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EXHIBIT 4.1
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR INDEBTEDNESS (AS DEFINED IN THE SUBORDINATION
AGREEMENT HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN,
THE SUBORDINATION AGREEMENT EFFECTIVE AS OF OCTOBER 31, 2000, BY THE MAKER
HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF LENDER OR THE HOLDER OF SENIOR
INDEBTEDNESS REFERRED TO IN SUCH SUBORDINATION AGREEMENT.
THIS DEBENTURE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
No. 1 $15,000,000.00
PROCOM TECHNOLOGY, INC.
6% CONVERTIBLE DEBENTURE DUE OCTOBER 31, 2003
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of Procom Technology, Inc., a California corporation (the "COMPANY"),
designated as its 6% Convertible Debentures due October 31, 2003, in the
aggregate principal amount of $15,000,000 (the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to [Holder] or its
registered assigns (the "HOLDER"), the principal sum of FIFTEEN MILLION DOLLARS
($15,000,000.00), on October 31, 2003 (the "MATURITY DATE"), or such earlier
date as the Debentures are required or permitted to be repaid as provided
hereunder, and to pay interest to the Holder on the aggregate unconverted and
then outstanding principal amount of this Debenture in accordance with the
provisions hereof. This Debenture is subject to the following additional
provisions.
1. Definitions. In addition to the terms defined elsewhere in this
Debenture, (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Securities Purchase Agreement, dated as of
October 31, 2000, among the Company and the Purchasers identified therein (the
"PURCHASE AGREEMENT"), and (b) the following terms have the meanings indicated:
"BANKRUPTCY EVENT" means any of the following events: (a) the
Company or any Subsidiary commences a case or other proceeding under any
bankruptcy, reorganization,
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arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to
the Company or any Subsidiary thereof; (b) there is commenced against the
Company or any Subsidiary any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any
Subsidiary is adjudicated insolvent or bankrupt or any order of relief or
other order approving any such case or proceeding is entered; (d) the
Company or any Subsidiary suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not
discharged or stayed within 60 days; (e) the Company or any Subsidiary
makes a general assignment for the benefit of creditors; (f) the Company
or any Subsidiary fails to pay, or states that it is unable to pay or is
unable to pay, its debts generally as they become due; (g) the Company or
any Subsidiary calls a meeting of its creditors with a view to arranging
a composition, adjustment or restructuring of its debts; or (h) the
Company or any Subsidiary, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing; provided, that with respect to any
Subsidiary, in each foregoing case, such event may reasonably be expected
to have a Material Adverse Effect.
"CONVERSION PRICE" means $22.79, subject to adjustment as set
forth herein.
"EQUITY CONDITIONS" means, with respect to a specified issuance of
Common Stock, that each of the following conditions is satisfied: (i) the
number of authorized but unissued and otherwise unreserved shares of
Common Stock is sufficient for such issuance; (ii) such shares of Common
Stock are registered for resale by the Holder pursuant to an effective
Underlying Shares Registration Statement or all such shares may be sold
without volume restrictions pursuant to Rule 144(k) under the Securities
Act; (iii) the Common Stock is listed or quoted (and is not suspended
from trading) on an Eligible Market; (iv) such issuance would be
permitted in full without violating Section 14 hereof or the rules or
regulations of any Trading Market; and (v) the Company is not in default
with respect to any material obligation hereunder or under any other
Transaction Document.
"EVENT EQUITY VALUE" means, in connection with any required
payment following an Event Notice hereunder, the average of the Closing
Prices for the five Trading Days preceding either (a) the date of
delivery of the Event Notice or (b) the date on which such required
payment (together with any other payments, expenses and liquidated
damages then due and payable under the Transaction Documents) is paid in
full, whichever is greater.
"ORIGINAL ISSUE DATE" means the date of the first issuance of any
Debentures, regardless of the number of transfers of any particular
Debenture.
