mutilated
Debenture) if the applicant for such payment shall furnish to the Company and
the Trustee such security or indemnity as it may require to save it harmless,
and evidence to the satisfaction of the Company of the mutilation, destruction,
loss or theft of such Debenture and of the ownership thereof.
Every Debenture issued pursuant this Section 2.9 in
substitution for any Debenture that is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Debenture shall be found at any time, or be
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Debentures duly
issued hereunder. All Debentures shall be held and owned upon the express
condition that the foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Debentures and
shall preclude any and all other rights or remedies, notwithstanding any law or
statute existing or hereinafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.
II.10. Cancellation of Surrendered Debentures.
All Debentures surrendered for the purpose of payment,
redemption, conversion, exchange or transfer, in
27
whole or in part, shall be canceled and delivered to the Trustee, or, if
surrendered to the Trustee, shall be canceled by it, and no Debentures shall be
issued in lieu thereof except as expressly required or permitted by any of the
provisions of this Indenture. On request of the Company, the Trustee shall
deliver to the Company canceled Debentures held by the Trustee. With the consent
of the Company, the Trustee may destroy canceled Debentures and deliver a
certificate of destruction to the Company. If the Company shall acquire any of
the Debentures, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Debentures unless and until
the same are canceled and delivered to the Trustee or surrendered to the Trustee
for cancellation.
II.11. Provisions of Indenture and Debentures for Sole
Benefit of Persons Identified.
Nothing in this Indenture or in the Debentures, expressed or
implied, shall give or be construed to give to any Person other than the parties
hereto, the Conversion Agent, the Paying Agent, the Registrar, the Holders of
the Debentures and, to the extent provided in Article XIII hereof, the holders
of Senior Indebtedness, any legal or equitable right, remedy or claim under or
in respect of this Indenture, or under any covenant, condition or provision
herein contained, all of covenants, conditions and provisions herein being for
the benefit of the parties hereto, the Conversion Agent, the Paying Agent, the
Registrar, the Holders of the Debentures and, to the extent provided in Article
XIII hereof, the holders of Senior Indebtedness.
II.12. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company
may execute, and upon written order of the Company the Trustee shall
authenticate and deliver, temporary Debentures that are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Debentures in lieu of which they
are issued and
28
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Debentures may determine, as evidenced by their
execution of such Debentures.
If temporary Debentures are issued, the Company shall cause
definitive Debentures to be prepared without unreasonable delay. After the
preparation of definitive Debentures, the temporary Debentures shall be
exchangeable for definitive Debentures upon surrender of the temporary
Debentures at any office or agency of the Company designated pursuant to Section
2.6, without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Debentures the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Debentures of authorized denominations. Until so exchanged the
temporary Debentures shall in all respects be entitled to the same benefits
under this Indenture as definitive Debentures.
II.13. Appointment to Fill Vacancy in Office of Trustee.
The Company, whenever necessary to avoid or fill a vacancy in
the office or Trustee, shall appoint, in the manner provided in Section 8.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
III
REDEMPTION OF DEBENTURES
III.1. Debentures Redeemable.
(a)The Debentures may be redeemed by the Company, as a
whole or from time to time in part, at any time on or after the third
anniversary of the Initial Closing Date and prior to maturity or conversion, at
a redemption price equal to 100% of the principal amount to be redeemed plus
accrued and unpaid interest to the date fixed for redemption.
29
(b)The Debentures may also be redeemed, at any time as a whole
but not in part, at a redemption price equal to 100% of the principal amount
plus accrued and unpaid interest to the date fixed for redemption, if, as a
result of any change in or amendment to the laws, regulations or published tax
rulings of the United States, or any political subdivision or taxing authority
thereof or therein, affecting taxation, or any change in the official
administration, application or interpretation of such laws, regulations or
published tax rulings either generally or in relation to the Debentures, which
change or amendment becomes effective on or after the Initial Closing Date or
which change in official administration, application or interpretation shall not
have been available to the public prior to such date and is notified to the
Company on or after such date, it is determined by the Company that the Company
would be required to pay any Additional Payments pursuant to Section 2.2(b) of
this Indenture or the terms of any Debenture in respect of interest on the next
succeeding Interest Payment Date. At the option of the Company, such redemption
may be paid in cash or by delivery of shares of Common Stock in the manner
described under Article XVI.
III.2. Mailing of Notice of Redemption;
Selection of Debentures in Case Less
Than All Debentures to be Redeemed.
Debentures may be redeemed only in integral multiples of SF
1,000, except to the extent that all remaining Debentures that are outstanding
are redeemed.
Notice of redemption to the Holders of Debentures to be
redeemed, in whole or in part, shall be given by providing prompt notice, not
later than on the thirtieth day before the date fixed for redemption, to such
Holders at their last addresses as they shall appear upon the books of the
Company. Any notice that is provided in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the registered
Holder receives the notice. In any case, failure to duly give notice as
aforesaid, or any defect in the notice, to the Holder of any Debenture
designated for redemption in
30
part, shall not affect the validity of the redemption of any other Debenture.
Each such notice of redemption (i) shall specify the date
fixed for redemption, the aggregate principal amount of Debentures to be
redeemed and the redemption price at which Debentures are to be redeemed, (ii)
shall specify where payment of the redemption price is to be made, upon
presentation and surrender of such Debentures, (iii) shall state that accrued
and unpaid interest to the date fixed for redemption shall be paid as specified
in said notice, that from and after said date interest thereon shall cease to
accrue, and that the right to convert the principal of the Debentures so to be
redeemed shall terminate at the close of business on the date fixed for
redemption, (iv) shall state the then-applicable Holder Conversion Price, (v)
shall state the name and address of the Conversion Agent, (vi) shall state the
date and time as of which the Debentures being redeemed may no longer be
converted pursuant to the Indenture, (vii) shall specify the paragraph of the
Indenture pursuant to which the Debentures are being redeemed, and (viii) shall
state that interest on the Debentures ceases to accrue on and after the
redemption date (unless the Company shall default in the payment of the
redemption price). If less than all the Debentures are to be redeemed, the
notice to the Holders of Debentures to be redeemed shall specify the particular
Debentures to be redeemed. In case any Debenture is to be redeemed in part only,
the notice shall state the portion of the principal amount thereof to be
redeemed and shall state that on and after the redemption date, upon surrender
of such Debenture, a new Debenture or new Debentures in principal amount equal
to the unredeemed portion thereof shall be issued. Any notice to a
Debentureholder designating all or a portion of such Holder's Debentures for
redemption may, but need not, specify the serial number of the Debenture or
Debentures to be redeemed, and any failure so to specify or any error in such
specification shall not affect the validity of such designation. If any
Debenture selected for partial redemption is converted in part for shares of
Common Stock before the termination of such conversion right with respect to the
portion of such Debenture so selected, the converted portion of such De-
31
benture shall be deemed (so far as may be) to be the portion selected for
redemption.
The Company shall give the Trustee written notice of any
proposed redemption (or such lesser notice as shall be acceptable to the
Trustee) at least thirty days prior to the date fixed for redemption, which
notice shall set forth the aggregate principal amount of Debentures to be
redeemed. If less than all the Debentures are to be redeemed, the Company, in
its sole discretion, shall select the particular Debentures or parts thereof so
to be redeemed according to such method as the Company shall in its sole
discretion deem fair and appropriate.
On or before the date fixed for redemption, the Company shall
deposit with the Trustee or with a Paying Agent an amount of money sufficient to
pay the redemption price of, and the unpaid and accrued interest, if any, on all
the Debentures that are to be redeemed on such date. The amount of money that
the Company is obligated to deposit with the Trustee pursuant to the preceding
sentence shall be reduced automatically by the amount attributable to any
Debentures or portions thereof that have been called for redemption, repurchased
or converted. Any money that has been deposited with the Trustee for redemption
of Debentures but that is not in fact required for that purpose pursuant to the
foregoing sentence shall (subject to any right of the Debentureholder of such
Debenture or Predecessor Debenture to receive interest as provided in Section
2.2) be promptly repaid to the Company, and discharged from such trust, upon
delivery to the Trustee (unless already in its possession) of such redeemed,
repurchased or converted Debentures for cancellation.
32
III.3.When Debentures Called for Redemption Become Due and
Payable.
If a notice of redemption shall have been given as provided in
Section 3.2, the Debentures or portions of Debentures specified in such notice
shall become due and payable on the date and at the place stated in such notice
at the redemption price, together with accrued and unpaid interest to the date
fixed for redemption, and on and after such date (unless the Company shall
default in the payment of such Debentures or portions thereof at the redemption
price, together with accrued and unpaid interest to the date fixed for
redemption, or unless such Debentures shall be duly surrendered for total or
partial conversion and the Company shall default in the observance of its
covenants in this Indenture contained in regard to such conversion), interest on
the Debentures or portions of Debentures so called for redemption shall cease to
accrue and any right to convert into Common Stock of the Company the principal
of the Debentures or portions of Debentures so called for redemption shall
terminate at the close of business on said date. On presentation and surrender
of such Debentures on or after said date at the place specified in such notice,
such Debentures shall be paid and redeemed by the Company at the applicable
redemption price, together with accrued and unpaid interest to the date fixed
for redemption. Installments of interest due on or prior to the date fixed for
redemption shall continue to be payable to the Holders of such Debentures on the
relevant Record Dates according to their terms and the provisions of Section
2.2.
III.4.Discharge of Company's Obligations Upon Deposit of
Redemption Moneys.
Anything contained in this Indenture to the contrary
notwithstanding, if notice of redemption shall have been given as provided in
Section 3.2, or if provision satisfactory to the Trustee for the giving of such
notice shall have been made, and if the Company shall have deposited with the
Trustee or with any Paying Agent (other than the Company), for the benefit of
the Holders of any
33
of the Debentures called for redemption in whole or in part, funds (to be
immediately available for payment) sufficient to redeem the Debentures to be
redeemed on the date fixed for redemption, at the applicable redemption price,
together with accrued and unpaid interest to the date fixed for redemption, then
all obligations of the Company in respect of such Debentures shall cease and be
discharged (except the obligation to issue shares of Common Stock of the Company
upon conversion of Debentures on or prior to the redemption date in accordance
with the terms of this Indenture and the Debentures), and the Holders of such
Debentures shall thereafter be restricted exclusively to such funds for any and
all claims of whatever nature on their part under this Indenture, or in respect
of such Debentures (except with respect to any rights of conversion as above
stated).
III.5.Issuance of Debentures for Unredeemed Portions of
Debentures.
Upon presentation of any Debenture that is to be redeemed in
part only, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Debenture or
Debentures of authorized denominations in principal amount equal to the
unredeemed portion of the Debenture so presented.
III.6.Sinking Fund
(a) Dates and Amounts of Sinking Fund Payments.
As and for a mandatory sinking fund, the Company covenants and
agrees that it shall pay to the Trustee, not less than one Business Day, on or
before the anniversary of the Initial Closing Date in each of the years 2000 to
2003 (each a "Sinking Fund Payment Date") an amount of money equal to 25% of the
aggregate amount of Debentures originally issued at 100% of their principal
amount together with accrued and unpaid interest thereon to the applicable
Sinking Fund Payment Date. The cash amount of any sinking fund payment shall be
subject to reduction as provided in Section 3.6(b). The Trustee shall apply cash
sinking fund payments to the redemption of Debentures on the applicable Sinking
Fund Payment Date.
34
(b)Right to Satisfy Sinking Fund Payments with Debentures. In
lieu of making all or any part of any mandatory sinking fund payment in cash,
the Company may at its option deliver to the Trustee any Debentures theretofore
acquired by the Company or redeemed by the Company (other than pursuant to this
Section 3.6) or converted pursuant to Article IV, and the principal amount of
such Debentures shall be credited against the principal amount portion of the
mandatory sinking fund payment (and the interest portion shall be reduced as
well, provided that the Company shall receive credit for any such Debenture only
once).
(c)Redemption of Debentures for the Sinking Fund. On or before
the sixtieth day prior to each Sinking Fund Payment Date, the Company shall
deliver to the Trustee (i) a certificate signed by the treasurer or an assistant
treasurer of the Company specifying the portions of such sinking fund payment to
be satisfied by payment of cash and by delivery of Debentures so acquired by the
Company, and (ii) such Debentures, and the Company shall deliver to the Trustee
any Debentures for which it is seeking credit. On or before the thirtieth day
prior to each Sinking Fund Payment Date, the Company, in its sole discretion,
shall select the Debentures or portions thereof to be redeemed on the next
Sinking Fund Payment Date, and the Trustee shall cause notice of redemption of
such Debentures on such Sinking Fund Payment Date to be given in the name of the
Company and in the manner provided in Section 3.2 for the redemption of
Debentures in part at the option of the Company, except that the notice of
redemption shall state that such redemption is for sinking fund purposes, and on
and after such Sinking Fund Payment Date the Trustee shall apply or cause to be
applied such sinking fund moneys in the manner provided in Section 3.3 to the
redemption of the Debentures so selected.
35
(d)Effect of Redemption on Warrants. Holders of Debentures
whose Debentures are redeemed through operation of the sinking fund will not be
required to exercise the Warrants attached to such Debentures. However, any
unexercised Warrants will expire upon such payment of the Debentures.
IV
CONVERSION OF DEBENTURES
IV.1.Right of Debentureholders to Convert Debenture Into
Common Stock of Company.
The Debentures may be converted by Holders, in whole or in
part, from time to time, commencing ninety days following the Initial Closing
Date and on or before the close of business prior to the seventh anniversary of
the Initial Closing Date, or the date of redemption (or if that day is not a
Business Day, on the preceding Business Day), at any time on at least five days'
written notice to the Company, at the conversion prices described herein (except
that, in respect of any Debenture or Debentures, or portion thereof, called for
redemption before such date pursuant to Article Three hereof, such right shall
terminate at the close of business on the date fixed for such redemption unless
the Company shall default in payment due upon redemption thereof) to convert,
subject to the terms and provisions of this Article IV, the principal amount of
any such Debenture or Debentures, or portion thereof as hereinafter provided,
into (a) such whole number of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock (the "Debenture Conversion Shares") as
determined by dividing (y) the principal amount of Debentures to be converted by
(z) the Holder Conversion Price, (b) an amount of money payable in Swiss Francs
equal to the accrued and unpaid interest thereon to the date of conversion, and
(c) an amount of money equal to the value of the fractional share remainder, if
any, resulting from the calculation described in clause (a) above, to be paid in
Swiss Francs based on the Holder Conversion Price per share.
36
"Holder Conversion Price" means the product of (w) the
applicable Stock Price Factor, (x) the applicable Exchange Rate Factor, (y) the
applicable Holder Conversion Percentage Factor and (z) the applicable
Antidilution Factor.
"Stock Price Factor" means a factor, to be calculated by the
Company with respect to each December 15, February 15, April 15, June 15, August
15, and October 15 (each a "Reset Date"), and to be applicable in the two full
calendar months following the Reset Date, and equal to the average daily Nasdaq
closing price per Share (or, if the Company is listed or quoted on an exchange
in the United States other than Nasdaq, the closing price on such exchange), for
the thirty trading days immediately preceding the applicable Reset Date;
provided that in no event shall the Stock Price Factor be less than U.S. $12.00
(as adjusted, if required, as provided in Section 4.5), regardless of the actual
Stock Price Factor otherwise determined.
"Exchange Rate Factor" means a factor, to be calculated by the
Company with respect to each Reset Date, and to be applicable in the two full
calendar months following the Reset Date, and equal to the average Noon Buying
Rate (as defined below) for the thirty trading days immediately preceding the
applicable Reset Date; provided that in no event shall the Exchange Rate Factor
be less than 1.1175. "Noon Buying Rate" means the exchange rate for one U.S.
dollar expressed in Swiss Francs, based upon the noon buying rate in New York
City for cable transfers in Swiss Francs, as certified for customs purposes by
the Federal Reserve Bank of New York.
"Holder Conversion Percentage Factor" means a conversion
percentage, determined on the date notice of conversion is given, which shall be
(i) 100% until the day preceding the third anniversary of the Initial Closing
Date, (ii) 95% from the third anniversary of the Initial Closing Date until the
day preceding the fourth anniversary of the Initial Closing
37
Date; (iii) 90% from the fourth anniversary of the Initial Closing Date until
the day preceding the fifth anniversary of the Initial Closing Date; (iv) 85%
from the fifth anniversary of the Initial Closing Date until the day preceding
the sixth anniversary of the Initial Closing Date; and (v) 80% from the sixth
anniversary of the Initial Closing Date until the seventh anniversary of the
Initial Closing Date.
Debentures may be converted only in the principal amount
thereof consisting of SF 1,000 or an integral multiple of SF 1,000. If any
Debenture is converted in part, the Company, on surrender of such Debenture for
conversion, shall execute such new Debenture or Debentures and shall deliver to
the Trustee (a) the surrendered Debenture for cancellation, or if such Debenture
has been duly cancelled by the Company, such duly cancelled Debenture, (b) such
new Debenture or Debentures for authentication, and (c) unless the Trustee is a
conversion agent, a statement signed by any officer of the Company, or by any
agent maintained by the Company for conversion of Debentures in accordance with
the provisions of Section 2.6, stating the principal amount of the surrendered
Debenture which has been converted and requesting the authentication of such new
Debenture or Debentures; and thereupon the Trustee shall authenticate and the
Company shall deliver or cause to be delivered such new Debenture or Debentures
to such Debentureholder.
IV.2. Right of Company to Convert
Debenture into Common Stock of
Company.
The Debentures may be converted by the Company, in whole or
from time to time in part, into (a) that whole number of Debenture Conversion
Shares determined by dividing (y) the sum of the principal amount of Debentures
to be converted, by (z) the Company Conversion Price, (b) an amount of money
payable in Swiss Francs equal to the accrued and unpaid interest thereon to the
date of conversion, and (c) an amount of money equal to the value of the
fractional share remainder, if any, resulting from the calculation described in
clause (a) above, to be paid in Swiss Francs based on the Company Conversion
Price per share.
38
"Company Conversion Price" means the product of (w) the
applicable Stock Price Factor, (x) the applicable Exchange Rate Factor, (y) the
applicable Company Conversion Percentage Factor and (z) the applicable
Antidilution Factor.
"Company Conversion Percentage Factor" means a conversion
percentage, determined on the date notice of conversion is given, which shall be
(i) 100% until the day preceding the third anniversary of the Initial Closing
Date, (ii) 92.5% from the third anniversary of the Initial Closing Date until
the day preceding the fourth anniversary of the Initial Closing Date; (iii)
87.5% from the fourth anniversary of the Initial Closing Date until the day
preceding the fifth anniversary of the Initial Closing Date; (iv) 82.5% from the
fifth anniversary of the Initial Closing Date until the day preceding the sixth
anniversary of the Initial Closing Date; and (v) 77.5% from the sixth
anniversary of the Initial Closing Date until the seventh anniversary of the
Initial Closing Date.
IV.3. Exercise of Conversion Privilege.
Debentures may be converted only in units of SF 1,000 and
integral multiples thereof. A holder of Debentures desiring to convert
Debentures will not be required to exercise the attached Warrants. However, if
the Warrants are unexercised, they will expire upon such conversion by the
holder of Debentures or upon conversion or redemption at the option of the
Company. In addition, during the period beginning 90 days after the Initial
Closing Date and ending 119 days following the Initial Closing Date, any
conversion of Debentures will necessarily result in the expiration of the
Warrants attached thereto.
A Holder may exercise the conversion privilege by completing
the Conversion Notice that is a part of the Debenture and surrendering to the
Company, at the office or agency to be maintained by the Company for the purpose
in accordance with the provisions of Section 2.6, the Debenture or Debentures so
to be converted. The Conver-
39
sion Notice shall also state the name or names (together with address and tax
identification number to the extent required), if different from the name of the
registered Holder, in which the certificate or certificates for such shares of
Common Stock shall be issued. Debentures surrendered for conversion shall (if so
required by the Company or the Trustee) be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the registered Holder or his duly authorized attorney, and be accompanied by a
signature guaranty by a commercial bank or trust company or other institution
which may be required under applicable laws or regulations, and any Debentures
so surrendered during the period from the close of business on any Record Date
for the payment of interest on the Debentures to the opening of business on the
interest payment date shall (except in the case of Debentures or portions
thereof which have been called for redemption on a redemption date within such
period) be accompanied by payment in funds acceptable to the Company of an
amount equal to the interest payable on such interest payment date; provided
that no such payment need be made if there shall exist at the time of conversion
a default in the payment of interest on the Debentures. An amount equal to the
quarterly interest payment due in respect of any Debenture converted shall be
paid by the Company on the interest payment date to the Debentureholder of such
converted Debenture on such Record Date, provided that if the Company defaults
in payment of interest on such interest payment date, the amount previously paid
by the Debentureholder to the Company in respect of interest upon conversion of
Debentures shall be repaid to the Debentureholder. Except as expressly set forth
in this Section 4.3, no payment or adjustment shall be made on conversion of any
Debenture for interest accrued thereon or for dividends on securities issued
upon such conversion.
IV.4. Issuance of Shares of Common Stock
on Conversion.
As promptly as practicable after the surrender of any
Debenture or Debentures for conversion in the manner herein provided, the
Company shall deliver or cause to be delivered, at its said office or agency at
which such
40
surrender is made, to or upon the written order of the Holder of the Debenture
or Debentures so surrendered, certificates representing the number of duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
of the Company into which such Debenture or Debentures may be converted in
accordance with the provisions of this Article IV and cash as provided in this
Article IV in respect of any accrued and unpaid interest and/or fraction of a
share of Common Stock issuable upon such conversion. Subject to the following
provisions of this Section 4.4, such conversion shall be deemed to have been
made immediately prior to the close of business on the date on which such
Debenture or Debentures shall have been surrendered for conversion in the manner
herein provided accompanied by written notice and the funds, if any, required by
Section 4.10, so that the rights of the Holder of such Debenture or Debentures
as a Debentureholder shall cease at such time and the person or persons entitled
to receive the shares of Common Stock upon conversion of such Debenture or
Debentures shall be treated for all purposes as having become the record holder
or holders of such shares of Common Stock at such time; provided that no such
surrender on any date when the stock transfer books of the Company shall be
closed shall be effective to constitute the person or persons entitled to
receive shares of Common Stock, upon conversion of such Debenture or Debentures,
as the record holder or holders of such shares on such date, but such surrender
shall be effective to constitute the person or persons entitled to receive such
shares of Common Stock as the record holder or holders thereof for all purposes
at the opening of business on the next succeeding day on which such stock
transfer books are open and such conversion shall be at the applicable
Conversion Price in effect at such time.
Shares of Common Stock which are issuable upon the conversion
of Debentures which have been duly surrendered for conversion as provided herein
shall be deemed to be issued to the registered Holder thereof on the date of
such surrender; provided, however, that no such surrender on any date when the
stock transfer books of the Company shall be closed shall be effective to
constitute the person entitled to receive such shares of Common Stock as the
record holder thereof on such date, but such surrender
41
shall be effective to constitute the person entitled to receive such shares of
Common Stock as the record holder thereof for all purposes immediately after the
opening of business on the next succeeding day on which such stock transfer
books are open.
IV.5. Adjustment of Antidilution Factor.
The Antidilution Factor referred to in the calculation of the
Conversion Prices Sections 4.1 and 4.2 shall be subject to adjustment from time
to time as follows:
(a) In the event that the Company shall at any time after the
date hereof subdivide or combine the outstanding shares of Common Stock or issue
additional shares of Common Stock as a dividend or other distribution on the
Common Stock, the Antidilution Factor in effect immediately prior to such
subdivision or combination of shares or share dividend or distribution shall be
proportionately adjusted so that, with respect to each such subdivision of
shares or share dividend or distribution, the number of shares of the Common
Stock deliverable upon conversion of each SF 1,000 principal amount of the
Debentures shall be increased in proportion to the increase in the number of
shares of the then outstanding Common Stock resulting from such subdivision of
shares or share dividend or distribution, and with respect to each such
combination of shares, the number of shares of the Common Stock deliverable upon
conversion of each SF 1,000 principal amount of the Debentures shall be
decreased in proportion to the decrease in the number of shares of the then
outstanding Common Stock resulting from such combination of shares. Any such
adjustment in the Antidilution Factor shall become effective, in the case of any
such subdivision or combination of shares, at the close of business on the
effective date thereof, and, in the case of any such share dividend or
distribution, at the close of business on the record date fixed for the
determination of shareholders entitled thereto or on the first Business Day
during which the stock transfer books of the Company shall be closed for the
purpose of such determination, as the case may be.
42
(b)Notwithstanding anything in Sections 4.1 and 4.2 to the
contrary, in the case of any capital reorganization or any reclassification of
the Common Stock, or in the case of the consolidation or merger of the Company
with or into any other corporation or in case of any sale or transfer of all or
substantially all of the assets of the Company as may be permitted by the
provisions hereof, the Company and each Holder of the Debentures then
outstanding shall have the right thereafter to convert the principal amount of
each such Debenture into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification,
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock of the Company into which such Debenture might have been converted
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or transfer; and, in any such case, appropriate adjustment (as
determined in good faith by the Board of Directors of the Company) shall be made
in the application of the provisions of this Article IV (including provisions
with regard to the adjustment of the Conversion Price) in order that the rights
and interests of the holders thereafter shall be as nearly equivalent as may be
practicable to the rights and interests provided for in this Article IV.
In case of any consolidation or merger of the Company with or
into any other corporation (other than a consolidation or merger in which the
Company is the continuing corporation), or in case of any sale or transfer of
all or substantially all of the assets of the Company, the corporation formed by
such consolidation or the corporation into which the Company shall have been
merged or the corporation which shall have acquired such assets, as the case may
be, shall execute and deliver to the Trustee a supplemental indenture providing
for the rights of the holders as set forth in the preceding paragraph.
The Trustee shall not be under any responsibility to determine
the correctness of any provisions contained in any such supplemental indenture
relating either to the kind or amount of shares of stock or securities or
property receivable by the holders upon the conversion of their Debentures after
any such consolidation, merger,
43
sale or transfer or to any adjustment to be made with respect thereto. Upon the
delivery to the Trustee of any such supplemental indenture, the Company shall
deliver or cause to be delivered to the Trustee a resolution of the Board of
Directors and the Trustee may accept such resolution as conclusive evidence of
the correctness of any such provisions and shall be protected in relying
thereon. At the time of the delivery of such resolution the Company shall also
deliver or cause to be delivered to the Trustee an Opinion of Counsel as to the
compliance of any such provisions with the terms of this Indenture.
(c)Whenever the Company shall fix a record date for the
holders of the Common Stock for the purpose of determining the holders entitled
to subscribe for or purchase shares of Common Stock at a price per share less
than the Closing Price of the Common Stock as of such record date, the
Antidilution Factor shall be adjusted so that the number of shares of the Common
Stock into which each SF 1,000 principal amount of the Debentures shall
thereafter be convertible shall be determined by multiplying the number of
shares of the Common Stock into which such SF 1,000 principal amount of the
Debentures was theretofore convertible by a fraction of which the numerator
shall be the number of shares of the Common Stock outstanding immediately prior
to the taking of such record plus the number of additional shares of Common
Stock offered for subscription or purchase and of which the denominator shall be
the number of shares of the Common Stock outstanding immediately prior to the
taking of such record plus the number of shares of the Common Stock which the
aggregate offering price (without deduction of any expenses, including
commissions or discounts) of the total number of shares of the Common Stock so
offered would purchase at the Closing Price of the Common Stock as of such
record date. In the case of the proposed issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors of the Company. This Section 4.5(c) shall not apply in the case of any
shares of Common Stock proposed to be issued by the Company as or as a result of
a stock dividend payable in shares of Common Stock or as a
44
result of any subdivision or split-up of the outstanding shares of Common Stock.
(d)Whenever the Company shall fix a record date for the
holders of the Common Stock for the purpose of determining the holders entitled
to receive any distribution of evidences of its indebtedness, capital stock or
assets (other than a regularly scheduled cash dividend and dividends payable in
stock for which adjustment is made pursuant to Section 4.5(a)), or rights to
subscribe for or purchase any evidences of the Company's indebtedness or assets
(other than rights referred to in the preceding Section 4.5(c)), the
Antidilution Factor shall be adjusted so that the number of shares of the Common
Stock into which each SF 1,000 principal amount of the Debentures shall
thereafter be convertible shall be determined by multiplying the number of
shares of the Common Stock into which such SF 1,000 principal amount of the
Debentures was theretofore convertible by a fraction, of which the numerator
shall be the Closing Price of one share of Common Stock as of the record date
and of which the denominator shall be the Closing Price of one share of the
Common Stock as of the record date less the difference between (A) the aggregate
fair market value (as determined in good faith by the Board of Directors of the
Company and as described in a statement filed with the Trustee) of the portion
of the assets, capital stock or evidences of indebtedness so distributed or of
such subscription or purchase rights, and (B) the consideration, if any,
received therefor, applicable to one share of Common Stock.
(e)Notwithstanding anything to the contrary provided herein,
no adjustment in the Antidilution Factor shall be required unless such
adjustment would result in an increase or decrease of at least 1% in the
Conversion Price or the Conversion Price as last adjusted pursuant to this
Section 4.5, as the case may be; provided that any adjustments which by reason
of this Section 4.5(e) are not required to be made shall be carried forward
until used and taken into account in any subsequent adjustment.
(f) The provisions of this Section 4.5 shall similarly apply
to successive subdivisions, combinations, reorganizations, reclassification,
consolidations, merg-
45
ers, sales or transfers. Adjustments made pursuant to Sections 4.5(c) and (d)
shall be made successively whenever any record date referred to therein is
fixed; and in the event that any rights offering or subscription referred to in
such Sections is not made, the Antidilution Factor shall again be adjusted to be
the Antidilution Factor which would then be in effect if such record date had
not been fixed.
IV.6. No Fractional Shares to be Issued;
Cash Payments in Lieu Thereof.
No fractional shares shall be issued upon the conversion of
the Debentures. If more than one Debenture shall be surrendered for conversion
at one time by the same holder, the number of full shares that shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Debentures (or specified portions thereof to the extent
permitted hereby) so surrendered. Instead of any fractional share of Common
Stock that would be issuable upon conversion of any Debenture or Debentures or
specified portions thereof, the Company shall pay a cash adjustment as provided
in Section 4.1 or 4.2, as the case may be.
IV.7. Accountants' Certificate Evidence of
Correctness of Computation.
The certificate of any firm of independent public accountants
of recognized standing reasonably acceptable to the Company selected by the
Board of Directors shall be conclusive evidence of the correctness of any
computation made under this Article IV.
IV.8. Notice of Corporate Action.
In the event:
(a) the Company shall declare any dividend on the Common Stock
payable in shares of capital stock of the Company, cash or other property; or
46
(b) The Company shall authorize the issue of any options,
warrants or rights pro rata to all holders of Common Stock entitling them to
subscribe for or purchase any shares of stock of the Company or to receive any
other rights; or
(c)The Company shall authorize the distribution pro rata to
all holders of Common Stock of a cash dividend payable otherwise than out of
earnings or surplus legally available therefor under the laws of the State of
Delaware, shares of its capital stock (other than Common Stock), stock or other
securities of other persons, evidences of indebtedness issued by the Company or
other persons, assets (excluding cash dividends) or options or rights (excluding
options to purchase and rights to subscribe for Common Stock or other securities
of the Company convertible into or exchangeable for Common Stock); or
(d) There shall occur any reclassification of the Common Stock
or any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification of the Common
Stock) or a sale or transfer to another corporation of all or substantially all
of the properties of the Company;
then the Company shall cause to be filed with the Trustee and at the office or
agency maintained for the purpose of conversion of Debentures pursuant to
Section 2.6 and shall cause to be delivered promptly to the holders at their
addresses as they shall appear in the Debenture register, at least 20 days (or
10 in any case specified in clause (a) or (b) above) prior to the applicable
date hereinafter specified, a notice stating (i) the date on which a record is
to be taken for the purpose of such dividend, distribution or rights, 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, distribution or rights are to be
determined, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be
47
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up.
IV.9. Covenant to Reserve Shares of Common
Stock for Issuance on Conversion of
Debentures and Exercise of Warrants.
The Company covenants that it shall at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issue upon conversion of Debentures, as herein provided, and exercise of
Warrants, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all outstanding Debentures and exercise of all
outstanding Warrants.
If any shares issuable upon the conversion of Debentures or
exercise of Warrants require registration with or approval of any governmental
authority under any federal or state law before such shares may be validly
issued upon conversion, then the Company covenants that it shall in good faith
and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be.
The Company covenants that all shares of Common Stock that may
be issued upon conversion of Debentures and exercise of Warrants shall upon
issue be duly authorized, validly issued, fully paid and non-assessable and,
except as provided in Section 4.10, free from all taxes, liens and charges with
respect to the issue thereof.
48
IV.10. Issuance of Certificates for Shares
of Common Stock, in Name of, or in
Name Directed by, Debentureholder.
The issuance of certificates for shares of Common Stock upon
the conversion of any Debenture shall be made without charge to the converting
Debentureholder for such certificates or of any tax in respect of the issuance
of such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the holder of the Debenture
converted; 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 certificates in a name other than that of the registered holder of
the Debenture converted, and the Company shall not be required to issue or
deliver such certificates unless and 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.
IV.11. Mailing of Notice Upon Adjustment
Pursuant to Section 4.5.
Whenever the Conversion Price shall be adjusted as a result of
a change in the Antidilution Factor pursuant to Section 4.5, the Company shall
forthwith file at the office maintained pursuant to Section 2.6 and, if
different, with the Trustee a statement signed by an Officer of the Company
specifying the adjusted Conversion Price determined as provided in such Section
and a certificate of a firm of independent public accountants as provided in
Section 4.7. Such statement shall show in reasonable detail the method of
calculation of such adjustment and the facts requiring the adjustment and upon
which the calculation is based. At such time, the Company shall forthwith cause
a notice setting forth the adjusted Conversion Price to be delivered promptly,
to each holder of Debentures at his address appearing on the registration books
of the Company and to any Conversion Agent other than the Trustee. Subject to
the provisions of Section
49
8.1, the Trustee and any such Conversion Agent shall be under no duty or
responsibility with respect to any such statement or certificate, except to
exhibit the same from time to time during reasonable business hours to any
Debentureholder desiring an inspection thereof.
IV.12. Responsibility of Trustee.
The Trustee shall not at any time be under any duty or
responsibility to any Debentureholder to determine whether any facts exist which
may require any adjustment of the Conversion Price, or with respect to the
nature or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. The Trustee shall not be accountable with respect to the
registration, listing, validity or value (or the kind or amount) of any shares
of Common Stock or of any securities or property which may at any time be issued
or delivered upon the conversion of any Debenture; and the Trustee makes no
representation with respect thereto. The Trustee shall not be responsible for
any failure of the Company to make any cash payment or to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property upon the surrender of any Debentures for the purpose of conversion or,
subject to the provisions of Section 8.1, to comply with any of the covenants to
be complied with by the Company or to fulfill any of the conditions to be
fulfilled by the Company contained in this Article IV.
V
COVENANTS OF THE COMPANY
The Company covenants as follows:
V.1 Payment of Principal of and Interest
on Debentures.
The Company shall duly and punctually pay, or cause to be
paid, the principal of, premium, if any, and interest on each of the Debentures
at the time and place
50
and in the manner provided in the Debentures and in this Indenture.
V.2. Taxes, Assessments, Governmental
Charges and Certain Claims.
The Company shall pay and discharge, and shall cause each
Subsidiary to pay and discharge before the same become in default (a) all Taxes
imposed upon it or its income or profits or upon any of its assets or any part
thereof and (b) all lawful claims against it for labor, materials and supplies
or otherwise, which if unpaid might become a Lien on such assets or any part
thereof or otherwise, excluding any such Tax or claim, the amount, applicability
or validity of which is being timely contested in good faith by appropriate
proceedings, provided the Company or such Subsidiary, as applicable, has
established on its books adequate reserves in respect thereof in accordance with
GAAP, provided that payment of any such Tax or claim shall be made before any
property of the Company or such Subsidiary is seized or sold in satisfaction
thereof.
V.3. Reporting Requirements.
The Company shall deliver to:
(a) the Trustee, copies of information, documents and reports
as described in, and in accordance with, Section 6.3; and
(b) the Trustee, promptly upon the Company obtaining knowledge
of (x) an Event of Default or Default, an Officer's Certificate specifying in
reasonable detail the nature and period of existence thereof and what action the
Company proposes to take with respect thereto or (y) a material adverse change
in the financial condition or operation of the Company and its Subsidiaries, an
Officer's Certificate setting forth in reasonable detail the nature and amount
of such change and the action the Company proposes to take with respect thereto.
V.4. Books and Records.
51
The Company shall, and shall cause each of its Subsidiaries
to, keep its books, records and accounts in accordance with GAAP applied on a
basis consistent with preceding years.
V.5. Maintenance of Insurance.
The Company shall maintain, and shall cause each Subsidiary to
maintain, with financially sound and responsible insurers, insurance with
respect to its properties and business against such casualties and contingencies
(including worker's compensation and public liability, larceny, embezzlement or
other criminal misappropriation) and in such amounts as is customary in the case
of similarly situated corporations engaged in the same or similar businesses and
not less than the following amounts of coverage: comprehensive general liability
insurance with limits of not less than $1,000,000 for injury or death per
occurrence and $3,000,000 umbrella liability coverage. From time to time, upon
written request by the Trustee at reasonable intervals, the Company shall
deliver a Schedule of Insurance specifying the details of such insurance in
effect.
52
V.6. Maintenance of Corporate Existence,
Properties, Etc.
Except to the extent otherwise permitted by this Indenture,
the Company shall, and shall cause each Subsidiary to, (i) do or cause or cause
to be done all things reasonably necessary to preserve, renew and keep in full
force and effect its corporate existence and the patents, trademarks, service
marks, trade names, service names, copyrights, licenses, permits, franchises and
other rights, including distributorship and franchise agreements, that continue
to be useful in some material respect to its business, (ii) at all times
maintain, preserve and protect all of its patents, trademarks, service marks,
trade names, service names, copyrights, licenses, permits, franchises and other
rights, including distributorship and franchise agreements, that continue to be
useful in some material respect to its business, and (iii) preserve all the
remainder of its property useful in the conduct of its business and keep the
same in good repair, working order and condition (ordinary wear and tear
excepted), and from time to time, make, or cause to be made, all needful and
proper repairs, renewals, replacements, betterments and improvements thereto so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
V.7. Type of Business.
The Company shall, and shall cause each Subsidiary to, remain
in substantially the same businesses in which the Company and its Subsidiaries
are engaged as of the date of this Indenture or in such other types of
businesses that are reasonably related or incidental thereto.
53
V.8. Merger or Sale of Assets.
Unless approved by a majority of the Independent Directors of
the Board of Directors of the Company, the Company shall not, and shall not
permit any Subsidiary to, merge, consolidate or exchange shares with any other
corporation, or sell, lease or transfer or otherwise dispose of any of its
assets to any Person, other than sales, leases, transfers or other dispositions
of inventory in the ordinary course of business or particular items of obsolete
or unnecessary equipment in the ordinary course of business, except:
(a) any Subsidiary may merge or consolidate with the Company
(provided that Company shall be the surviving corporation in any such
transaction) or with any one or more other Subsidiaries;
(b) any Subsidiary may sell, lease, transfer or otherwise
dispose of all or any substantial part of its assets to the Company or another
Subsidiary; and
(c) as otherwise expressly permitted by this Indenture.
V.9. Investments.