"TRIGGERING EVENT" means (a) the occurrence of a Change of Control
of the Company; (b) immediately prior to any Bankruptcy Event; (c)
consummation with respect to the Company of a "Rule 13e-3 transaction" as
defined in Rule 13e-3 under the Exchange Act, it being agreed that each
Purchaser will receive actual notice of the 13e-3 Statement filed with
the Commission; (d) for any period of three consecutive Trading Days, the
Common Stock fails to be listed or quoted for trading or is suspended
from trading on an
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Eligible Market or there is no closing bid price on an Eligible Market;
(e) after the Effective Date, a holder of Registrable Securities (as
defined in the Registration Rights Agreement) is not permitted to sell
Registrable Securities under the Underlying Shares Registration Statement
for any reason for five or more Trading Days (whether or not
consecutive); (f) the Underlying Shares Registration Statement is not
declared effective by the Commission by the 30th day following the
Required Effectiveness Date; (g) the Company fails for any reason to
deliver certificates to a Purchaser within five Trading Days after
delivery of such certificates is required pursuant to any Transaction
Document; (h) the Company fails to have available a sufficient number of
authorized but unissued and otherwise unreserved shares of Common Stock
available to issue Underlying Shares upon any exercise or conversion of
outstanding Securities; (i) the exercise or conversion rights of the
Purchasers pursuant to the Transaction Documents are suspended for any
reason other than as provided in Section 4.5(g) of the Purchase Agreement
(but only so long as the Company is complying with Section 4.5(g) of the
Purchase Agreement) or Section 14 hereof; (j) an Event (as defined in the
Registration Rights Agreement) occurs and remains uncured for 60 days
(excluding any Event that is specifically covered by another subsection
of this paragraph); or (k) the Company defaults in the timely performance
of any obligation under the Transaction Documents and such default
continues uncured for a period of 20 days after the date on which notice
of such default is first given to the Company by a Purchaser.
2. Interest.
(a) The Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture at the rate
of 6.0% per annum, payable quarterly in arrears on each March 31, June 30,
September 30 and December 31, except if such date is not a Trading Day, in which
case such interest shall be payable on the next succeeding Trading Day (each, an
"INTEREST PAYMENT DATE"). Interest shall be calculated on the basis of a 360-day
year and shall accrue daily commencing on the Original Issue Date.
(b) Subject to the conditions and limitations set forth below, the
Company may pay interest on this Debenture (i) in cash or (ii) by issuing shares
of Common Stock. The Company must deliver written notice to the Holder
indicating the manner in which it intends to pay interest at least ten Trading
Days prior to each Interest Payment Date, but the Company may indicate in any
such notice that the election contained therein shall continue for subsequent
Interest Payment Dates until revised. Failure to timely provide such written
notice shall be deemed an election by the Company to pay interest by issuing
shares of Common Stock, unless payment of interest in such manner is not
permitted at the time of any such payment, in which case such interest shall be
payable in cash. All interest payable on the Debentures on any Interest Payment
Date must be paid in the same manner.
(c) Except as otherwise provided herein, if at any time the
Company pays less than the total amount of required interest on any Interest
Payment Date, then such payment shall be distributed ratably among the holders
of the Debentures based upon the principal amount of Debentures held by each
such holder.
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(d) If interest is payable in shares of Common Stock, the number
of shares of Common Stock shall equal the dollar amount of such interest divided
by the average Closing Price for the five Trading Days preceding the Interest
Payment Date, and the Company shall deliver a certificate evidencing such shares
to the Holder by the third Trading Day after the Interest Payment Date.
Notwithstanding anything to the contrary contained herein, the Company may not
pay interest in shares of Common Stock unless, at such time, the Equity
Conditions are satisfied with respect to the issuance of such shares of Common
Stock.
(e) So long as any Debentures are outstanding, (i) neither the
Company nor any Subsidiary shall, directly or indirectly, redeem, purchase or
otherwise acquire any capital stock of the Company nor shall any Subsidiary
directly or indirectly, redeem, purchase or otherwise acquire any capital stock
of any Subsidiary, nor shall the Company or any Subsidiary set aside any monies
for such a redemption, purchase or other acquisition, except that the Company
may expend up to $250,000 in any twelve month period to repurchase Common Stock
from any person who is an employee of the Company and that is not on the date
hereof or at any subsequent date an executive officer of the Company, and (ii)
the Company shall not pay or declare any dividend or make any distribution on
any capital stock, except stock dividends on the Common Stock payable in
additional shares of Common Stock and dividends due and paid in the ordinary
course on preferred stock of the Company at such times as the Company is in
compliance with its payment and other material obligations hereunder.