The Company shall not, and shall not permit any Subsidiary to,
make or have outstanding any loan or advance to, or own, purchase or acquire any
obligations (other than accounts receivable generated in the ordinary course of
business) or Securities of, or any interest in, or make any capital contribution
to or acquire all or substantially all of the assets of, any other Person,
except that the Company and any Subsidiary may: (i) acquire and own obligations
or Securities received in settlement of debt created in the ordinary course of
business that is owing to the Company or such Subsidiary; (ii) own, purchase or
acquire (A) commercial paper, banker's acceptances or certificates of deposit
issued by any United States commercial bank or enter into repurchase agreements
with such banks with respect to obligations described in this clause (ii), (B)
commercial paper of reputable issuers
54
located in the United States, which obligations have a short-term rating of A-1
or better by Standard & Poor's Corporation or P-1 by Moody's Investors Service,
Inc., (C) obligations of the United States government or any agency thereof, (D)
obligations guaranteed by the United States government or any agency thereof, in
each case such obligations described in this clause (ii) to be due within one
year and one day from the date of acquisition, and (E) shares or obligations of
mutual funds or money market funds that invest solely in obligations of the
types described earlier in this clause (ii); (iii) endorse negotiable
instruments for collection or deposit in the ordinary course of business; (iv)
own stock of Subsidiaries; and (v) acquire all or any portion of the assets or
Securities of any other Person if such acquisition is approved by a majority of
the Independent Directors of the Board of Directors of the Company.
V.10. Transactions with Affiliates.
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly purchase, acquire or lease any property from, or sell,
transfer or lease any property to, or otherwise deal with, in the ordinary
course of business or otherwise, any Affiliate, except upon terms not less
favorable to Company or the Subsidiary than if the Affiliate relationship did
not exist and provided the transaction is approved by a majority of the
Independent Directors of the Board of Directors of the Company.
V.11. Use of Proceeds.
The Company shall use the proceeds from the sale of the
Debentures as specified in the Offering Memorandum pursuant to which the
Debentures were offered for sale.
55
V.12. Dividends, Etc.
The Company shall not declare or pay any dividend on its
capital stock (other than stock dividends) or make any payment to purchase,
redeem, retire or acquire any of its capital stock or the subordinated debt of
the Company or any option, warrant or other right to acquire such capital stock
unless, on the date immediately following any such payment, the Company's total
stockholders' equity, as would be reflected on a consolidated balance sheet of
the Company prepared in accordance with GAAP, equals or exceeds the aggregate
principal amount of Debentures then outstanding (converted into U.S. dollars
based upon the Noon Buying Rate in effect on such date of calculation).
V.13 Limitation on Liens.
Except for Liens arising in the ordinary course of business,
if the Company or any Subsidiary shall at any time create, incur, assume or
permit to exist any lien on any property or asset of the Company or any income
or profits therefrom, then the Company shall, prior to or simultaneously with
the creation, incurrence, assumption or commencement of existence of such lien,
secure or cause to be secured the due and punctual payment of the principal of
and interest on the Debentures equally and ratably with any and all obligations
and indebtedness secured by such lien; provided, however, that this covenant
shall not apply in the case of Liens to secure Senior Indebtedness.
V.14 Compliance with Laws, Etc.
The Company will comply, and will cause each of its
Subsidiaries to comply, in all material respects, with all Requirements of Law
and Contractual Obligations applicable to or binding upon any of them, except
where the failure to so comply would not have a material adverse effect on the
financial condition or operations of the Company and its Subsidiaries taken as a
whole.
56
VI
DEBENTUREHOLDER'S LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
VI.1. Company to Furnish Trustee
Information as to Names and
Addresses of Debentureholders.
The Company covenants and agrees that it shall furnish or
cause to be furnished to the Trustee quarterly, promptly after each Record Date,
a list, in such form as the Trustee may reasonably require, of the names and
addresses of the holders of the Debentures as of such Record Date. The Company
also covenants and agrees that it shall furnish or cause to be furnished to the
Trustee, at such other times as the Trustee may request in writing, upon receipt
by the Company of any such request, a list of similar form and content. No such
list shall be required to be furnished as long as the Trustee shall be the
Registrar.
VI.2. Trustee to Preserve Information as
to Names and Addresses of
Debentureholders.
(a)The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Debentures contained in the most recent list furnished to it as
provided in Section 6.1 or received by it in the capacity of Paying Agent or
Registrar (if so acting).
The Trustee may destroy any list furnished to it as provided
in Section 6.1 upon receipt of a new list so furnished.
(b)In case three or more holders of Debentures (hereinafter
referred to as "applicants") apply in writing to the Trustee, and furnish to the
Trustee reasonable proof that each applicant has owned a Debenture for a period
of at least six months preceding the date of such application, and such
application states that the appli-
57
cants desire to communicate with other holders of Debentures with respect to
their rights under this Indenture or under the Debentures, and is accompanied by
a copy of the form of proxy or other communication which such applicants propose
to transmit, then the Trustee shall within five Business Days after the receipt
of such application, at its election, either
(i) afford to such applicants access to the
information preserved at the time by the Trustee in accordance
with Section 6.2(a), or
(ii) inform such applicants as to the approximate
number of holders of Debentures and as to the approximate cost
of mailing to such Debentureholders the form of proxy or other
communications, if any, specified in such application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written request of such
applicants, mail to each Debentureholder whose name and address appears in the
information preserved at the time by the Trustee in accordance with Section
6.2(a), a copy of the form of proxy or other communication which is specified in
such request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after such tender, the
Trustee shall mail to such applicants, and file with the Commission, together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the best
interests of the holders of Debentures, or, in the Opinion of Counsel, would be
in violation of applicable law. Such written statement shall specify the basis
of such opinion. If said Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed, shall enter an order
refusing to sustain any of such objections, or if, after the entry of an order
sustaining one or more of such objections, said Commission shall find, after
notice and opportunity for hearing, that all the objections so sustained have
been met and shall
58
enter an order so declaring, the Trustee shall mail copies of such material to
all such Debentureholders with reasonable promptness after the entry of such
order and the renewal of such tender; otherwise the Trustee shall be relieved of
any obligation or duty to such applicants respecting their application.
(c) Each and every holder of the Debentures, by receiving and
holding the same, agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any Paying Agent shall be held accountable by reason
of the disclosure of any such information as to the names and addresses of the
holders of Debentures in accordance with Section 6.2(b), regardless of the
source from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a request made
under Section 6.2(b).
VI.3. Reports from the Company.
(a)Annual and Other Reports to be Filed by Company with
Trustee. The Company covenants and agrees to file with the Trustee within 15
days after the date by which the Company is required to file the same with the
Commission (including any extension of time to which the Company is entitled),
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as said Commission may from
time to time by rules and regulations prescribe) which the Company may be
required to file with said Commission pursuant to Section 13 or Section 15(d) of
the Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of such sections, then to file with the
Trustee and said Commission, in accordance with rules and regulations prescribed
from time to time by said Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
of the Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations.
(b) Additional Information and Reports to be Filed with
Trustee and Securities and Exchange Commission.
59
The Company covenants and agrees to file with the Trustee and the Commission, in
accordance with the rules and regulations prescribed from time to time by said
Commission, such additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants provided for in this
Indenture as may be required from time to time by such rules and regulations.
(C) Summaries of Information and Reports to be Transmitted by
Company to Debentureholders. The Company covenants and agrees, as may be
required by rules and regulations prescribed from time to time by the
Commission, to cause to be transmitted to the holders of Debentures within
thirty days after the filing thereof with the Trustee, in the manner and to the
extent provided in Section 6.4(c), the annual reports specified in Section
6.3(a).
VI.4. Reports from the Trustee.
(a) Trustee to Transmit Annual Report to Debentureholders. On
or before April 30, 1997, and on or before April 30, in every year thereafter,
as long as any Debentures are outstanding hereunder, the Trustee shall transmit
to the Debentureholders, as hereinafter in this Section provided, a brief report
dated as of the preceding December 31, that complies with Trust Indenture Act
Section 313(a). The Trustee also shall comply with Trust Indenture Act Sections
313(b) and 313(c).
(b) Trustee to Transmit Certain Further Reports to
Debentureholders. The Trustee shall transmit to the Debentureholders, as
hereinafter provided, a brief report with respect to the character and amount of
any advances (and if the Trustee elects so to state, the circumstances
surrounding the making thereof) made by the Trustee as such since the date of
the last report transmitted pursuant to the provisions of subsection (a) of this
Section (or if no such report has yet been so transmitted, since the date of
execution of this Indenture), for the reimbursement of which it claims or may
claim a lien or charge prior to that of the Debentures on property or funds held
or collected by it as Trustee, and which it has not previously reported pursuant
to this subsection, if such ad-
60
vances remaining unpaid at any time aggregate more than ten per cent of the
principal amount of Debentures outstanding at such time, such report to be
transmitted within ninety days after such time.
(c) Debentureholders Reports to be Mailed to Registered
Holders. Reports pursuant to this Section 6.4 shall be transmitted by mail to
all registered holders of Debentures, as the names and addresses of such holders
appear upon the registration books maintained by the Debenture Registrar.
(d) Copies of Reports to be Filed with Stock Exchanges. A copy
of each such report shall, at the time of such transmission to Debentureholders,
be filed by the Trustee with each stock exchange upon which the Debentures are
listed. The Company agrees to notify the Trustee when and as the Debentures
become listed on any stock exchange.
VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
VII.1. Events of Default Defined.
In case one or more of the following Events of Default shall
have occurred and be continuing, that is to say:
(a) default for thirty days in the due and punctual payment of
any installment of interest upon any of the Debentures as and when the same
shall become due and payable, whether such default arises as a result of the
provisions of Article XIII or otherwise; or
(b) default in the due and punctual payment of the principal
of, and premium, if any, on, any of the Debentures as and when the same shall
become due and payable either at maturity, upon redemption, by declaration as
authorized by this Indenture, or otherwise, whether such default arises as a
result of the provisions of Article XIII or otherwise; or
61
(c) failure on the part of the Company duly to observe or
perform any of the covenants or agreements on the part of the Company in the
Debentures or in this Indenture, not otherwise referred to in another paragraph
of this Section 7.1, after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Company by the
Trustee or to the Trustee and the Company by the Holders of at least 25% in
aggregate principal amount of the then outstanding Debentures; or
(d) a material default shall occur under (i) any bond,
debenture, note or other evidence of Indebtedness for money borrowed by the
Company or a Subsidiary or (ii) any mortgage, indenture, credit or loan
agreement or other instrument under which there may be issued or by which there
may be secured or evidenced any Indebtedness for money borrowed by the Company
or such Subsidiary (including Capital Lease Obligations), whether such
Indebtedness now exists or shall hereafter be created, which default shall
constitute a failure to pay any portion of the principal of, premium, if any,
and interest on such Indebtedness when due and payable after the expiration of
any applicable grace period with respect thereto, or a default shall occur in
the performance of any other covenant or condition contained in any such
evidence of Indebtedness or mortgage, indenture, credit or loan agreement or
other instrument if the effect of such default is to entitle (after giving
effect to any applicable notice or applicable cure rights) the holder of such
evidence of indebtedness or creditor (or a trustee for such holders or
creditors) to then cause such Indebtedness to become due prior to its stated
maturity, or if such default shall have resulted in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
have become due and payable, without such Indebtedness having been discharged;
or
(e) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction against the
Company and/or any Subsidiary and such judgment or judgments remain unstayed or
undischarged for a period of sixty days, provided that the aggregate of all such
judgments exceeds $3,000,000; or
62
(f) the Company or a Subsidiary shall (1) apply for or consent
to the appointment of or the taking of possession of it by a receiver,
custodian, trustee or liquidator of the Company or any such Subsidiary or of all
or a substantial part of the property of the Company or any such Subsidiary, (2)
admit in writing the inability of the Company or any such Subsidiary, or be
generally unable, to pay its debts as such debts become due, (3) make a general
assignment for the benefit of its creditors, (4) commence a voluntary case under
the Bankruptcy Code (as now or hereafter in effect), (5) file a petition seeking
to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, (6) fail to
controvert in a timely or appropriate manner, or acquiesce in writing to, any
petition filed against such Person in an involuntary case under the Bankruptcy
Code or other similar law, or (7) take any action for the purpose of effecting
any of the foregoing; or
(g) a proceeding or case shall be commenced, without the
application of the Company or any Subsidiary, in any court of competent
jurisdiction, seeking (1) the liquidation, reorganization, dissolution,
winding-up or composition or readjustment of debts of the Company or any such
Subsidiary, (2) the appointment of a trustee, receiver, custodian, liquidator or
the like of the Company or any such Subsidiary or of all or any substantial part
of the assets of the Company or any such Subsidiary, or (3) similar relief in
respect of the Company or any such Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up or composition and adjustment
of debts, and such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be entered
and continue in effect, for a period of 60 days from commencement of such
proceeding or case or the date of such order, judgment or decree, or any order
for relief against the Company or any such Subsidiary shall be entered in an
involuntary case or proceeding under the Bankruptcy Code; or
63
(h) any provision of any Debenture or this Indenture shall at
any time for any reason cease to be valid and binding in accordance with its
terms on the Company, or the validity, enforceability, or priority thereof shall
be contested by the Company, or the Company shall terminate or repudiate (or
attempt to terminate or repudiate) any Debenture or this Indenture; or
(i) any representation, warranty or statement made by the
Company in any certificate, report, financial statement or other document
furnished to the Trustee or any Debentureholder shall be false or misleading in
any material respect on the date as of which made or deemed made; then and in
each and every such case (other than an Event of Default specified in Section
7.1(g) and (h)), unless the principal of all the Debentures shall have already
become due and payable, either the Trustee or the holders of at least a majority
in aggregate principal amount of the Debentures then outstanding hereunder, by
notice in writing to the Company (and to the Trustee if given by the
Debentureholders), may declare the principal of and interest accrued on all the
Debentures then outstanding to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the said Debentures contained to the contrary
notwithstanding. If an Event of Default specified in Sections 7.1(g) or (h)
occurs, all unpaid principal and interest on all the Debentures then outstanding
shall ipso facto become and shall be immediately due and payable without any
declaration or other act on the part of the Trustee or any Debentureholders.
This provision is subject to the condition that if, at any time after the
principal of and interest accrued on the Debentures shall have been so declared
due and payable, but before the Debentures shall have become due by their terms
and before any judgment or decree for the payment of the moneys due shall have
been obtained or entered as hereinafter provided, the Company shall pay or shall
deposit with the Trustee a sum of money sufficient to pay all matured
installments of interest upon all the Debentures then outstanding and the
principal of any and all Debentures then outstanding that shall have
64
become due otherwise than by declaration (with interest upon such principal and,
to the extent that payment of such interest is enforceable under applicable law,
upon overdue installments of interest, at the rate per annum expressed in all
Debentures to the date of such payment or deposit) and all amounts payable to
the Trustee under Section 8.6, and any and all defaults under the Indenture,
other than the nonpayment of principal and interest on Debentures then
outstanding that shall not have become due by their terms, shall have been
remedied or provision shall have been made therefor to the satisfaction of the
Trustee, then and in every such case the holders of a majority in aggregate
principal amount of the Debentures then outstanding, by written notice to the
Company and to the Trustee, may waive all defaults and rescind and annul such
declaration and its consequences; but no such waiver or rescission and annulment
shall extend to or shall affect any subsequent default or shall impair any right
consequent thereon.
In case the Trustee or any Debentureholder shall have
proceeded to enforce any right under this Indenture and such proceedings shall
have been discontinued or abandoned because of such rescission or annulment or
for any other reason or shall have been determined adversely to the Trustee or
such Debentureholder, then, and in every such case, the Company, the Trustee and
the Debentureholders shall be restored severally and respectively to their
former positions and rights hereunder, and all rights, remedies and powers of
the Company, the Trustee and the Debentureholders shall continue as though no
such proceedings had been taken.
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VII.2. Covenant of Company to Pay to
Trustee Whole Amount Due on
Debentures on Default in Payment of
Interest or Principal.
The Company covenants that (1) in case default shall be made
in the payment of any installment of interest on any of the Debentures, as and
when the same shall become due and payable, and such default shall have
continued for a period of ten days, or (2) in case default shall be made in the
payment of the principal of any of the Debentures when the same shall have
become due and payable, whether upon maturity of the Debentures or upon
redemption or upon declaration as authorized by this Indenture or otherwise,
then, upon demand of the Trustee, the Company shall pay in cash to the Trustee,
for the benefit of the holders of the Debentures then outstanding, the whole
amount that then shall have become due and payable on all such Debentures for
principal or interest, as the case may be, with interest upon the overdue
principal and (to the extent that payment of such interest is enforceable under
applicable law) upon overdue installments of interest at the rate per annum
expressed in the Debentures; and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, and all
amounts payable to the Trustee under Section 8.6.
In case the Company shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any action or proceedings at
law or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceedings to judgment or final decree, and may
enforce any such judgment or final decree against the Company or other obligor
upon the Debentures and collect in the manner provided and to the extent
permitted by law out of property of the Company or other obligor upon the
Debentures wherever situated the moneys adjudged or decreed to be payable.
66
The Trustee shall be entitled and empowered, either in its own
name or as trustee of an express trust, or as attorney-in-fact for the holders
of the Debentures, or in any one or more of such capacities, to file such proof
of debt, amendment of proof of debt, claim, petition or other document as may be
necessary or advisable in order to have the claims of the Trustee and the
holders of the Debentures allowed in any equity receivership, insolvency,
bankruptcy, liquidation, readjustment, reorganization or other judicial
proceedings relative to the Company or any other obligor on the Debentures or
their creditors, or affecting their property. The Trustee is hereby irrevocably
appointed (and the successive respective holders of the Debentures by taking and
holding the same shall be conclusively deemed to have so appointed the Trustee)
the true and lawful attorney-in-fact of the respective holders of the
Debentures, with authority to make and file in the respective names of the
holders of the Debentures or on behalf of the holders of the Debentures as a
class, subject to deduction from any such claims of the amounts of any claims
filed by any of the holders of the Debentures themselves, any proof of debt,
amendment of proof of debt, claim, petition or other document in any such
proceedings and to receive payment of any sums becoming distributable on account
thereof, and to execute any such other papers and documents and to do and
perform any and all such acts and things for and on behalf of such holders of
the Debentures as may be necessary or advisable in the opinion of the Trustee in
order to have the respective claims of the Trustee and of the holders of the
Debentures against the Company or its property allowed in any such proceeding,
and to receive payment of or on account of such claims; provided that nothing
contained in this Indenture shall be deemed to give to the Trustee any right to
accept or consent to any plan of reorganization or otherwise by action of any
character in any such proceeding to waive or change in any way any right of any
Debentureholder.
All right of action and of asserting claims under this
Indenture, or under any of the Debentures, may be enforced by the Trustee
without the possession of any of the Debentures or the production thereof on any
trial or other proceeding relative thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in
67
its own name as trustee of an express trust, and any recovery of judgment shall
be for the ratable benefit of the holders of the Debentures, subject to the
provisions of this Indenture. In any proceedings brought by the Trustee (and
also any proceedings in which a declaratory judgment of a court may be sought as
to the interpretation or construction of any provision of this Indenture, to
which the Trustee shall be a party) the Trustee shall be held to represent all
the holders of the Debentures, and it shall not be necessary to make any holders
of the Debentures parties to any such proceedings.
VII.3. Application of Moneys Collected by
Trustee.
Subject to the provisions of Article XIII hereof, any moneys
collected by the Trustee, pursuant to Section 7.2, shall be applied in the order
following, at the date or dates fixed by the Trustee, upon presentation of the
several Debentures, and the notation thereon of the payment, if only partially
paid, and upon surrender thereof if fully paid:
First: To the payment of costs and expenses of collection, and
of all amounts payable to the Trustee under Section 8.6;
Second: In case the principal of the outstanding Debentures
shall not have become due and be unpaid, to the payment of
defaulted interest on the Debentures, in the order of the
maturity of the installments of such interest, with interest
(so far as may be lawful and if such interest has been
collected by the Trustee) upon the defaulted installments of
interest at the rate per annum expressed in the Debentures,
such payments to be made ratably to the persons entitled
thereto, without discrimination or preference;
Third: In case the principal of the outstanding Debentures
shall have become due, by declaration as authorized by this
Indenture or otherwise, to the payment of Debentures for
principal (and
68
premium, if any) and interest, with interest on the overdue
principal and premium, if any) and (so far as may be lawful
and if such interest has been collected by the Trustee) upon
overdue installments of interest at the rate per annum
expressed in the Debentures; and in case such moneys shall be
insufficient to pay in full the whole amount so due and unpaid
upon the Debentures, then to the payment of such principal
(and premium, if any) and interest, without preference or
priority of [principal] (and premium, if any) over interest,
or of interest over principal (and premium, if any) or of any
installment of interest over any other installment of
interest, or of any Debenture over any other Debenture,
ratably to the aggregate of such principal (and premium, if
any) and accrued and unpaid interest; and
Fourth: To the payment of the remainder, if any, to the
Company, its successors or assigns, or to whomsoever may be
lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct.
69
VII.4. Limitation on Suits by Holders of
Debentures.
70
Except as otherwise expressly provided in this Section 7.4, no
holder of any Debenture shall have any right by virtue of or by availing itself
of any provision of this Indenture or otherwise to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Indenture,
for the appointment of a receiver or trustee, for the execution of any trust or
power hereof, or for any other remedy hereunder, unless (a) such holder
previously shall have given to the Trustee written notice of default and of the
continuance thereof, as hereinbefore provided, (b) the holders of 25% in
aggregate principal amount of the Debentures then outstanding shall have made
written request upon the Trustee to proceed to exercise the power hereinbefore
granted or to institute such action, suit or proceeding in its own name as
Trustee hereunder, (c) such holders shall have offered to the Trustee such
reasonable indemnity and security therefor as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and (d) the Trustee
within a reasonable time (which in no event shall be less than sixty days])
after its receipt of such notice, request and offer of indemnity and security,
shall have failed to proceed to exercise such powers or to institute any such
action, suit or proceeding; it being understood and intended, and being
expressly covenanted by the taker and Holder of every Debenture with every other
taker and Holder and the Trustee, that no one or more Holders of Debentures
shall have any right in any manner whatever by virtue of or by availing itself
of any provision of this Indenture to affect, disturb or prejudice the rights of
the holders of any other of such Debentures, or to obtain or seek to obtain
priority over or preference to any other such holder, or to enforce any right
under this Indenture, except in the manner herein provided, and that all
proceedings in law or in equity shall be instituted, had and maintained in the
manner herein provided for the equal, ratable and common benefit of all holders
of Debentures. For the protection and enforcement of the provisions of this
Section 7.4, each and every Debentureholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture, nothing
contained herein shall affect or impair
71
the right, which is absolute and unconditional, of any Debentureholder to
receive, and to institute suit to enforce the payment of the principal of and
interest on his Debentures at and after the respective due dates (including
maturity by call for a redemption, or by declaration pursuant to this Indenture
that has not been rescinded or annulled pursuant to Section 7.1 or otherwise) of
such principal or interest, or the obligation of the Company, which is also
absolute and unconditional, to pay the principal of and interest on each of the
Debentures to the respective holders thereof at the times and places in the
Debentures expressed.
VII.5. Delay or Omission in Exercise of
Rights Not Waiver of Default.
No delay or omission of the Trustee or of any holder of any of
the Debentures to exercise any right or power accruing upon any Event of Default
shall impair any such right or power or shall be construed to be a waiver of any
such default or an acquiescence therein; and, subject to the provisions of
Section 7.4, every power and remedy given by this Article VII or by law to the
Trustee or to the Debentureholders may be exercised from time to time, and as
often as shall be deemed expedient, by the Trustee or by the Debentureholders.
All powers and remedies given by this Article VII to the
Trustee or to the Debentureholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any thereof or of any other powers and
remedies available to the Trustee or the Debentureholders, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture.
VII.6. Rights of Holders of Majority in
Principal Amount of Debentures to
Direct Trustee and Waive Defaults.
Subject to the provisions of Sections 8.1 and 8.2, the Holders
of a majority in aggregate principal amount of the Debentures at the time
outstanding, deter-
72
mined in accordance with Section 9.4, shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee; provided
that such direction shall be in accordance with law and the provisions of this
Indenture, and the Trustee shall have the right, subject to the provisions of
Section 8.1, to decline to follow any such direction if the Trustee shall, being
advised by an opinion of counsel, determine that the action so directed may not
be lawfully taken, or if the Trustee in good faith shall, by a Responsible
Officer of the Trustee, determine that the proceeding so directed would be
illegal or involve it in personal liability or that the action so directed would
be unduly prejudicial to the Holders of Debentures not taking part in such
direction; and provided, further, that nothing in this Indenture shall impair
the right of the Trustee to take any action deemed proper by the Trustee and
that is not inconsistent with such direction by the Holders of the Debentures.
Prior to a declaration that the Debentures are due and payable as provided in
Section 7.1, the Holders of a majority in aggregate principal amount of the
Debentures at the time outstanding, determined in accordance with Section 9.4,
may, on behalf of the Holders of all of the Debentures, waive any past default
hereunder and its consequences, except a default in the payment of the principal
of or interest on any of the Debentures. In the case of any such waiver, the
Company, the Trustee and the Holders of the Debentures shall be restored to
their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other default or impair any right consequent
thereon.
VII.7. Trustee to Give Notice of Defaults
Known to it, but May Withhold in
Certain Circumstances.
The Trustee shall give to the Debentureholders notice of all
defaults within 90 days of same becoming known to the Trustee, unless such
defaults shall have been cured before the giving of such notice (the term
"defaults" for the purposes of this Section 7.7 being the events specified in
Section 7.1 that, upon the passage of time or the giving of notice or both would
constitute
73
Events of Default; provided, however, that, except in the case of default in the
payment of the principal of (or premium, if any) or interest on any of the
Debentures, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee, or a trust committee of
directors and/or responsible officers, of the Trustee in good faith determines
that the withholding of such notice is the interest of Debentureholders.
VII.8. Requirement of an Undertaking to Pay
Costs in Certain Suits Under
Indenture or Against Trustee.
All parties to this Indenture agree, and each Holder of any
Debenture by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit (and the posting of
such surety bond therefor as such court may require), and that such court may in
its discretion assess reasonable costs, including reasonable attorney's fees,
against any party litigant in such suit, having due regard to claims or defenses
made by such party litigant; provided that the provisions of this Section 7.8
shall not apply (i) to any suit instituted by the Trustee, (ii) to any suit
instituted by any Debentureholder, or group of Debentureholders, holding in the
aggregate more than ten per cent in aggregate principal amount of the Debentures
outstanding, or (iii) to any suit instituted by any Debentureholder for the
enforcement of the payment of the principal of or interest on any Debenture, on
or after the due date expressed in such Debenture.
VII.9. Company Covenants.
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, or plead, any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may af-
74
fect the covenants or the performance of this Indenture; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not hinder, delay or
impede the execution of any power herein granted to the Trustee but shall suffer
and permit the execution of every such power as though no such law had been
enacted.
CONCERNING THE TRUSTEE
VIII.1. Duties of Trustee Prior to and After Event of Default.
The Trustee, prior to the occurrence of an Event of Default
and after the curing of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture. In case an Event of Default has occurred (which has not
been cured or waived) the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee pursuant to any provision of this Indenture, shall examine them
to determine whether they conform to the requirements of this Indenture.
No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act, or its own wilful misconduct, except that
(a) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default which may have
occurred:
(i) the duties and obligations of the Trustee shall
be determined solely by the ex-
75
press provisions of this Indenture, and the Trustee shall not
be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture,
and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) subject to the third paragraph of this Section
8.1, in the absence of bad faith on the part of the Trustee,
the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a responsible officer or responsible officers of
the Trustee, unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a majority in principal
amount of the Debentures at the time outstanding (determined as
provided in Section 9.4) relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture.
No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there are reasonable grounds for believing that repayment
of such funds or adequate indemnity (and security therefor) against such risk or
liability is not reasonably assured to it.
VIII.2. Rights of Trustee.
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Except as otherwise provided in Section 8.1:
(a) In the absence of bad faith on the part of the Trustee,
the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officers' Certificate, certificate of
independent public accountants, or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order,
appraisal, bond, debenture or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party
or parties;
(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an instrument
signed in the name of the Company by the President or a Vice President
and the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer (unless other evidence in respect thereof be
herein specifically prescribed); and any resolution of the Board of
Directors of the Company may be evidenced to the Trustee by a copy
thereof certified by the Secretary or an Assistant Secretary of the
Company;
(c) The Trustee may consult with counsel, and an opinion of
counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in
good faith and in accordance with such Opinion of Counsel;
(d) The Trustee shall be under no obligation to exercise any
of the trusts or powers vested in it by this Indenture at the request,
order or direction of any of the Debentureholders, pursuant to the
provisions of this Indenture, unless such Debentureholders shall have
offered to the Trustee reasonable security and indemnity against the
cost, expenses and liabilities which may be incurred therein or
thereby;
(e) The Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discre-
77
tion or rights or powers conferred upon it by this Indenture;
(f) Prior to learning of the occurrence of an Event of Default
hereunder and after the cure or waiver of all Events of Default which
may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, approval, bond, debenture, or other paper or document
unless requested in writing so to do by the Holders of not less than a
majority in aggregate principal amount of the Debentures then
outstanding; provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in
the opinion of the Trustee, not reasonably assured to the Trustee by
the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity (and security therefor)
against such expense or liability as a condition to so proceeding. The
reasonable expense of every such investigation shall be paid by the
Company or, if paid by the Trustee, shall be repaid by the Company
upon demand; and
(g) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys.
VIII.3. Trustee Not Liable for Recitals in Indenture or in
Debentures.
The recitals contained herein and in the Debentures (other
than the certificate of authentication on the Debentures) shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for the
correctness or completeness of the same. The Trustee makes no representations as
to the validity, sufficiency or enforceability (except as against the Trustee)
of this Indenture or of the Debentures. The Trustee shall not be accountable for
the use or application by the Company of any of the Debentures or of the
proceeds of such Deben-
78
tures, or for the use or application of any moneys paid over by the Trustee in
accordance with any provision of this Indenture, or for the use or application
of any moneys received by any paying agent other than the Trustee.
VIII.4. Trustee, Paying Agent, Conversion Agent or Debenture
Registrar May Own Debentures.
The Trustee or any Paying Agent or any Conversion Agent or any
Debenture Registrar, in its individual or any other capacity, may buy, own, hold
and sell, as owner or pledgee, Debentures with the same rights it would have if
it were not Trustee, paying agent, conversion agent or Debenture Registrar, and
no such activity shall impair any of the Trustee's rights, remedies or defenses,
or enlarge any of its duties or liabilities under this Indenture.
VIII.5. Moneys Received by Trustee to be Held in Trust.
Subject to the provisions of Article Thirteen, all moneys
received by the Trustee shall, until used or applied as herein provided, be held
in trust for the purposes for which they were received, but need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any moneys received by it hereunder.
VIII.6. Trustee Entitled to Compensation, Reimbursement and
Indemnity.
The Company covenants and agrees to pay to the Trustee from
time to time, and the Trustee shall be entitled to, reasonable compensation
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by it
in the execution of the trusts hereby created or in the exercise and performance
of any of the powers and duties hereunder of the Trustee, and the Company shall
advance funds to pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made or to be
incurred or made by the
79
Trustee in accordance with any of the provisions of this Indenture (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from the Trustee's own negligence or bad
faith. If any property other than cash shall at any time be subject to a lien in
favor of the Debentureholders, the Trustee, if and to the extent authorized by a
receivership or bankruptcy court of competent jurisdiction or by the
supplemental instrument subjecting such property to such lien, shall be entitled
but shall not be obligated to make advances for the purpose of preserving such
property or discharging tax liens or other prior liens or encumbrances thereon.
The Company also covenants to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad faith
on the part of the Trustee, and arising out of or in connection with the
acceptance or administration of this trust, including the costs and expenses of
defending itself against any claim of liability in the premises. The obligations
of the Company under this Section to compensate and indemnify the Trustee and to
advance funds to pay or reimburse the Trustee for expenses, disbursements and
advances shall constitute additional indebtedness hereunder and shall survive
the satisfaction and discharge of this Indenture. Such additional indebtedness
shall be secured by a lien prior to that of the Debentures upon all property and
funds held or collected by the Trustee as such, except funds held in trust for
the benefit of the Holders of particular Debentures. When the Trustee incurs
expenses or renders services after an Event of Default specified in Section 7.1
(f) or (g) occurs, the expenses and the compensation for services are intended
to constitute expenses of administration under any Bankruptcy Law.
VIII.7. Right of Trustee to Rely on Certificate of Officers of
Company Where no Other Evidence Specifically
Prescribed.
Except as otherwise provided in Section 8.1, whenever in the
administration of the trusts or the performance of this Indenture the Trustee
shall deem it nec-
80
essary or desirable that a matter be proved or established prior to taking or
suffering or omitting any action hereunder, such matter (unless other evidence
in respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by an Officers' Certificate, and such
certificate shall be full warrant of such action taken, suffered or omitted by
it under the provisions of this Indenture upon the faith thereof.
VIII.8. Conflict of Interest.
(a) Trustee Acquiring Conflicting Interest to Eliminate
Conflict or Resign. If the Trustee has or shall acquire any conflicting interest
within the meaning of Trust Indenture Act Section 310(b), it shall, within 90
days after ascertaining that it has such conflicting interest, either eliminate
such conflicting interest or resign, such resignation to become effective upon
the appointment of a successor trustee and such successor's acceptance of such
appointment, and the Company shall take prompt steps to have a successor
appointed in the manner provided in Section 8.10.
(b) Notice to Debentureholders in Case of Failure to Comply
with Subsection (a). In the event that the Trustee shall fail to comply with the
provisions of subsection (a) of this Section, the Trustee shall, within ten days
after the expiration of such ninety-day period, transmit notice of such failure
to the Debentureholders in the manner and to the extent provided in subsection
(c) of Section 6.4 with respect to reports pursuant to subsection (a) of said
Section 6.4.
VIII.9. Requirements for Eligibility of Trustee.
The Trustee hereunder shall at all times be a corporation
organized and doing business under the laws of the United States or any State or
Territory or of the District of Columbia authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least one
million dollars ($1,000,000), subject to supervision or examination by Federal,
State, Territorial, or District of Columbia authority. If such
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corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the effect
specified in Section 8.10.
VIII.10. Resignation or Removal of Trustee.
(a) Resignation of Trustee. The Trustee, or any successor
hereafter appointed, may at any time resign and be discharged from the trust
hereby created by giving written notice thereof to the Company. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor
trustee by written instrument, in duplicate, executed by order of the Board of
Directors of the Company, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no successor trustee
shall have been so appointed and have accepted appointment within thirty days
after the giving of such notice of resignation the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee, or any Debentureholder who has been a bona fide Holder of a Debenture
or Debentures for at least six months may, subject to the provisions of Section
7.8, on behalf of himself and all others similarly situated, petition any such
court for the appointment of a successor trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.
(b) Removal of Trustee by Company or by Court on
Debentureholders' Application. In case any of the following shall occur at any
time:
(i) the Trustee shall fail to comply with the
provisions of subsection (a) of Section 8.8 after written
request therefor by the Company or
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by any Debentureholder who has been a bona fide Holder of a
Debenture or Debentures for at least six months, or
(ii) the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.9 and shall fail
to resign after written request therefor by the Company or by
any such Debentureholder, or
(iii) the Trustee shall become incapable of acting,
or shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Company, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to the provisions of Section 7.8, any Debentureholder who has been a
bona fide Holder of a Debenture or Debentures for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it may
deem proper and prescribe, remove the Trustee and appoint a successor trustee.
(c) Removal of Trustee by Holders of Majority in Principal
Amount of Debentures. The Holders of a majority in aggregate principal amount of
the Debentures at the time outstanding may at any time remove the Trustee and
appoint a successor trustee by written instrument or instruments, in triplicate,
signed by such Holders or their attorneys-in-fact duly authorized, one complete
set of which instruments shall be delivered to the Company, another to the
Trustee so removed and one complete set to the successor so appointed.
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(d) Time When Resignation or Removal of Trustee Effective. Any
resignation or removal of the Trustee and any appointment of a successor trustee
pursuant to any of the provisions of this Section shall become effective upon
acceptance of appointment by the successor trustee as provided in Section 8.11.
(e) Notice to be Given by the Company. The Company shall give
written notice of each resignation and each removal of the Trustee and each
appointment of a successor trustee by mailing written notice of such event by
first class mail or air mail, as appropriate, to the Holders of the Debentures
as their names and addresses appear in the Debenture register. Each notice of
the appointment of a successor trustee shall include the name of each successor
and the address of its corporate trust office.
VIII.11. Acceptance by Successor to Trustee.
Any successor trustee appointed as provided in Section 8.10
shall execute, acknowledge and deliver to the Company and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as trustee
herein. The predecessor trustee shall, nevertheless, at the written request of
the Company or the successor trustee, upon payment of any amount due it and then
unpaid, pay over to the successor trustee all moneys at the time held by it
hereunder; and the Company and the predecessor trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in
this Section unless at the time of such accep-
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tance such successor trustee shall be qualified under the provisions of Section
8.8 and eligible under the provisions of Section 8.9.
VIII.12. Successor to Trustee by Merger, Consolidation or
Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided such corporation shall be qualified under the
provisions of Section 8.8 and eligible under the provisions of Section 8.9,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
VIII.13. Trustee as a Creditor.
(a) Limitations on Rights of Trustee as a Creditor to Obtain
Payment of Certain Claims Within Four Months Prior to Default or During Default,
or to Realize on Property as Such Creditor Thereafter. Subject to the provisions
of subsection (b) of this Section, if the Trustee in its individual capacity
shall be or shall become a creditor, directly or indirectly, secured or
unsecured, of the Company or of any other obligor on the Debentures within four
months prior to a default, as defined in subsection (c) of this Section, or
subsequent to such a default, then, unless and until such default shall be
cured, the Trustee shall set apart and hold in a special account for the benefit
of the Trustee individually, the Holders of the Debentures and the Holders of
other indenture securities (as defined in subsection (c) of this Section)
(i) an amount equal to any and all reductions in the
amount due and owing upon any claim as such creditor in
respect of principal or interest, effected after the beginning
of such four months' period and valid as against the
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Company and its other creditors, except any such reduction
resulting from the receipt or disposition of any property
described in paragraph (2) of this subsection, or from the
exercise of any right of set-off which the Trustee could have
exercised if a petition in bankruptcy had been filed by or
against the Company upon the date of such default; and
(ii) all property received by the Trustee in respect
of any claim as such creditor, either as security therefor, or
in satisfaction or composition thereof, or otherwise, after
the beginning of such four months' period, or an amount equal
to the proceeds of any such property, if disposed of, subject,
however, to the rights, if any, of the Company and its other
creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of
the Trustee
(A) to retain for its own account (i) payments made
on account of any such claim by any person (other than the
Company) who is liable thereon, and (ii) the proceeds of the
bona fide sale of any such claim by the Trustee to a third
person, and (iii) distributions made in cash or other property
in respect of claims filed against the Company in bankruptcy
or receivership or in proceedings for reorganization pursuant
to Federal bankruptcy law or applicable State law;
(B) to realize, for its own account, upon any
property held by it as security for any such claim, if such
property was so held prior to the beginning of such four
months' period;
(C) to realize, for its own account, but only to the
extent of the claim hereinafter mentioned, upon any property
held by it as security for any such claim, if such claim was
created after the beginning of such four months'
86
period and such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee
shall sustain the burden of proving that at the time such
property was so received the Trustee had no reasonable cause
to believe that a default, as defined in subsection (C) of
this Section, would occur within four months; or
(D) to receive payment on any claim referred to in
paragraph (B) or (C), against the release of any such property
held as security for such claim as provided in such paragraph
(B) or (C), as the case may be, to the extent of the fair
value of such property.