3. Registration of Debentures. The Company shall register the Debentures
upon records to be maintained by the Company for that purpose (the "DEBENTURE
REGISTER") in the name of each record holder thereof from time to time. The
Company may deem and treat the registered Holder of this Debenture as the
absolute owner hereof for the purpose of any conversion hereof or any payment of
interest hereon, and for all other purposes, absent written notice to the
contrary.
4. Registration of Transfers and Exchanges. The Company shall register
the transfer of any portion of this Debenture in the Debenture Register upon
surrender of this Debenture to the Company at its address for notice set forth
herein. Upon any such registration or transfer, a new debenture, in
substantially the form of this Debenture (any such new debenture, a "NEW
DEBENTURE"), evidencing the portion of this Debenture so transferred shall be
issued to the transferee and a New Debenture evidencing the remaining portion of
this Debenture not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Debenture by the transferee thereof shall be
deemed the acceptance by such transferee of all of the rights and obligations of
a holder of a Debenture. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge or other fee
will be imposed in connection with any such registration of transfer or
exchange.
5. Conversion.
(a) Conversion at Option of Holder. At the option of the Holder,
all or any portion of this Debenture may be converted into Common Stock based on
the then-applicable Conversion Price. A Holder may convert this Debenture into
Common Stock pursuant to this paragraph at any time and from time to time after
the Original Issue Date, by delivering to the
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Company a Conversion Notice, in the form attached hereto, appropriately
completed and duly signed, and the date any such Conversion Notice is delivered
to the Company (as determined in accordance with the notice provisions hereof)
is a "CONVERSION DATE."
(b) Conversion at Option of Company. If, at any time after the
Effective Date, the Closing Price for 20 consecutive Trading Days exceeds 135%
of the Conversion Price in effect at such time (the "THRESHOLD PRICE"), the
Company may require the Holder to convert this Debenture in full into Common
Stock based on the then-applicable Conversion Price. The Company may require a
conversion pursuant to this paragraph by delivering irrevocable written notice
of such election to the Holder, and the tenth Trading Day after the date any
such notice is delivered to the Holder (as determined in accordance with the
notice provisions hereof) will be the "CONVERSION DATE" for such required
conversion. Notwithstanding the foregoing, the Company may not require any
conversion under this paragraph (and any notice thereof will be void), unless
(i) the Company requires conversion under the corresponding provisions of all
outstanding Debentures and (ii) from the beginning of such period of 20
consecutive Trading Days through the Conversion Date, the Equity Conditions are
satisfied with respect to all of the Underlying Shares then issuable upon
conversion in full of all outstanding Debentures.
6. Mechanics of Conversion.
(a) The number of Underlying Shares issuable upon any conversion
hereunder shall equal (i) the outstanding principal amount of this Debenture to
be converted, divided by the Conversion Price on the Conversion Date, plus (ii)
the amount of any accrued but unpaid interest on this Debenture through the
Conversion Date, divided by the Conversion Price on the Conversion Date.
(b) Upon conversion of this Debenture, the Company shall promptly
(but in no event later than three Trading Days after the Conversion Date) issue
or cause to be issued and cause to be delivered to or upon the written order of
the Holder and in such name or names as the Holder may designate a certificate
for the Underlying Shares issuable upon such conversion, free of restrictive
legends unless a registration statement covering the resale of the Underlying
Shares and naming the Holder as a selling stockholder thereunder is not then
effective and such Underlying Shares are not then freely transferable without
volume restrictions pursuant to Rule 144 under the Securities Act. Within three
Trading Days after receipt thereof, the Holder will deliver the original
Debenture so converted to the Company, unless the Holder is awaiting receipt of
a New Debenture from the Company pursuant to another provision hereof. The
Holder, or any Person so designated by the Holder to receive Underlying Shares,
shall be deemed to have become holder of record of such Underlying Shares as of
the Conversion Date. The Company shall, upon request of the Holder, use its best
efforts to deliver Underlying Shares hereunder electronically through the
Depository Trust Corporation or another established clearing corporation
performing similar functions.