For the purpose of paragraphs (B), (C), and (D), property
substituted after the beginning of such four months' period for property held as
security at the time of such substitution shall, to the extent of the fair value
of the property released, have the same status as the property released, and, to
the extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and
property held in such special account and the proceeds thereof shall be
apportioned among the Trustee, the Debentureholders and the Holders of other
indenture securities in such manner that the Trustee, the Debentureholders and
the Holders of other indenture securities realize, as a result of payments from
such special account and payments of dividends on claims filed against the
Company in bankruptcy or receivership or in proceedings for reorganization
pursuant to Federal bankruptcy law or applicable State law, the same percentage
of their respective claims, figured before crediting to the claim of the Trustee
anything on account of the receipt by it from the Company of the funds and
property in such special account and before crediting to the respective claims
of the Trustee, the Debentureholders and the Holders of other
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indenture securities, dividends on claims filed against the Company in
bankruptcy or receivership or in proceeding for reorganization pursuant to
Federal bankruptcy law or applicable State law, but after crediting thereon
receipts on account of the indebtedness represented by their respective claims
from all sources other than from such dividends and from the funds and property
so held in such special account. As used in this paragraph, with respect to any
claim, the term "dividends" shall include any distribution with respect to such
claim, in bankruptcy or receivership or in proceedings for reorganization
pursuant to Federal bankruptcy law or applicable State law, whether such
distribution is made in cash, securities, or other property, but shall not
include any such distribution with respect to the secured portion, if any, of
such claim. The court in which such bankruptcy, receivership or proceeding for
reorganization is pending shall have jurisdiction (i) to apportion among the
Trustee, the Debentureholders and the Holders of other indenture securities, in
accordance with the provisions of this paragraph, the funds and property held in
such special account and the proceeds thereof, or (ii) in lieu of such
apportionment, in whole or in part, to give to the provisions of this paragraph
due consideration in determining the fairness of the distributions to be made to
the Trustee, the Debentureholders and the Holders of other indenture securities
with respect to their respective claims, in which event it shall not be
necessary to liquidate or to appraise the value of any securities or other
property held in such special account or as security for any such claim, or to
make a specific allocation of such distributions as between the secured and
unsecured portions of such claims, or otherwise to apply the provisions of this
paragraph as a mathematical formula.
Any Trustee who has resigned or been removed after the
beginning of such four months' period shall be subject to the provisions of this
subsection (a) as though such resignation or removal had not occurred. If any
Trustee has resigned or been removed prior to the beginning of such four months'
period, it shall be subject to the provisions of this subsection (a) if and only
if the following conditions exist:
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(iii) the receipt of property or reduction of claim
which would have given rise to the obligation to account, if
such Trustee had continued as trustee, occurred after the
beginning of such four months' period; and
(iv) such receipt of property or reduction of claim
occurred within four months after such resignation or removal.
(b) Certain Creditor Relationships Excluded. There shall be
excluded from the operation of subsection (a) of this Section, a
creditor relationship arising from
(i) the ownership or acquisition of securities
issued under any indenture, or any security or securities
having a maturity of one year or more at the time of
acquisition by the Trustee;
(ii) advances authorized by a receivership or
bankruptcy court of competent jurisdiction, or by this
Indenture, for the purpose of preserving any property which
shall at any time be subject to the lien of this Indenture or
of discharging tax liens or other prior liens or encumbrances
thereon, if notice of such advance and of the circumstances
surrounding the making thereof is given to the
Debentureholders at the time and in the manner provided in
Section 6.4 of this Indenture;
(iii) disbursements made in the ordinary course of
business in the capacity of trustee under an indenture,
transfer agent, registrar, custodian, paying agent, fiscal
agent or depositary, or other similar capacity;
(iv) an indebtedness created as a result of services
rendered or premises rented; or an indebtedness created as a
result of goods or securities sold in a cash transaction as
defined in subsection (c) of this Section;
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(v) the ownership of stock or of other securities of
a corporation organized under the provisions of Section 25(a)
of the Federal Reserve Act, as amended, which is directly or
indirectly a creditor of the Company; or
(i) the acquisition, ownership, acceptance or
negotiation of any drafts, bills of exchange, acceptances or
obligations which fall within the classification of
self-liquidating paper as defined in subsection (c) of this
Section.
(c) Definition of Certain Terms. As used in this Section:
(i) The term "default" shall mean any failure to
make payment in full of the principal of (or premium, if any)
or interest upon any of the Debentures or upon the other
indenture securities when and as such principal or interest
becomes due and payable.
(ii) The term "other indenture securities" shall
mean securities upon which the Company is an obligor (as
defined in the Trust Indenture Act of 1939) outstanding under
any other indenture (A) under which the Trustee is also
trustee, (B) which contains provisions substantially similar
to the provisions of subsection (a) of this Section, and (C)
under which a default exists at the time of the apportionment
of the funds and property held in said special account.
(iii) The term "cash transaction" shall mean any
transaction in which full payment for goods or securities sold
is made within seven days after delivery of the goods or
securities in currency or checks or other orders drawn upon
banks or bankers and payable upon demand.
(iv) The term "self-liquidating paper" shall mean
any draft, bill of exchange, acceptance or obligation which is
made, drawn, nego-
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tiated or incurred by the Company for the purpose of financing
the purchase, processing, manufacture, shipment, storage or
sale of goods, wares or merchandise and which is secured by
documents evidencing title to, possession of, or a lien upon,
the goods, wares or merchandise or the receivables or proceeds
arising from the sale [of] goods, wares or merchandise
previously constituting the security, provided the security is
received by the Trustee simultaneously with the creation of
the creditor relationship with the Company arising from the
making, drawing, negotiating or incurring of the draft, bill
of exchange, acceptance or obligation.
(v) The term "Company" shall mean any obligor upon
the Debentures.
IX
CONCERNING THE DEBENTUREHOLDERS
IX.1 Evidence of Action by Debentureholders.
Whenever in this Indenture it is provided that the Holders of
a specified percentage in aggregate principal amount of the Debentures may take
any action (including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action), the fact that at
the time of taking any such action the Holders of such specified percentage have
joined therein may be evidenced (a) by any instrument or any number of
instruments of similar tenor executed by Debentureholders in person or by
attorney or proxy appointed in writing, or (b) by the record of the Holders of
Debentures voting in favor thereof at any meeting of Debentureholders duly
called and held in accordance with the provisions of Article Ten, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of Debentureholders.
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IX.2. Proof of Execution of Instruments and of Holding of
Deben-tures.
Subject to the provisions of Sections 8.1, 8.2 and 10.5, proof
of the execution of any instrument by a Debentureholder or his attorney or proxy
and proof of the holding by any person of any of the Debentures shall be
sufficient for any purpose of this Indenture if made in the following manner:
(a) The fact and date of the execution by any such person of
any instrument shall be proved by the certificate of any notary
public, or other officer of any jurisdiction of or within the United
States of America authorized to take acknowledgments or deeds, that
the person executing such instrument acknowledged to him the execution
thereof, or by an affidavit of a witness to such execution sworn to
before any such notary or other such officer. Where such execution is
by an officer of a corporation or association or a member of a
partnership on behalf of such corporation, association or partnership,
such certificate or affidavit shall also constitute sufficient proof
of his authority.
(b) The ownership of Debentures shall be proved by the
registers of such Debentures or by a certificate of any duly appointed
registrar thereof.
The Trustee shall not be bound to recognize any person as a
Debentureholder unless and until his title to the Debentures held by him is
proved in the manner in this Article provided.
The record of any Debentureholders' meeting shall be proved in
the manner provided in Section 10.6.
The Trustee may accept such other proof or require such
additional proof of any matter referred to in this Section as it shall deem
appropriate.
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IX.3. Who May be Deemed Owners of Debentures.
The Company, the Trustee, any paying agent, any conversion
agent and any Debenture Registrar may deem and treat the person in whose name
any Debenture shall be registered upon the books of the Company as the absolute
owner of such Debenture (whether or not such Debenture shall be overdue and
notwithstanding any notice of ownership or writing thereon made by anyone other
than the Company or any Debenture Registrar) for the purpose of receiving
payment of or on account of the principal of (and premium, if any) and interest
on (subject to the provisions of Section 2.2) such Debenture and for all other
purposes; and neither the Company nor the Trustee nor any paying agent nor any
conversion agent nor any Debenture Registrar shall be affected by any notice to
the contrary. All such payments so made to any such registered Holder for the
time being or upon his order shall be valid and, to the extent of the sum or
sums so paid, effective to satisfy and discharge the liability for money payable
upon any such Debenture.
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IX.4. Debentures Owned by Company or Controlled or Controlling
Companies Disregarded for Certain Purposes.
In determining whether the Holders of the requisite aggregate
principal amount of Debentures have concurred in any direction, consent or
waiver under this Indenture, Debentures which are owned by the Company or any
other obligor on the Debentures, or by any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any other obligor on the Debentures, shall be disregarded and deemed
not to be outstanding for the purpose of any such determination, except that for
the purpose of determining whether the Trustee shall be protected in relying on
any such direction, consent or waiver, only Debentures which the Trustee knows
are so owned shall be so disregarded. Debentures so owned which have been
pledged in good faith may be regarded as outstanding for the purposes of this
Section, if the pledgee shall establish to the satisfaction of the Trustee the
pledgee's right to vote such Debentures and that the pledgee is not a person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company or any such other obligor. In case of a dispute
as to such right, any decision by the Trustee taken upon an Opinion of Counsel
shall be full protection to the Trustee.
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IX.5. Action by Debentureholders Binds Future Holders.
Any demand, request, waiver, consent or vote of the Holder of
any Debenture shall be conclusive and binding upon such Holder and upon all
future Holders and owners of such Debenture, and of any Debenture issued in
exchange therefor or in place thereof, irrespective of whether or not any
notation in regard thereto is made upon such Debenture. Any action taken by the
Holders of the percentage in aggregate principal amount of the Debentures
specified in this Indenture in connection with such action shall be conclusively
binding upon the Company, the Trustee and the Holders of all the Debentures.
X
DEBENTUREHOLDERS' MEETINGS
X.1. Purposes for Which Meetings May be Called.
A meeting of Debentureholders may be called at any time and
from time to time pursuant to the provisions of this Article for any of the
following purposes:
(a) to give any notice to the Company or the
Trustee, or to give any directions to the Trustee, or to
consent to the waiving of any default hereunder and its
consequences, or to take any other action authorized to be
taken by Debentureholders pursuant to any of the provisions of
Article Seven; or
(b) to remove the Trustee and appoint a successor
trustee pursuant to the provisions of Article Eight; or
(c) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of
Section 11.2; or
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(c) to take any other action authorized to be taken
by or on behalf of the Holders of any specified aggregate
principal amount of the Debentures under any other provision
of this Indenture, or authorized or permitted by law.
X.2. Manner of Calling Meetings.
The Trustee may at any time call a meeting of Debentureholders
to take any action specified in Section 10.1, to be held at such time and at
such place in New York, New York, as the Trustee shall determine. Notice of
every meeting of the Debentureholders, setting forth the time and the place of
such meeting and in general terms the action proposed to be taken at such
meeting, shall be delivered promptly by the Trustee, not less than 10 days nor
more than 60 days prior to the date fixed for the meeting, to the Company and
the Holders of the Debentures at their last addresses as they shall appear upon
the register or registers.
Any meeting of Debentureholders shall be valid without notice
if the Holders of all Debentures then outstanding are present in person or by
proxy, or if notice is waived before or after the meeting by the Holders of all
Debentures outstanding, and if the Company and the Trustee are either present by
duly authorized representatives or have, before or after the meeting, waived
notice.
X.3. Call of Meetings by Company or Debentureholders.
In case at any time the Company, pursuant to resolution of its
Board of Directors, or the Holders of at least 25% in aggregate principal amount
of the Debentures then outstanding, shall have requested the Trustee to call a
meeting of Debentureholders, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting, and the Trustee shall not
have mailed the notice of such meeting within ten days after receipt of such
request, then the Company or the Holders of Debentures in the amount above
specified may determine the time and the place, in New York, New York, for such
meeting and may call such meeting to take any action authorized in
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Section 10.1, by mailing notice thereof as provided in Section 10.2.
X.4. Who May Attend and Vote at Meetings.
To be entitled to vote at any meeting of Debentureholders a
person shall (a) be a registered Holder of one or more Debentures or (b) be a
person appointed by an instrument in writing as proxy for the registered Holder
or Holders of Debentures. The only persons who shall be entitled to be present
or to speak at any meeting of Debentureholders shall be the persons entitled to
vote at such meeting and their counsel and any representatives of the Trustee
and any representatives of the Company and its counsel. Notwithstanding the
foregoing, the Trustee may fix, in advance, a Record Date for the determination
of the Debentureholders entitled to notice of or to vote at any meeting of
Debentureholders or any adjournment thereof, which date shall not be more than
60 days nor less than 10 days prior to the date fixed for the meeting.
X.5 Regulations May be Made by Trustee.
Notwithstanding any other provision of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Debentureholders, in regard of proving the holding of Debentures and
of the appointment of proxies, and in regard of the appointment and duties of
inspectors of votes, and the submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit. Except as otherwise permitted or
required by any such regulations, the holding of Debentures shall be proved in
the manner specified in Section 9.2 and the appointment of any proxy shall be
proved in the manner specified in said Section 9.2 or by having the signature of
the person executing the proxy witnessed or guaranteed by any bank, banker or
trust company deemed by the Trustee to be satisfactory.
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The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Debentureholders as provided in Section 10.3, in which case
the Company or the Debentureholders calling the meeting, as the case may be,
shall (in like manner) appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by vote of the Holders of a
majority in aggregate principal amount of the Debentures represented at the
meeting and entitled to vote.
Subject to the provisions of Section 9.4 and 10.4, at any
meeting each Debentureholder or proxy shall be entitled to one vote for each SF
1,000 principal amount of Debentures; provided, however, that no vote shall be
cast or counted at any meeting in respect of any Debentures challenged as not
outstanding and ruled by the chairman of the meeting to be not outstanding. The
chairman of the meeting shall have no right to vote other than by virtue of
Debentures held by him or instruments in writing as aforesaid duly designating
him as the person to vote on behalf of other Debentureholders. At any meeting of
Debentureholders, the presence of persons holding or representing Debentures in
an aggregate principal amount sufficient to take action on the business for the
transaction of which such meeting was called shall constitute a quorum. Any
meeting of Debentureholders duly called pursuant to the provisions of Sections
10.2 or 10.3 may be adjourned from time to time by the vote of the Holders of a
majority in aggregate principal amount of the Debentures represented at the
meeting and entitled to vote, whether or not constituting a quorum, and the
meeting may be held as so adjourned without further notice.
X.6. Manner of Voting at Meetings and Record to be Kept.
The vote upon any resolution submitted to any meeting of
Debentureholders shall be by written ballots on which shall be subscribed the
signatures of the Holders of Debentures or of their representatives by proxy and
the principal amount of the Debentures voted by the ballot. The permanent
chairman of the meeting shall appoint two
98
inspectors of votes, who shall count all votes cast at the meeting for or
against any resolution and who shall make and file with the secretary of the
meeting their verified written reports in duplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of
Debentureholders shall be prepared by the secretary of the meeting and there
shall be attached to said record the original reports of the inspectors of votes
on any vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts, setting forth a copy of the notice of the meeting and
showing that said notice was mailed as provided in Section 10.2. The record
shall be signed and verified by the affidavits of the permanent chairman and
secretary of the meeting and one of the duplicates shall be delivered to the
Company and the other to the Trustee to be preserved by the Trustee, the latter
to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
X.7. Exercise of Rights of Trustee or Debentureholders May Not
be Hindered or Delayed by Call of Meeting of
Debentureholders.
Nothing in this Article Ten contained shall be deemed or
construed to authorize or permit, by reason of any call of a meeting of
Debentureholders or any rights expressly or impliedly conferred hereunder to
make such call, any hindrance or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the Debentureholders under any
of the provisions of this Indenture or of the Debentures.
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X.8. Notice to Debentureholders.
Any notice required to be given, mailed or delivered by the
Trustee to Debentureholders shall be sufficiently given, mailed or delivered if
mailed by first class mail to Debentureholders whose addresses of record are
within the United States or if mailed via airmail to Debentureholders whose
addresses of record are outside the United States.
XI
SUPPLEMENTAL INDENTURES
XI.1. Purposes for Which Supplemental Indentures May be
Entered into Without Consent of Debentureholders.
The Company, when authorized by a resolution of its Board of
Directors, and the Trustee, subject to the conditions and restrictions in this
Indenture contained, may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(a) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the
successor corporation of the covenants, agreements and obligations of
the Company pursuant to Article Twelve;
(b) to add to the covenants and agreements of the Company in
this Indenture, to contain such further covenants and agreements
thereafter to be observed, or to surrender any right or power herein
reserved to or conferred upon the Company;
(c) to cure any ambiguity or to correct or supplement any
defective or inconsistent provision contained in this Indenture or in
any supplemental indenture;
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to make provisions with respect to the conversion rights of Holders
of Debentures pursuant to the requirements of Section 4.3(b);
(d) to make such provisions with respect to matters or
questions arising under this Indenture as may be necessary or
desirable and not inconsistent with this Indenture that shall not
adversely effect the interests of the Debentureholders; and
(f) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee.
The Trustee is hereby authorized to join with the Company in
the execution of any supplemental indenture authorized or permitted by the terms
of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section may be executed by the Company and the Trustee without the consent
of the Holders of any of the Debentures at the time outstanding, notwithstanding
any of the provisions of Section 11.2.
XI.2. Modification of Indenture with Consent of Holders of
66-2/3% in Principal Amount of Debentures.
With the consent (evidenced as provided in Section 9.1) of the
Holders (or persons entitled to vote, or to give consents respecting the same)
of not less than 66 2/3% in aggregate principal amount of the Debentures at the
time outstanding, the Company, when authorized by a resolution of its Board of
Directors, and the Trustee may, from time to time and at any time, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of any supplemental indenture or of modifying in any manner
the
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rights and obligations of the Holders of the Debentures and of the Company;
provided that, without the consent of the Holders of all Debentures then
outstanding, no such supplemental indenture shall (i) extend the fixed maturity
of any Debenture, or reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon, or reduce any premium payable
upon the redemption thereof, or (ii) alter the provisions of Article IV hereof
respecting conversion of the Debentures so as to affect the Debentures
adversely, or (iii) modify any of the provisions of this Indenture with respect
to the subordination of the Debentures in a manner adverse to the Holders
thereof, or (iv) reduce the aforesaid percentage of Debentures, the Holders of
which are required to consent to any such supplemental indenture.
Upon the request of the Company, accompanied by a copy of a
resolution of its Board of Directors certified by the Secretary or an Assistant
Secretary of the Company authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Debentureholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the
Debentureholders under this Section to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this Section, the
Company shall mail a notice, postage prepaid, setting forth in general terms the
substance of such supplemental indenture, to all Debentureholders at their last
addresses appearing upon the register or registers. Any failure of the Company
to mail such notice, or any defect therein, shall not, howev-
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er, in any way impair or affect the validity of any such supplemental indenture.
XI.3. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture by the
Company and the Trustee pursuant to the provisions of this Article or Article
Twelve, this Indenture shall be and be deemed to be modified and amended in
accordance therewith, and the respective rights, limitations of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the Holders of Debentures shall thereafter be determined, exercised
and enforced hereunder subject in all respects to such modifications and
amendments, and all the terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and conditions of this Indenture
for any and all purposes.
XI.4. Debentures May Bear Notation of Changes.
Debentures authenticated and delivered after the execution of
any supplemental indenture pursuant to the provisions of this Article or Article
Twelve, or after any action taken at a Debentureholders' meeting pursuant to
Article Ten, may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture or as to any action taken at
any such meeting; and, in such case, suitable notation may be made upon
outstanding Debentures after proper presentation and demand. If the Company or
the Trustee shall so determine, new Debentures so modified as to conform, in the
opinion of the Trustee and the Board of Directors of the Company, to any
modification of this Indenture contained in any supplemental indenture, or to
any action taken at any such meeting, may be prepared by the Company,
authenticated by the Trustee and delivered in exchange for the Debentures then
outstanding, upon demand of, and without cost to, the Holders thereof upon
surrender of such Debentures.
XI.5. Opinion of Counsel.
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The Trustee, subject to the provisions of Section 8.1, may
require and receive an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article is authorized or
permitted by the terms of this Indenture and that it is not inconsistent
therewith.
XII
CONSOLIDATION OR MERGER
XII.1. When Company May Merge, Etc.
The Company shall not consolidate with or merge with or into
any other Person or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets, in a single transaction or
through a series of related transactions, as an entirety or substantially as an
entirety to another Person or group of affiliated Persons unless:
(a) either the Company shall be the continuing Person, or the
Person (if other than the Company) formed by such consolidation or
into which the Company is merged or to which the properties and assets
of the Company as an entirety or substantially as an entirety are
transferred shall be a Person organized and existing under the laws of
the United States of America or any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of the Company under the Debentures
and this Indenture; provided that a corporation at all times shall be
a co-obligor together with the continuing Person or transferee if the
continuing Person or transferee is itself not a corporation;
(b) immediately before and immediately after giving effect to
such transaction, no Event of Default and no Default shall have
occurred and be continuing; and
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(c) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or lease and such supplemental
indenture comply with this Article XII and that all conditions
precedent herein provided relating to such transaction have been
complied with.
The foregoing shall not be applicable with respect to a
consolidation, merger or transfer that involves less than 25% of the assets of
the Company.
Notwithstanding (a) through (c), any Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company or any other Subsidiary or Subsidiaries.
XII.2. Successor Corporation.
Upon any consolidation or merger, or any transfer of assets of
the Company in accordance with Section 12.1, the successor Person formed by such
consolidation or into which the Company is merged or to which such transfer is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein. When a successor Person
assumes all of the obligations of the Company hereunder and under the
Debentures, the predecessor shall be released from such obligation.
XIII
SUBORDINATION OF DEBENTURES
XIII.1. Agreement of Debentureholders that Debentures
Subordinate to All Senior Indebtedness.
The Company, for itself, its successors and assigns, covenants
and agrees and each Holder of the Debentures by his acceptance thereof likewise
covenants and
105
agrees that the payment of the principal, premium, if any, and interest on each
and all of the Debentures is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, to the prior payment in full of all Senior
Indebtedness. The provisions of this Article XIII shall constitute a continuing
offer to all persons who, in reliance upon such provisions, become Holders of,
or continue to hold, Senior Indebtedness, and such provisions are made for the
benefit of the Holders of Senior Indebtedness and such Holders are hereby made
obligees hereunder, the same as if their names were written herein as such, and
they and/or each of them may proceed to enforce such provisions.
XIII.2. Company Not to Make Payment with Respect to Debentures
in Certain Circumstances.
(a) Upon the maturity of any Senior Indebtedness by lapse of
time, acceleration or otherwise, all principal thereof (and premium, if any,)
and interest thereon shall first be paid in full, or such payment duly provided
for in cash or in a manner satisfactory to the Holder or Holders of such Senior
Indebtedness, before any payment by the Company is made on account of the
principal of (and premium, if any,) or interest on the Debentures or to acquire
any of the Debentures.
(b) Upon the happening of an event of default with respect to
any Senior Indebtedness, as such event of default is defined therein or in the
instrument under which it is outstanding, permitting the Holders to accelerate
the maturity thereof, and, if the default is other than default in payment of
the principal of (and premium, if any,) or interest on such Senior Indebtedness,
upon written notice thereof given to the Company and the Trustee by the Holder
or Holders of such Senior Indebtedness or their representative or
representatives, then unless and until such event of default shall have been
cured or waived or shall have ceased to exist, no payment shall be made by the
Company with respect to the principal of or interest on the Debentures or to
acquire any of the Debentures, provided that within 180 days after the happening
106
of such event of default the Holders of the Senior Indebtedness accelerate the
maturity thereof.
(c) Notwithstanding any other provision of this Section 13.2,
if the Company shall make any payments to the Trustee on account of the
principal of (and premium, if any) or interest on the Debentures after the
happening of a default in payment of the principal of (and premium, if any) or
interest on Senior Indebtedness, or after receipt by the Company and the Trustee
of written notice as provided in Section 13.6 of this Indenture of an event of
default with respect to any Senior Indebtedness, then, unless and until such
default or event of default shall have been cured or waived or shall have ceased
to exist, such payment (subject to the provisions of Sections 13.6 and 13.7 of
this Indenture) shall be held by the Trustee, in trust for the benefit of, and
shall be paid forthwith over and delivered to, the Holders of Senior
Indebtedness (pro rata as to each of such Holders on the basis of the respective
amounts of Senior Indebtedness held by them) or their representative or the
trustee under the indenture or other agreement (if any) pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance with the terms of such Senior Indebtedness
after giving effect to any concurrent payment or distribution to or for the
Holders of Senior Indebtedness.
(d) The Trustee shall be under no obligation to enforce the
Company's agreement, pursuant to Section 13.2 (a) and (b) of this Indenture, not
to make payments to acquire any of the Debentures or to take any action upon the
breach of such agreement.
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XIII.3. Debentures Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or
Reorganization of the Company.
Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):
(a) The Holders of all Senior Indebtedness shall first be
entitled to receive payment in full of the principal (and premium, if any)
thereof, and interest due thereon before the Holders of the Debentures are
entitled to receive any payment on account of the principal of (and premium, if
any) or interest on the Debentures (other than payment in shares of stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, which
stock and securities are subordinated to the payment of all Senior Indebtedness
and securities received in lieu thereof which may at the time be outstanding);
and
(b) Any payment or distribution of assets of the Company of
any kind of character, whether in cash, property or securities (other than
shares of stock of the Company as reorganized or readjusted, or securities of
the Company or any other corporation provided for by a plan of reorganization
readjustment, which stock and securities are subordinated to the payment of all
Senior Indebtedness and securities received in lieu thereof which may at the
time be outstanding), to which the Holders of the Debentures or the Trustee
would be entitled except for the provisions of this Article Thirteen, shall be
paid by the liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or other trustee or agent, directly to the Holders of Senior Indebtedness or
their representative or representatives, or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, to the extent necessary to make payment in
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full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution or provision therefor to the Holders of such
Senior Indebtedness.
(c) In the event that notwithstanding the foregoing provisions
of this Section 13.3, any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other than
shares of stock of the Company as reorganized or readjusted, or securities of
the Company or any other corporation provided for by a plan of reorganization or
readjustment, which stock and securities are subordinated to the payment of all
Senior Indebtedness and securities received in lieu thereof which may at the
time be outstanding), shall be received by the Trustee or the Holders of the
Debentures on account of principal (and premium, if any) or interest on the
Debentures before all Senior Indebtedness is paid in full, or effective
provision made for its payment, such payment or distribution (subject to the
provisions of Sections 13.6 and 13.7 of this Indenture) shall be received and
held in trust for and shall be paid over to the Holders of the Senior
Indebtedness remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
for application to the payment of such Senior Indebtedness until all such Senior
Indebtedness shall have been paid in full, after giving effect to any concurrent
payment or distribution or provision therefor to the Holders of such Senior
Indebtedness.
XIII.4. Debentureholders to be Subrogated to Right of Holders
of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the
Holders of the Debentures shall be subrogated to the rights of the Holders of
Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until all amounts owing on the
Debentures shall be paid in full, and for the purpose of such subrogation, no
payments or distributions to the Holders of the Senior Indebtedness by o
109
on behalf of the Company or by or on behalf of the Holders of the Debentures by
virtue of this Article Thirteen which otherwise would have been made to the
Holders of the Debentures, shall be deemed to be payment by the Company to or on
account of the Senior Indebtedness, it being understood that the provisions of
this Article Thirteen are and are intended solely for the purpose of defining
the relative rights of the Holders of the Debentures, on the one hand, and the
Holders of the Senior Indebtedness, the other hand.
XIII.5. Obligations of Company Unconditional.
Nothing contained in this Article Thirteen or elsewhere in
this Indenture or in the Debentures is intended to or shall impair as between
the Company and the Holders of the Debentures, the obligation of the Company,
which is absolute and unconditional, to pay to the Holders of the Debentures the
principal of, premium, if any, and interest on the Debentures, or make payments
in respect of the sinking fund, for the Debentures, as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the Holder of any
Debenture from exercising all rights and remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Thirteen of the Holders of Senior Indebtedness in respect of
cash, property, or securities of the Company received upon the exercise of any
such remedy. Upon any distribution of assets of the Company referred to in this
Article Thirteen, the Trustee, subject to the provisions of Section 8.l of this
Indenture, and the Holders of the Debentures shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which any
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of the liquidating trustee or agent or other person making any
distribution to the Trustee or to the Holders of the Debentures, for the purpose
of ascertaining the persons to participate in such distribution, the Holders of
the Senior Indebtedness and other indebtedness of the Company,
111
the amount thereof and all other facts pertinent thereto or to this Article
Thirteen.
XIII.6 Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Company shall give prompt written notice to the Trustee of
any default under any Senior Indebtedness or under any agreement pursuant to
which Senior Indebtedness may have been issued. Notwithstanding the provisions
of Section 13.1 of this Indenture or any other provision of this Indenture, the
Trustee shall not at any time be charged with knowledge of the existence of any
facts which would prohibit the making of any payment of monies to or by the
Trustee, unless and until the Trustee shall have received at the principal
office of the Trustee, written notice thereof from the Company or from one or
more Holders of Senior Indebtedness or from any trustee therefor; and, prior to
the receipt of any such written notice, the Trustee, subject to the provisions
of Section 8.1 of this Indenture, shall be entitled to assume conclusively that
no such facts exist.
The Trustee shall be entitled to rely on the delivery to it of
a written notice by a person representing himself to be a Holder of Senior
Indebtedness (or a trustee on behalf of such Holder) to establish that such
notice has been given by a Holder of Senior Indebtedness or a trustee on behalf
of any such Holder or Holders. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any person
as a Holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Thirteen the Trustee may, at its discretion, request
such person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness held by such person, the extent to which
such person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such person under this Article Thirteen,
and, if such evidence is not furnished, the Trustee may defer any payment to
such person pending judicial determination as to the right of such person to
receive such payment, but the Trustee
111
shall not be obligated to institute a judicial proceeding for such purpose; nor
shall the Trustee be charged with knowledge of the curing or waiver of any event
of default of the character referred to in Section 13.2(b) of this Indenture or
that any event or any condition preventing any payment in respect of the
Debentures shall have ceased to exist, unless and until the Trustee shall have
received an Officers' Certificate to such effect.
XIII.7. Application by Trustee of Monies Deposited.
Anything in this Indenture to the contrary notwithstanding,
any deposit of moneys by the Company with the Trustee or any paying agent
(whether or not in trust) for the payment of the principal of (and premium, if
any) or interest on any Debentures shall be subject to the provisions of
Sections 13.1, 13.2, 13.3, and 13.4 of this Indenture except that, if not less
than one day prior to the date on which by the terms of this Indenture any such
monies may become payable for any purpose (including, without limitation, the
payment of either the principal of (and premium, if any) or the interest on any
Debenture and any amounts immediately due and payable upon the execution of any
instrument acknowledging satisfaction and discharge of this Indenture, as
provided in Article Fourteen) the Trustee shall not have received with respect
to such monies the notice provided for in Section 13.6, then anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such monies and to apply the same to the purpose for which
they were received, and shall not be affected by any notice to the contrary
which may be received by it on or after such date.
XIII.8. Subordination Rights Not Impaired.
Nothing in this Indenture shall: (i) impair, as between the
Company and Holders of Debentures, the obligation of the Company, which is
absolute and unconditional, to pay principal of and interest on the Debentures
in accordance with their terms; (ii) affect the relative rights of Holders of
Debentures and creditors of the Company , other than holders of Senior
Indebtedness; or (iii) prevent any Holder of Debentures from exercising its
available remedies upon a default, subject to the rights of holders of Senior
Indebtedness to receive distributions otherwise payable to Holders of
Debentures. If the Company fails because of this Section 13.8 to pay principal
of or interest on a Debenture on the due date, such failure shall nevertheless
be deemed a default. For the purpose of this Section 13.8, the term "default"
means any event which is, or after notice or lapse of time or both would become,
an Event of Default as defined in Section 7.1.
The Trustee or any Paying Agent may continue to make payments
on the Debentures and shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of such payments until it
receives notice reasonably satisfactory to it that payments may not be made
under this Section 13.8 and, prior to the receipt of any such notice, the
Trustee shall be entitled to assume conclusively that no such facts exist.
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XIII.9. Trustee to Effectuate Subordination.
Each Holder of the Debentures by his acceptance thereof
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Thirteen and irrevocably appoints the Trustee his attorney-in-fact
for such purpose, including, in the event of any dissolution, winding up,
liquidation or reorganization of the Company (whether in bankruptcy, insolvency
or receivership proceedings or upon an assignment for the benefit of creditors
or otherwise) tending towards liquidation of the business and assets of the
Company, the authority to file a claim for the unpaid balance of its or his
Debentures in the form required in said proceedings and to cause said claim or
proof of debt to be approved. If the Trustee does not exercise its authority to
file a proper claim or proof of debt in the form required in such proceeding
prior to thirty days before the expiration of the time to file such claim or
claims, then the Holder or Holders of Senior Indebtedness are hereby authorized
to and have the right to file and are hereby authorized to file an appropriate
claim for an on behalf of the Holders of said Debentures.
XIII.10. Rights of Trustee as Holder of Senior Indebtedness.
The Trustee shall be entitled to all of the rights set forth
in this Article Thirteen in respect of any Senior Indebtedness, at any time held
by it to the same extent as any other Holder of Senior Indebtedness, and nothing
in Section 8.13 of this Indenture or elsewhere in this Indenture shall be
construed to deprive the Trustee or any of its rights as such Holder.
XIII.11. Article Thirteen Not to Prevent Event of Default.
The failure to make a payment on account of principal,
premium, if any, or interest by reason of any provision in this Article Thirteen
shall not be construed
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as preventing the occurrence of an Event of Default under Section 7.1 of the
Indenture.
XIV
SATISFACTION AND DISCHARGE OF INDENTURE;
DEPOSITED MONEYS
XIV.1. Satisfaction and Discharge of Indenture.
If the Company shall deliver to the Trustee for cancellation
all Debentures theretofore authenticated (other than any Debentures that shall
have been destroyed, lost or stolen and that shall have been replaced or paid as
provided in Section 2.9) and not theretofore cancelled, or if all the Debentures
not theretofore delivered to the Trustee for cancellation shall have become due
and payable (the date on which such Debentures become due and payable being
hereinafter in this Article XIV called the "maturity date"), or shall have been
called for redemption pursuant to Article III hereof, or provision satisfactory
to the Trustee shall have been made for the giving of notice of redemption as
provided in said Article III, and the Company shall have deposited in trust with
the Trustee or with any paying agent (other than the Company) funds (to be
immediately available for payment) sufficient to pay at maturity or upon
redemption all of the Debentures (other than any Debentures which have been
destroyed, lost or stolen and which shall have been replaced or paid as provided
in Section 2.7) not theretofore cancelled or delivered to the Trustee for
cancellation, including principal (and premium, if any) and interest due or to
become due to such maturity date or date fixed for redemption, as the case may
be, then:
(a) this Indenture shall cease to be of further effect (except
as to any remaining rights of registration of transfer, of exchange and
to convert the Debentures prior to the close of business on the date
fixed for redemption into Common Stock as provided in Article IV) and
on or after such maturity date or date fixed for redemption, as the
case may be, the Trustee, on demand of the Company accompanied by an
115
Officers' Certificate and an Opinion of Counsel, and at the cost and
expense of the Company, shall execute proper instruments acknowledging
satisfaction of and discharging this Indenture; and
(b) all obligations of the Company in respect of the
Debentures shall cease and be discharged, and the Holders of such
Debentures shall thereafter be restricted exclusively to such funds for
any and all claims of whatsoever nature on their part under this
Indenture or with respect to such Debentures.
Notwithstanding the satisfaction and discharge of this
Indenture, the rights, remedies, immunities and defenses of the Trustee under
this Indenture, including but not limited to those contained in Section 8.1,
with respect to actions taken or omitted to be taken pursuant to this Indenture
and events occurring prior to such satisfaction and discharge, and the
obligations of the Company to the Trustee under Section 8.6, shall survive.
XIV.2. Application by Trustee of Funds Deposited for Payment
of Debentures.
All moneys deposited with the Trustee pursuant to Section 14.1
shall be held in trust and applied by it to the payment to the Holders of the
particular Debentures, for the payment or redemption of which such moneys have
been deposited with the Trustee, of all sums due and to become due thereon for
principal (and premium, if any) and interest.
XIV.2. Repayment of Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this
Indenture all moneys then held by any Paying Agent under the provisions of this
Indenture shall, upon demand of the Company or the Trustee, be paid to the
Trustee and thereupon such paying agent shall be released from all further
liability with respect to such moneys.
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XIV.4. Moneys Deposited for Redemption of Debentures
Subsequently Converted to be Returned to Company.
All moneys deposited with the Trustee or any paying agent for
the payment or redemption of Debentures subsequently converted shall be returned
to the Company upon its written request. All moneys deposited with any
conversion agent in connection with the Debentures surrendered for conversion
between the Record Date for the payment of interest on the Debentures and the
interest payment date of such interest shall be paid over to the Company
promptly after such interest payment date.
XIV.5. Payment of Deposited Money to Company After Lapse of
Time.
In case the Holder of any Debenture entitled to payment
hereunder at any time outstanding hereunder shall not, within two years after
the maturity date of such Debenture, or if such Debenture shall have been called
for redemption, then within two years after the date fixed for redemption of
such Debenture, claim the amount on deposit with the Trustee or other depositary
for the payment of such Debenture, the Trustee or other depositary shall pay
over to the Company the amount so deposited, upon receipt of a request signed by
the President, a Vice President or the Treasurer of the Company, and thereupon
the Trustee or other depositary shall be released from any and all further
liability with respect to the payment of such Debenture, and the Holder of said
Debenture as an unsecured creditor shall be entitled (subject to any applicable
statute of limitations) to look only to the Company for the payment thereof.
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XV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
XV.1. Immunity of Incorporators, Stockholders, Officers and
Directors.
Except for liabilities arising under the Securities Act, no
recourse shall be had for the payment of the principal of (and premium, if any)
or the interest on any Debenture, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture or in any supplemental indenture, or
in any Debenture or because of the creation of any indebtedness represented
hereby shall be had against any incorporator, stockholder, officer, trustee,
director, past, present or future, as such of the Company or of any predecessor
or successor corporation, whether by virtue of any constitution, statute or rule
of law or equity, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issue of the Debentures.
118
XVI
RIGHT TO REQUIRE REPURCHASE
XVI.1. Right to Require Repurchase.
(a) In the event of a Change of Control, each Holder shall
have the right to require the Company to repurchase all or a portion of such
Holder's Debentures at a purchase price equal to the principal amount plus
accrued interest to the date of repurchase. Any such tender of Debentures for
repurchase shall be accompanied by the attached Warrants, which may either be
exercised or, upon failure of such exercise, shall expire upon such repurchase.
At the option of the Company, the repurchase price may be paid in cash or by
delivery of Shares having a Market Value equal to the repurchase price. "Market
Value," on a per Share basis, means the amount determined by multiplying (x) the
applicable Stock Price Factor on the date notice of repurchase is given by (y)
the applicable Exchange Rate Factor on such date (provided that in no event
shall the Exchange Rate Factor be less than 1.1175), and by multiplying the
product so achieved by 75%.
A "Change of Control" shall be deemed to have occurred at the
time when persons other than the Existing Control Group shall have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
more than 50% of the aggregate voting power of the Company, unless such
acquisition shall have been approved by a two-thirds (66 2/3%) majority of the
Continuing Directors of the Company.
(b) In the event the Company does not cause the Debentures to
be listed for trading on the Luxembourg Stock Exchange within ninety (90) days
after the Initial Closing Date, each Holder shall have the right, during the 30
day period following receipt of the notice described in Section 16.2, to require
the Company to repurchase all or a portion of such Holder's Debentures at a
purchase price equal to the principal amount plus accrued interest to the date
of repurchase. Any such tender of Debentures for repurchase shall be accompanied
by the attached Warrants,
119
which may either be exercised or, upon failure of such exercise, shall expire
upon such repurchase. At the option of the Company, the repurchase price may be
paid in cash or by delivery of Shares having a Market Value equal to the
repurchase price. "Market Value," on a per Share basis, means the amount
determined by multiplying (x) the applicable Stock Price Factor on the date
notice of repurchase is given by (y) the applicable Exchange Rate Factor on such
date (provided that in no event shall the Exchange Rate Factor be less than
1.1175), and by multiplying the product so achieved by 75%. In the event that
the Debentures are listed for trading on the Luxembourg Stock Exchange
subsequent to ninety (90) days after the date of authentication, then the
Holders will no longer have the right under this Section 16.1(c) to require the
Company to repurchase any Debentures not theretofore repurchased.