(c) If the Holder is converting less than all of the principal
amount of this Debenture in connection with such conversion, or if such
conversion cannot be effected in full for any reason, the Company shall promptly
deliver to the Holder a New Debenture representing the outstanding principal
amount not converted.
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(d) The Company's obligations to issue and deliver Underlying
Shares upon conversion of this Debenture in accordance with and subject to the
terms hereof and of the Purchase Agreement are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such
Underlying Shares.
7. Repurchase Options.
(a) Company's Option. Subject to the provisions of this Section,
from and after the Original Issue Date, the Company shall have the right, upon
20 Trading Days' irrevocable notice (a "COMPANY REPURCHASE NOTICE") to the
Holder, to repurchase all or any portion of the principal amount of this
Debenture (as to which no Conversion Notice has been delivered), at a price
equal to 110% of the outstanding principal amount hereof plus all accrued but
unpaid interest thereon to the date of payment (the "COMPANY REPURCHASE PRICE").
The Company Repurchase Notice will specify the effective date of the repurchase
under this paragraph, which must be a Trading Day at least 20 Trading Days after
the date such notice is delivered (the "COMPANY REPURCHASE DATE"), and the
entire Company Repurchase Price shall be paid in cash by the next Trading Day
after the Company Repurchase Date. Upon receipt of such payment, the Holder will
deliver the original Debenture so repurchased to the Company, unless such Holder
is awaiting receipt of a New Debenture from the Company pursuant to another
provision hereof. At any time on or prior to the Company Repurchase Date, the
Holder may convert all or any portion of this Debenture into Common Stock, and
the Company shall honor any such conversion in accordance with the terms hereof.
Notwithstanding the foregoing, the Company may only deliver a Company Repurchase
Notice and complete such optional repurchase if, on the date of the Company
Repurchase Notice and from such date through the Company Repurchase Date, the
Equity Conditions are satisfied with respect to all of the Underlying Shares
then issuable upon conversion in full of all outstanding Debentures.
If the Company fails to pay the Company Repurchase Price in full
by the next Trading Day after the Company Repurchase Date, then, in addition to
any other remedies available to the Holder under the Transaction Documents, (1)
the Company shall thereafter have no further right under this Section to
repurchase any portion of this Debenture, and (2) the Holder shall have the
right (by notice to the Company) to declare the Company Repurchase Notice to be
void ab initio.
(b) Holder's Put Option. Each six month anniversary of the
Original Issue Date shall constitute a "PUT DATE" hereunder, and the "APPLICABLE
PORTION" shall equal (i) on the first Put Date, one-third of the original
principal amount of this Debenture; (ii) on the second Put Date, two-thirds of
the original principal amount of this Debenture, and (iii) on the third Put Date
and each Put Date thereafter, 100% of the original principal amount of this
Debenture. On each Put Date, the Holder shall have the right, in its sole
discretion , to require the Company to repurchase all or any portion of the then
outstanding principal amount of this Debenture, up to the Applicable Portion on
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such Put Date, by delivering to the Company on or prior to such Put Date a
written notice specifying the principal amount to be repurchased (a "PUT
NOTICE"). The price applicable to any repurchase under this paragraph (the "PUT
PRICE") shall equal 100% of the outstanding principal amount to be repurchased,
plus all accrued but unpaid interest thereon to the date of payment. The Company
shall pay the aggregate Put Price to the Holder in immediately available funds
(free of any claim of subordination) no later than the third Trading Day
following the applicable Put Date, and upon receipt thereof the Holder will
deliver the original Debenture so repurchased to the Company, unless the Holder
is awaiting receipt of a New Debenture from the Company pursuant to another
provision hereof.