(c) The right to require repurchase at the option of the
Holder is subject to the restriction that the Company may not repurchase any
Debenture at any time when the subordination provisions of this Indenture would
not permit the Company to make a payment of principal, premium or interest on
the Debentures. Except where inconsistent with the provisions of this Article
Sixteen, the redemption provisions of Article Three shall be applicable to
repurchase under this Article Sixteen.
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XVI.2. Notice; Method of Exercising Repurchase Right.
(a) On or before the 30th calendar day after any Change in
Control, and after the 90th day following the Initial Closing Date if the
Debentures are not then listed on the Luxembourg Stock Exchange, the Company
shall give or cause to be given notice of any event giving rise to the
repurchase right set forth herein arising as a result thereof to each Holder to
the Debentures as such Holder's address appearing in the Debenture Register. The
Company shall also cause a copy of such notice of a repurchase right to be
published once in an Authorized Newspaper. The Company shall notify the Trustee
of the occurrence of any event giving rise to the repurchase right described
herein as promptly as practical after such occurrence.
Each notice of a repurchase right shall state:
(i) the Repurchase Date,
(ii) the Repurchase Price,
(iii) the date by which the repurchase right must be
exercised, and
(iv) a description of the procedure which a Holder must follow
to exercise a repurchase right.
No failure of the Company to give the foregoing notice shall
limit any Holder's right to exercise a repurchase right.
(b) To exercise a repurchase right, a Holder shall deliver to
the Company (or an agent designated by the Company for such purpose in the
notice referred to in (a) above) and the Trustee on or before the thirtieth
calendar day after the date of the Company notice provided under this Section
16.2 (1) written notice of the Holder's exercise of such right, which notice
shall set
121
forth the name of the Holder, the principal amount of the Debentures to be
repurchased and a statement that the option to exercise the repurchase right is
being made thereby; and (2) the Debentures with respect to which the repurchase
right is being exercised, duly endorsed for transfer to the Company. Such
written notice shall be irrevocable. If the Repurchase Date falls between any
regular Record Date and the next succeeding Interest Payment Date, Debentures to
be repurchased must be accompanied by payment from the Holder of an amount in
cash equal to the interest thereon which the registered Holder is to receive on
such Interest Payment Date. Any tender of Debentures for repurchase will be
accompanied by the attached Warrants, which may either be exercised or, upon
failure of such exercise, will expire upon such repurchase.
(c) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall pay or cause to be paid the
price payable with respect to the Debenture or Debentures as to which the
repurchase right has been exercised in cash to the Holder of such Debenture or
Debentures on the Repurchase Date. In the event that a repurchase right is
exercised with respect to less than the entire principal amount of a surrendered
Debenture, the Company shall execute and deliver to the Trustee and the Trustee
shall authenticate for issuance in the name of the Holder a new Debenture or
Debentures, with a Guarantee or Guarantees endorsed thereon, in the aggregate
principal amount of the unrepurchased portion of such surrendered Debenture.
(d) In the event that the Holders exercise their rights to
require the Company to repurchase Debentures pursuant to the provisions of this
Article XVI, the Company shall comply with any applicable tender offer rules
under the Exchange Act, including, to the extent applicable, Rules 13e-4 and
14e-1, as then in effect, with respect to any such purchase.
XVI.3. Deposit of Repurchase Price.
Prior to the Repurchase Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if
122
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 2.7) an amount of money sufficient to pay the Repurchase
Price of the Debentures which are to be repaid on the Repurchase Date.
XVI.4. Debentures Not Repurchased on Repurchase Date.
If any Debenture surrendered for repurchase shall not be so
paid on the Repurchase Date, the principal shall, until paid, bear interest to
the extent permitted by applicable law from the Repurchase Date at a rate per
annum borne by such Debenture.
XVI.5. Debentures Repurchased in Part.
Any Debenture which is to be repurchased only in part shall be
surrendered at any office or agency of the Company designated for that purpose
pursuant to Section 2.6 (with, if the Company or Debenture Registrar so
requires, due endorsement by, or written instrument of transfer in form
satisfactory to the Company and the Debenture Registrar duly executed by, the
Holder thereof or his attorney duly authorized in writing), and the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder of
such Debenture without service charge, a new Debenture or Debentures, with a
Guarantee or Guarantees endorsed thereon, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unrepurchased portion of the principal of the Debenture so surrendered.
XVI.6. Purchase of Warrants.
Any repurchase of Debentures by the Company pursuant to the
provisions of this Article XVI shall be automatically deemed to include the
repurchase by the Company of the related Warrants without additional
consideration, and all such Warrants shall be surrendered by the Holder thereof
for cancellation at the same time, and in the same manner, as the related
Debentures.
123
MISCELLANEOUS PROVISIONS
XVII.1. Successors and Assigns of Company Bound by Indenture.
All the covenants, stipulations, promises and agreements in
this Indenture contained by or in behalf of the Company shall bind its
successors and assigns, whether so expressed or not.
XVII.2.Acts of Board, Committee or Officer of Successor
Corporation Valid.
Any act or proceeding by any provision of this Indenture
authorized or required to be done or performed by any board, committee or
officer of the Company shall and may be done and performed with like force and
effect by the like board, committee or officer of any corporation that shall at
the time be the lawful successor of the Company.
XVII.3. Surrender of Powers by Company.
The Company by instrument in writing executed by authority of
its Board of Directors and delivered to the Trustee may surrender any of the
powers reserved to the Company and thereupon such power so surrendered shall
terminate both as to the Company and as to any successor corporation.
124
XVII.4. Required Notices or Demands May be Served by Mail.
Except to the extent otherwise provided in this Indenture, any
notice or demand which by any provision of this Indenture is required or
permitted to be given or served by the Trustee or by the Holders of Debentures
to or on the Company may be given or served by being deposited, postage prepaid,
first class mail, in a post-office letterbox addressed (until another address is
filed in writing by the Company with the Trustee) as follows: Palomar Medical
Technologies, Inc., Attention: President, 66 Cherry Hill Drive, Beverly,
Massachusetts 01915. Any notice, election, request or demand by the Company or
any Debentureholder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or made at the principal
office of the Trustee at 6201 15th Avenue, 3rd Floor, Brooklyn, New York 10005.
XVII.5.Indenture and Debentures to be Construed in Accordance
with Laws of State of New York.
This Indenture and each Debenture shall be deemed to be a
contract made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the internal laws of said
State. Under the Judiciary Law of the State of New York, a judgment or decree in
an action based upon an obligation denominated in a currency other than U.S.
dollars shall be rendered in the foreign currency of the underlying obligation
and converted into U.S. dollars at a rate of exchange prevailing on the date of
the entry of the judgment or decree.
125
XVII.6.Officers' Certificate and Opinion of Counsel to be
Furnished upon Applications or Demands by Company.
Upon any application or demand by the Company to the Trustee
to take or omit to take any action under any of the provisions of this
Indenture, the Company shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action or omission have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent have been complied with and such action or omission does
not violate the terms of this Indenture or the provisions of any applicable law.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the
Company may be based, insofar as it relates to legal matters, upon a
certificate, an opinion of or representations by counsel, unless such officer
knows that the certificate or opinion or representations with respect to the
matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous. Any certificate, statement or Opinion of Counsel may be
based (insofar as it relates to factual matters, information with respect to
which is in the possession of the
126
Company) upon the certificate, statement or opinion of or representations by any
officer or officers of the Company with direct knowledge of such factual
matters, unless such counsel knows that the certificate, statement or opinion or
representations with respect to the matters upon which his certificate,
statement or opinion may be based as aforesaid are erroneous.
Any certificate, statement or opinion of an officer of the
Company or of counsel may be based, insofar as it relates to accounting matters,
upon a certificate or opinion of or representations by an accountant or firm of
accountants, unless such officer or counsel, as the case may be, knows that the
certificate or opinion or representations with respect to the accounting matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous.
XVII.7. Payments Due on Non-Business Days.
In any case where the date of maturity of interest on or
principal of the Debentures or the date fixed for redemption of any Debenture,
or the last day on which the Holder of any Debenture has the right to exercise
the right of conversion thereof, shall not be a Business Day, then payment of
interest or principal (or premium, if any) or the exercise of such conversion
right, may be made on the next succeeding Business Day with the same force and
effect as if made on the nominal date, and no interest shall accrue for the
period after such nominal date until such next succeeding Business Day.
XVII.8. Effect of Invalidity of Provisions.
In case any one or more of the provisions contained in this
Indenture or in the Debentures shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Indenture or of
such Debentures, but this Indenture and such Debentures shall be construed as if
such invalid
127
or illegal or unenforceable provision had never been contained herein or
therein.
XVII.9. Execution of Counterparts.
This Indenture may be executed in any number of counterparts,
each of which shall be an original; but such counterparts shall together
constitute but one and the same instrument.
American Stock Transfer & Trust Company, the party of the
second part, hereby accepts the trusts in this Indenture declared and provided,
upon the terms and conditions hereinabove set forth.
IN WITNESS WHEREOF, Palomar Medical Technologies, Inc., the
party of the first part, has caused this Indenture to be signed in its corporate
name and acknowledged by Steven Georgiev, its Chief Executive Officer and
Chairman of the Board, and its corporate seal to be affixed hereunto; and
American Stock Transfer & Trust Company, the party of the second part, has
caused this Indenture to be signed and acknowledged by its Chairman/CEO and its
corporate seal to be affixed hereunto, all as of the day and year first above
written.
PALOMAR MEDICAL TECHNOLOGIES,
INC.
By: /s/ Steven Georgiev
---------------------
Name: Steven Georgiev
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: /s/ Herbert J. Lemmer
---------------------
Name: Herbert J. Lemmer
Title: Vice President
128
STATE OF )
: ss.:
COUNTY OF )
On this ___ day of _________ 1996, before me, the subscriber,
a Notary Public within and for the County of ______________ in the State of
________, personally appeared to me _____________________________, to me
personally known, who, being by me duly sworn, did say that he resides in
_______________________ and is the ______________ of Palomar Medical
Technologies, Inc., one of the corporations described in and which executed the
foregoing instrument; that he knows the corporate seal of the said corporation
and that the seal affixed to said instrument is the corporate seal of said
corporation; and that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors and that he subscribed his
name thereto by like authority.
(Seal)
________________________________
Notary Public
129
STATE OF NEW YORK )
: ss.:
COUNTY OF KINGS )
On this ____ day of ______, 1996, before me, the subscriber, a
Notary Public within and for the County of New York in the State of New York,
personally appeared ___________________ to me personally known, who, being by me
duly sworn, did say that he resides at_______________________________________
and is the ___________________ of American Stock Transfer & Trust Company, a
company described in and which executed the foregoing instrument; that he knows
the seal of said entity and that the seal affixed to said instrument is the seal
of said entity; and that said instrument was signed and sealed in behalf of said
entity by authority of its Board of Directors and that he subscribed his name
thereto by like authority.
(Seal)
-----------------------------
Notary Public
130
EXHIBIT A
[FORM OF FACE OF REGISTERED DEBENTURE]
THE DEBENTURE(S) REPRESENTED HEREBY ARE EACH PART OF A NONDETACHABLE UNIT, EACH
UNIT CONSISTING OF ONE SF 1,000 PRINCIPAL AMOUNT 4.5% CONVERTIBLE SUBORDINATED
DEBENTURE AND 24 COMMON STOCK PURCHASE WARRANTS. SAID DEBENTURE AND WARRANTS MAY
NOT BE TRANSFERRED OR TRADED SEPARATELY, AND ANY PURPORTED TRANSFER OF EITHER OF
SUCH SECURITIES SEPARATELY FROM THE OTHER SHALL BE VOID AND SHALL NOT BE
RECORDED ON THE BOOKS AND RECORDS OF THE COMPANY. DEBENTURES MAY ONLY BE
CONVERTED IN THEIR ENTIRETY; AND EACH DEBENTURE TO BE CONVERTED MUST BE
ACCOMPANIED BY THE RELATED 24 WARRANTS FOR EXERCISE OR CANCELLATION IN
ACCORDANCE WITH THE TERMS THEREOF.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO
REGULATION S, AN EXEMPTION FROM REGISTRATION PURSUANT TO THE PROVISIONS UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THESE SECURITIES MAY NOT BE TRANSFERRED, OFFERED OR SOLD PRIOR TO THE END OF THE
FORTY (40)-DAY PERIOD (THE "RESTRICTED PERIOD") COMMENCING ON THE LATER OF (I)
THE DATE THE SECURITIES ARE FIRST OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS
DEFINED IN REGULATION S) OR (II) THE DATE OF THE FINAL CLOSING OF THE OFFERING
OF THE UNITS BY THE COMPANY, UNLESS SUCH TRANSFER, OFFER OR SALE (I) IS MADE IN
AN "OFFSHORE TRANSACTION" AND NOT TO A "U.S. PERSON" (OTHER THAN A
"DISTRIBUTOR") (AS SUCH TERMS ARE DEFINED IN REGULATION S) OR (II) IS MADE
PURSUANT TO REGISTRATION OR AN APPLICABLE EXEMPTION UNDER THE SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE CANNOT BE SOLD EXCEPT PURSUANT TO
THE TERMS AND CONDITIONS OF THE OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
BETWEEN THE COMPANY AND THE INITIAL HOLDER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY.
BY REQUESTING THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
AFTER THE RESTRICTED PERIOD, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IF
SUCH TRANSFER IS MADE TO A U.S. PERSON, THAT AT THE TIME OF SUCH TRANSFER THE
HOLDER IS NOT AN "AFFILIATE" OF THE COMPANY (AS SUCH TERM IS DEFINED IN THE
SECURITIES ACT) OR AN "UNDERWRITER" OR "DEALER" (AS SUCH TERMS ARE DEFINED IN
THE ACT), HAS NOT ENGAGED IN ANY SHORT SALES OR SIMILAR HEDGE TRANSACTIONS WITH
RESPECT TO THE COMPANY'S SHARES OF COMMON STOCK DURING THE RESTRICTED PERIOD, IS
NOT A "DISTRIBUTOR" AND SUCH TRANSFER IS NOT BEING MADE AS PART OF A PLAN OR
SCHEME TO EVADE THE REGISTRATION PROVISIONS OF THE SECURITIES ACT.
A-1
PALOMAR MEDICAL TECHNOLOGIES, INC.
----------------------------------
THIS SECURITY CANNOT BE EXCHANGED
FOR A BEARER SECURITY
4.5% SUBORDINATED CONVERTIBLE DEBENTURE DUE 2003
No.____________ SF___________
Unit CUSIP U69636 AA 3
Debenture CUSIP U69636 AB 1
PALOMAR MEDICAL TECHNOLOGIES, INC., a corporation duly
organized and existing under the laws of the State of Delaware (the "Company"),
for value received, hereby promises to pay to
_____________________________________, or registered assigns, the principal sum
of SF ________ , on or prior to June , 2003, at its office in Beverly,
Massachusetts, or at its agency in Luxembourg, in such coin or currency of
Switzerland as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest thereon at the rate per annum
specified in the title of this Debenture, in like coin or currency, at said
office in Beverly, Massachusetts, or agency of the Company in Luxembourg
quarterly in arrears on March 31, June 30, September 30 and December 31 in each
year (each an "Interest Payment Date"), commencing on September 30, 1996, to the
Holders thereof as of the March 15, June 15, September 15 or December 15, as the
case may be, next preceding such Interest Payment Date (each, a "Record Date").
The interest on the Debentures shall be computed on the basis
of a 360-day year of twelve 30-day months and in any case where the date for any
payment on the Debentures is not a Business Day, such payment may be made on the
next succeeding Business Day and have the same force and effect as if made on
such original payment date, and no interest shall accrue for the period from and
after such original payment date. The principal, or premium, if any, and
interest on the Debentures shall be payable in Swiss Francs. At the option of
the Company, payment of interest may be made by check mailed to the address of
the person entitled thereto as such address shall appear in the Register.
The Person in whose name any Debenture is registered at the
close of business on the Record Date with respect to an Interest Payment Date
shall be entitled to receive the interest payable on such interest payment date
notwithstanding the cancellation of such Debenture upon any transfer, exchange
or conversion thereof subsequent to
A-2
such Record Date and prior to such Interest Payment Date; provided that if and
to the extent the Company shall default in the payment of the interest due on
such Interest Payment Date, such defaulted interest shall be paid to the persons
in whose names the Debentures are registered on a subsequent record date
established by notice given by mail by or on behalf of the Company to the
Holders of Debentures not less than 15 days preceding such subsequent record
date, such Record Date to be not less than five days preceding the date of
payment of such defaulted interest. Notwithstanding the foregoing, such
defaulted interest may be paid at any time in any other lawful manner not
inconsistent with the terms of the Debentures or the requirements of any
securities exchange on which the Debentures may be listed, and upon such notice
as may be required by such exchange.
If any Debenture or portion thereof is called for redemption
on a redemption date after the close of business on the Record Date preceding an
Interest Payment Date and notice of such redemption has been mailed and funds
for such redemption have been duly provided, interest accrued to the redemption
date on such Debenture or portion so called shall be paid only against surrender
of the Debenture for redemption in accordance with said notice.
Subject to the terms of the Indenture, the Company shall pay
to any "United States Alien" certain customary additional amounts in the event
of changes in the United States income tax laws affecting withholding taxes on
payments under the Debentures ("Additional Payments"), in order that every new
payment of principal and interest on such Debenture, after deduction or
withholding for or on account of any present or future tax, assessment or
governmental charge imposed upon or as a result of such payment by the
government of the United States or any state thereof or by any authority or
agency thereof shall not be less that the amount provided for in such Debenture
to be then due and payable, subject to certain customary exceptions. The Company
shall provide customary indemnification for Holders affected by the foregoing.
If the Company is required to make additional payments to
Holders thereof by reason of deductions or withholdings for or on account of any
taxes, assessments or other governmental charges (the "withholding taxes"), the
Company shall deliver to the Trustee for delivery to the Holders at the time of
any such payment a statement specifying the amount of taxes so paid by the
Company as additional interest.
A-3
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS
DEBENTURE SET FORTH BELOW, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE
THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.
Unless the certificate of authentication hereon has been
executed by the Trustee by the manual signature of one of its authorized
officers, this Debenture shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed in its corporate name.
Dated:
PALOMAR MEDICAL TECHNOLOGIES,
INC.
By:________________________________
Attest: Title:
- -----------------------
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the
within-mentioned Indenture.
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Trustee
By:________________________________
Title:
A-4
[FURTHER PROVISIONS]
PALOMAR MEDICAL TECHNOLOGIES, INC.
4.5% SUBORDINATED CONVERTIBLE DEBENTURE DUE 2003
This Debenture is one of a duly authorized issue of Debentures
of the Company designated as its 4.5% Subordinated Convertible Debentures due
2003 (the "Debentures"), limited to the aggregate principal amount of
Twenty-five Million Swiss Francs (SF 25,000,000), all issued or to be issued
under and pursuant to an indenture dated as of June 24, 1996 (the "Indenture"),
duly executed and delivered by the Company and American Stock Transfer & Trust
Company, a corporation duly organized and existing under the laws of New York,
as trustee (the "Trustee"), to which Indenture and all indentures supplemental
thereto reference is hereby made for a description of the rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the Holders of
the Debentures.
The indebtedness evidenced by the Debentures is, to the extent
and in the manner set forth in the Indenture, expressly subordinated and subject
in right of payment to the prior payment in full of all Senior Indebtedness, as
defined in the Indenture, and this Debenture is issued subject to such
provisions, and each Holder of this Debenture, by accepting the same, agrees to
and shall be bound by such provisions, and authorizes the Trustee on his behalf
to take such action as may be necessary or appropriate to acknowledge or
effectuate such subordination as provided in the Indenture and appoints the
Trustee his attorney-in-fact for any and all such purposes.
Transfer of Debentures. Upon surrender at such office or
agency of any Debentures for registration of transfer, the Company shall execute
and register and the Trustee shall authenticate and deliver in the name of the
transferee or transferees a new Debenture or Debentures for the same aggregate
principal amount, and no registration of transfer of any Debentures shall be
valid as against the Company or the Trustee unless made at such office or
agency.
The authorized denominations of Debentures shall be
interchangeable in equal aggregate principal amounts. Debentures to be exchanged
shall be surrendered at the office or agency to be maintained by the Company,
Redemption at Option of Company. The Debentures may be
redeemed by the Company, as a whole or from time to
A-5
time in part, at any time on or after the third anniversary of the Initial
Closing Date and prior to maturity or conversion, at a redemption price equal to
100% of the principal amount to be redeemed plus accrued and unpaid interest to
the date fixed for redemption.
The Debentures may also be redeemed, at any time as a whole
but not in part, at a redemption price equal to 100% of the principal amount
plus accrued and unpaid interest to the date fixed for redemption, if, as a
result of any change in or amendment to the laws, regulations or published tax
rulings of the United States, or any political subdivision or taxing authority
thereof or therein, affecting taxation, or any change in the official
administration, application or interpretation of such laws, regulations or
published tax rulings either generally or in relation to the Debentures, which
change or amendment becomes effective on or after the Initial Closing Date or
which change in official administration, application or interpretation shall not
have been available to the public prior to such date and is notified to the
Company on or after such date, it is determined by the Company that the Company
would be required to pay any Additional Payments pursuant to the Indenture or
the terms of any Debenture in respect of interest on the next succeeding
Interest Payment Date. At the option of the Company, such redemption may be paid
in cash or by delivery of shares of Common Stock in the manner described in the
Indenture.
Discharge of Company's Obligations Upon Deposit of Redemption
Moneys. If proper notice of redemption shall have been given, and if the Company
shall have deposited with the Trustee or with any Paying Agent (other than the
Company), for the benefit of the Holders of any of the Debentures called for
redemption in whole or in part, funds (to be immediately available for payment)
sufficient to redeem the Debentures to be redeemed on the date fixed for
redemption, at the applicable redemption price, together with accrued and unpaid
interest to the date fixed for redemption, then all obligations of the Company
in respect of such Debentures shall cease and be discharged (except the
obligation to issue shares of Common Stock of the Company upon conversion of
Debentures on or prior to the redemption date in accordance with the terms of
this Indenture and the Debentures), and the Holders of such Debentures shall
thereafter be restricted exclusively to such funds for any and all claims of
whatever nature on their part under the Indenture, or in respect of such
Debentures (except with respect to any rights of conversion as above stated).
Sinking Fund. As and for a mandatory sinking fund, the Company
shall pay to the Trustee, not less than
A-6
one Business Day, on or before the anniversary of the Initial Closing Date in
each of the years 2000 to 2003 2 (each a "Sinking Fund Payment Date") an amount
of money equal to 25% of the aggregate amount of Debentures originally issued at
100% of their principal amount together with accrued and unpaid interest thereon
to the applicable Sinking Fund Payment Date, subject to reduction as provided in
the Indenture. The Trustee shall apply cash sinking fund payments to the
redemption of Debentures on the applicable Sinking Fund Payment Date.
A-7
Right of Debentureholders to Convert Debenture Into Common
Stock. The Debentures may be converted by Holders, in whole or in part, from
time to time, commencing ninety days following the Initial Closing Date and on
or before the close of business prior to the seventh anniversary of the Initial
Closing Date, or the date of redemption (or if that day is not a Business Day,
on the preceding Business Day), at any time on at least five days' written
notice to the Company, at the conversion prices described below (except that, in
respect of any Debenture or Debentures, or portion thereof, called for
redemption before such date pursuant to the Indenture, such right shall
terminate at the close of business on the date fixed for such redemption unless
the Company shall default in payment due upon redemption thereof) to convert,
subject to the terms and provisions of the Indenture, the principal amount of
any such Debenture or Debentures, or portion thereof as hereinafter provided,
into (a) such whole number of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock (the "Debenture Conversion Shares") as
determined by dividing (y) the principal amount of Debentures to be converted by
(z) the Holder Conversion Price, (b) an amount of money payable in Swiss Francs
equal to the accrued and unpaid interest thereon to the date of conversion, and
(c) an amount of money equal to the value of the fractional share remainder, if
any, resulting from the calculation described in clause (a) above, to be paid in
Swiss Francs based on the Holder Conversion Price per share.
"Holder Conversion Price" means the product of (w) the
applicable Stock Price Factor, (x) the applicable Exchange Rate Factor, (y) the
applicable Holder Conversion Percentage Factor and (z) the applicable
Antidilution Factor.
"Stock Price Factor" means a factor, to be calculated by the
Company with respect to each December 15, February 15, April 15, June 15, August
15, and October 15 (each a "Reset Date"), and to be applicable in the two full
calendar months following the Reset Date, and equal to the average daily Nasdaq
closing price per Share (or, if the Company is listed or quoted on an exchange
in the United States other than Nasdaq, the closing price on such exchange), for
the thirty trading days immediately preceding the applicable Reset Date;
provided that in no event shall the Stock Price Factor be less than U.S. $12.00
(subject to adjustment), regardless of the actual Stock Price Factor otherwise
determined.
"Exchange Rate Factor" means a factor, to be calculated by the
Company with respect to each Reset Date, and to be applicable in the two full
calendar months
A-8
following the Reset Date, and equal to the average Noon Buying Rate (as defined
below) for the thirty trading days immediately preceding the applicable Reset
Date; provided that in no event shall the Exchange Rate Factor be less than
1.1175. "Noon Buying Rate" means the exchange rate for one U.S. dollar expressed
in Swiss Francs, based upon the noon buying rate in New York City for cable
transfers in Swiss Francs, as certified for customs purposes by the Federal
Reserve Bank of New York.
"Holder Conversion Percentage Factor" means a conversion
percentage, determined on the date notice of conversion is given, which shall be
(i) 100% until the day preceding the third anniversary of the Initial Closing
Date, (ii) 95% from the third anniversary of the Initial Closing Date until the
day preceding the fourth anniversary of the Initial Closing Date; (iii) 90% from
the fourth anniversary of the Initial Closing Date until the day preceding the
fifth anniversary of the Initial Closing Date; (iv) 85% from the fifth
anniversary of the Initial Closing Date until the day preceding the sixth
anniversary of the Initial Closing Date; and (v) 80% from the sixth anniversary
of the Initial Closing Date until the seventh anniversary of the Initial Closing
Date.
If any Debenture is converted in part, the Company, on
surrender of such Debenture for conversion, shall execute such new Debenture or
Debentures and shall deliver to the Trustee (a) the surrendered Debenture for
cancellation, or if such Debenture has been duly cancelled by the Company, such
duly cancelled Debenture, (b) such new Debenture or Debentures for
authentication, and (c) unless the Trustee is a conversion agent, a statement
signed by any officer of the Company, or by any agent maintained by the Company
for conversion of Debentures, stating the principal amount of the surrendered
Debenture which has been converted and requesting the authentication of such new
Debenture or Debentures; and thereupon the Trustee shall authenticate and the
Company shall deliver or cause to be delivered such new Debenture or Debentures
to such Debentureholder.
Right of Company to Convert Debenture into Common Stock of
Company. The Debentures may be converted by the Company, in whole or from time
to time in part, into (a) that whole number of Debenture Conversion Shares
determined by dividing (y) the sum of the principal amount of Debentures to be
converted, by (z) the Company Conversion Price, (b) an amount of money payable
in Swiss Francs equal to the accrued and unpaid interest thereon to the date of
conversion, and (c) an amount of money equal to the value of the fractional
share remainder, if any, resulting from the calculation described in clause (a)
A-9
above, to be paid in Swiss Francs based on the Company Conversion Price per
share.
"Company Conversion Price" means the product of (w) the
applicable Stock Price Factor, (x) the applicable Exchange Rate Factor, (y) the
applicable Company Conversion Percentage Factor and (z) the applicable
Antidilution Factor.
"Company Conversion Percentage Factor" means a conversion
percentage, determined on the date notice of conversion is given, which shall be
(i) 100% until the day preceding the third anniversary of the Initial Closing
Date, (ii) 92.5% from the third anniversary of the Initial Closing Date until
the day preceding the fourth anniversary of the Initial Closing Date; (iii)
87.5% from the fourth anniversary of the Initial Closing Date until the day
preceding the fifth anniversary of the Initial Closing Date; (iv) 82.5% from the
fifth anniversary of the Initial Closing Date until the day preceding the sixth
anniversary of the Initial Closing Date; and (v) 77.5% from the sixth
anniversary of the Initial Closing Date until the seventh anniversary of the
Initial Closing Date.
Exercise of Conversion Privilege. Debentures may be converted
only in units of SF 1,000 and integral multiples thereof. A holder of Debentures
desiring to convert Debentures will not be required to exercise the attached
Warrants. However, if the Warrants are unexercised, they will expire upon such
conversion by the holder of Debentures or upon conversion or redemption at the
option of the Company. In addition, during the period beginning 90 days after
the Initial Closing Date and ending 119 days following the Initial Closing Date,
any conversion of Debentures will necessarily result in the expiration of the
Warrants attached thereto.
A Holder may exercise the conversion privilege by completing
the Conversion Notice below and surrendering to the Company, at the office or
agency to be maintained by the Company for that purpose, the Debenture or
Debentures so to be converted. The Conversion Notice shall also state the name
or names (together with address and tax identification number to the extent
required), if different from the name of the registered Holder, in which the
certificate or certificates for such shares of Common Stock shall be issued.
Debentures surrendered for conversion shall (if so required by the Company or
the Trustee) be duly endorsed by, or accompanied by instruments of transfer in
form satisfactory to the Company duly executed by, the registered Holder or his
duly authorized attorney, and be accompanied by a signature guaranty by a
commercial bank or trust company or other institution which may be
A-10
required under applicable laws or regulations, and any Debentures so surrendered
during the period from the close of business on any Record Date for the payment
of interest on the Debentures to the opening of business on the interest payment
date shall (except in the case of Debentures or portions thereof which have been
called for redemption on a redemption date within such period) be accompanied by
payment in funds acceptable to the Company of an amount equal to the interest
payable on such interest payment date; provided that no such payment need be
made if there shall exist at the time of conversion a default in the payment of
interest on the Debentures. An amount equal to the quarterly interest payment
due in respect of any Debenture converted shall be paid by the Company on the
interest payment date to the Debentureholder of such converted Debenture on such
Record Date, provided that if the Company defaults in payment of interest on
such interest payment date, the amount previously paid by the Debentureholder to
the Company in respect of interest upon conversion of Debentures shall be repaid
to the Debentureholder. Except as expressly set forth in this paragraph, no
payment or adjustment shall be made on conversion of any Debenture for interest
accrued thereon or for dividends on securities issued upon such conversion.
Adjustment of Antidilution Factor. The Antidilution Factor
referred to above in the calculation of the Conversion Prices shall be subject
to adjustment from time to time as follows:
(a) In the event that the Company shall at any time after the
date hereof subdivide or combine the outstanding shares of Common Stock or issue
additional shares of Common Stock as a dividend or other distribution on the
Common Stock, the Antidilution Factor in effect immediately prior to such
subdivision or combination of shares or share dividend or distribution shall be
proportionately adjusted so that, with respect to each such subdivision of
shares or share dividend or distribution, the number of shares of the Common
Stock deliverable upon conversion of each SF 1,000 principal amount of the
Debentures shall be increased in proportion to the increase in the number of
shares of the then outstanding Common Stock resulting from such subdivision of
shares or share dividend or distribution.
(b) Notwithstanding anything in Sections 4.1 and 4.2 to the
contrary, in the case of any capital reorganization or any reclassification of
the Common Stock, or in the case of the consolidation or merger of the Company
with or into any other corporation or in case of any sale or transfer of all or
substantially all of the assets of the Company as may be permitted by the
provisions hereof,
A-11
the Company and each Holder of the Debentures then outstanding shall have the
right thereafter to convert the principal amount of each such Debenture into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification, consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock of the Company into
which such Debenture might have been converted immediately prior to such
reorganization, reclassification, consolidation, merger, sale or transfer; and,
in any such case, appropriate adjustment (as determined in good faith by the
Board of Directors of the Company) shall be made in order that the rights and
interests of the holders thereafter shall be as nearly equivalent as may be
practicable to the rights and interests provided for in the Indenture.
(c) Whenever the Company shall fix a record date for the
holders of the Common Stock for the purpose of determining the holders entitled
to subscribe for or purchase shares of Common Stock at a price per share less
than the Closing Price of the Common Stock as of such record date, the
Antidilution Factor shall be adjusted so that the number of shares of the Common
Stock into which each SF 1,000 principal amount of the Debentures shall
thereafter be convertible shall be determined by multiplying the number of
shares of the Common Stock into which such SF 1,000 principal amount of the
Debentures was theretofore convertible by a fraction of which the numerator
shall be the number of shares of the Common Stock outstanding immediately prior
to the taking of such record plus the number of additional shares of Common
Stock offered for subscription or purchase and of which the denominator shall be
the number of shares of the Common Stock outstanding immediately prior to the
taking of such record plus the number of shares of the Common Stock which the
aggregate offering price (without deduction of any expenses, including
commissions or discounts) of the total number of shares of the Common Stock so
offered would purchase at the Closing Price of the Common Stock as of such
record date.
(d) Whenever the Company shall fix a record date for the
holders of the Common Stock for the purpose of determining the holders entitled
to receive any distribution of evidences of its indebtedness, capital stock or
assets (other than a regularly scheduled cash dividend and dividends payable in
stock for which adjustment is made pursuant to the Indenture), or rights to
subscribe for or purchase any evidences of the Company's indebtedness or assets
(other than rights referred to in the preceding paragraph), the Antidilution
Factor shall be appropriately adjusted.
A-12
Events of Default. In case an Event of Default, as defined in
the Indenture, shall have occurred and be continuing, the principal of all of
the Debentures may be declared, and upon such declaration shall become, due and
payable, in the manner, with the effect and subject to the conditions provided
in the Indenture, by either the Trustee or the holders of at least a majority in
aggregate principal amount of the Debentures then outstanding.
Registered Holder as Absolute Owner. The Company, the Trustee,
any paying agent, any conversion agent and any Debenture Registrar may deem and
treat the person in whose name any Debenture shall be registered upon the books
of the Company as the absolute owner of such Debenture (whether or not such
Debenture shall be overdue and notwithstanding any notice of ownership or
writing thereon made by anyone other than the Company or any Debenture
Registrar) for the purpose of receiving payment of or on account of the
principal of (and premium, if any) and interest on (subject to the provisions of
the Indenture) such Debenture and for all other purposes; and neither the
Company nor the Trustee nor any paying agent nor any conversion agent nor any
Debenture Registrar shall be affected by any notice to the contrary.
Modification of Indenture with Consent of Holders of 66-2/3%
in Principal Amount of Debentures. With the consent of the Holders (or persons
entitled to vote, or to give consents respecting the same) of not less than 66
2/3% in aggregate principal amount of the Debentures at the time outstanding,
the Company, when authorized by a resolution of its Board of Directors, and the
Trustee may, from time to time and at any time, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental indenture or of modifying in any manner the rights and
obligations of the Holders of the Debentures and of the Company; provided that,
without the consent of the Holders of all Debentures then outstanding, no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any premium payable upon the redemption
thereof, or (ii) alter the provisions of Article IV hereof respecting conversion
of the Debentures so as to affect the Debentures adversely, or (iii) modify any
of the provisions of this Indenture with respect to the subordination of the
Debentures in a manner adverse to the Holders thereof, or (iv) reduce the
aforesaid percentage of Debentures, the Holders of which are required to consent
to any such supplemental indenture.
A-13
Immunity of Incorporators, Stockholders, Officers and
Directors. Except for liabilities arising under the Securities Act, no recourse
shall be had for the payment of the principal of (and premium, if any) or the
interest on any Debenture, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or in any supplemental indenture, or
in any Debenture or because of the creation of any indebtedness represented
hereby shall be had against any incorporator, stockholder, officer, trustee,
director, past, present or future, as such of the Company or of any predecessor
or successor corporation, whether by virtue of any constitution, statute or rule
of law or equity, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of the Indenture and the issue of the Debentures.
Right to Require Repurchase. In the event of a Change of
Control, each Holder shall have the right to require the Company to repurchase
all or a portion of such Holder's Debentures at a purchase price equal to the
principal amount plus accrued interest to the date of repurchase. Any such
tender of Debentures for repurchase shall be accompanied by the attached
Warrants, which may either be exercised or, upon failure of such exercise, shall
expire upon such repurchase. At the option of the Company, the repurchase price
may be paid in cash or by delivery of Shares having a Market Value equal to the
repurchase price. "Market Value," on a per Share basis, means the amount
determined by multiplying (x) the applicable Stock Price Factor on the date
notice of repurchase is given by (y) the applicable Exchange Rate Factor on such
date (provided that in no event shall the Exchange Rate Factor be less than
1.1175), and by multiplying the product so achieved by 75%.
A "Change of Control" shall be deemed to have occurred at the
time when persons other than the Existing Control Group shall have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
more than 50% of the aggregate voting power of the Company, unless such
acquisition shall have been approved by a two-thirds (66 2/3%) majority of the
Continuing Directors of the Company.
In the event the Company does not cause the Debentures to be
listed for trading on the Luxembourg Stock Exchange within ninety (90) days
after the Initial Closing Date, each Holder shall have the right, during the 30
day period following receipt of the notice described in
A-14
Section 16.2, to require the Company to repurchase all or a portion of such
Holder's Debentures at a purchase price equal to the principal amount plus
accrued interest to the date of repurchase in a manner similar to that set forth
in the second preceding paragraph.
The right to require repurchase at the option of the Holder is
subject to the restriction that the Company may not repurchase any Debenture at
any time when the subordination provisions of the Indenture would not permit the
Company to make a payment of principal, premium or interest on the Debentures.
Indenture and Debentures to be Construed in Accordance with
Laws of State of New York. The Indenture and each Debenture shall be deemed to
be a contract made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the internal laws of said
State. Under the Judiciary Law of the State of New York, a judgment or decree in
an action based upon an obligation denominated in a currency other than U.S.
dollars shall be rendered in the foreign currency of the underlying obligation
and converted into U.S. dollars at a rate of exchange prevailing on the date of
the entry of the judgment or decree.
No reference herein to the Indenture and no provisions of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Debenture at the time and place and at the
rate and in the manner herein prescribed.
All terms used in this Debenture which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
A-15
CONVERSION NOTICE
The undersigned holder of this Debenture hereby irrevocably
exercises the option to convert this Debenture, or portion hereof (which is SF )
below designated, into Common Shares in accordance with the terms of the
Indenture referred to in this Debenture, delivers herewith the amount of
interest payable on the next Interest Payment Date if this conversion is made
between the Record Date for such Interest Payment Date and such Interest Payment
Date, and directs that such shares, together with a check in payment for any
fractional share and any Debentures representing any unconverted principal
amount hereof, be delivered to and be registered in the name of the undersigned
unless a different name has been indicated below. If the Common Shares are to be
registered in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Dated:
______________________________
(Signature must be guaranteed
by a bank or stockbroker who is
a member of a national stock
exchange)
If shares or Debentures If only a portion of the
are to be registered in Debentures is to be converted,
the name of a Person please indicate:
other than the
Debentureholder, please 1. Principal Amount to
print such Person's be converted:
name and address, and SF
taxpayer identification
number, if applicable: 2. Amount and denomination
of Registered Debentures
representing unconverted
principal amount to be
_______________________ issued:
_______________________ Amount: SF
_______________________ Denominations: SF
(SF 1,000)
A-16
CERTIFICATE
This is to certify that as of the date hereof with respect to
SF ________ principal amount of the above-captioned debentures presented or
surrendered on the date hereof (the "Surrendered Debentures") for registration
of transfer, or for exchange or conversion where the securities issuable upon
such exchange or conversion are to be registered in a name other than that of
the undersigned Holder (each such transaction being a "transfer"), the
undersigned Holder (as defined in the Indenture) certifies that the transfer of
Surrendered Debentures complies with the restrictive legend set forth on the
face of the Surrendered Debentures for the reason checked below:
_______ The transfer of the Surrendered Debentures complies
with Rule 144 under the U.S. Securities Act of 1933,
as amended (the "Securities Act"); or
_______ The transfer of the Surrendered Debentures complies
with Rule 144A under the Securities Act; or
_______ The transfer of the Surrendered Debentures complies
with Rule 903 or 904 of Regulation S under the
Securities Act.
[Name of Holder]
Dated: __________, ___*
* To be dated the date
of presentation or
surrender
A-17
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