Notwithstanding the foregoing, the Company may deliver a written
notice to the Holder at least 20 Trading Days prior to any Put Date (a "PUT
PAYMENT NOTICE"), indicating therein its intention not to pay in excess of a
maximum dollar amount in cash as part of any subsequent Put Price (the "MAXIMUM
CASH AMOUNT"). The Company may indicate in any Put Payment Notice that the
election contained therein shall continue for later periods until revised. If
the Company has delivered a Put Payment Notice with respect to any Put Date,
then any Put Price payable on such Put Date shall be payable as follows: (A) the
Company shall pay the Maximum Cash Amount in accordance with the payment
provisions that would apply absent a Put Payment Notice, and (B) with respect to
the excess (if any) of the Put Price over the Maximum Cash Amount (the "EXCESS
AMOUNT"), the Company shall deliver to the Holder not later than the third
Trading Day following the applicable Put Date a number of shares of Common Stock
equal to the Excess Amount divided by the Put Conversion Price. For such
purposes, the "PUT CONVERSION PRICE" means 90% of the average of the Closing
Prices over the ten Trading Days preceding the Put Date. Any shares of Common
Stock delivered in lieu of the Excess Amount pursuant to this paragraph shall
constitute "Underlying Shares" for purposes of all Transaction Documents, and
the Company's obligation to deliver such shares shall be subject to the same
provisions otherwise applicable to a conversion of Debentures.
If the Company fails to pay the cash portion of the Put Price in
full when due pursuant to this Section, then, in addition to any other remedies
available to the Holder under the Transaction Documents, the Holder shall have
the right (by notice to the Company) to rescind the applicable Put Notice.
8. Events of Default.
(a) "EVENT OF DEFAULT" means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) any default in the payment (free of any claim of
subordination) of principal, interest or liquidated damages in respect of
any Debentures, as and when the same becomes due and payable (whether on
a Conversion Date or the Maturity Date or by acceleration or otherwise);
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(ii) the Company or any Subsidiary defaults in any of its
obligations under any other debenture or any mortgage, credit agreement
or other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Company or
any Subsidiary in an amount exceeding $1,000,000, whether such
indebtedness now exists or is hereafter created, and such default results
in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable; or
(iii) any Triggering Event.
(b) At any time following the occurrence of an Event of Default,
the Holder shall have the option to elect, by notice to the Company (an "EVENT
NOTICE"), to require the Company to repurchase all or any portion of (i) the
outstanding principal amount of this Debenture, at a repurchase price equal to
the greater of (A) 110% of such outstanding principal amount, plus all accrued
but unpaid interest thereon through the date of payment, or (B) the Event Equity
Value of the Underlying Shares issuable upon conversion of such principal amount
and all such accrued but unpaid interest thereon, and (ii) any Underlying Shares
issued to such Holder upon conversion of Debentures during the 30 calendar days
preceding such Event of Default, at a price per share equal to the Event Equity
Value of such Underlying Shares. The aggregate amount payable pursuant to the
preceding sentence is referred to as the "EVENT PRICE." The Company shall pay
the aggregate Event Price to the Holder no later than the third Trading Day
following the date of delivery of the Event Notice, and upon receipt thereof the
Holder shall deliver the original Debenture and original certificates evidencing
any Underlying Shares so repurchased to the Company (to the extent such
documents have been delivered to the Holder).
(c) Upon the occurrence of any Bankruptcy Event, all outstanding
principal and accrued but unpaid interest on this Debenture shall immediately
become due and payable in full in cash, without any further action by the
Holder, and the Company shall immediately be obligated to repurchase this
Debenture and all such Underlying Shares at the Event Price pursuant to the
preceding paragraph as if the Holder had delivered an Event Notice immediately
prior to the occurrence of such Bankruptcy Event.
(d) In connection with any Event of Default, the Holder need not
provide and the Company hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder and all
other remedies available to it under applicable law. Any such declaration may be
rescinded and annulled by the Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereto.
9. Ranking. This Debenture ranks pari passu with all other Debentures now
or hereafter issued pursuant to the Transaction Documents. Except as set forth
in Schedule 3.1(z) to the Purchase Agreement, no indebtedness for borrowed money
or obligations of other Persons of the Company is senior to this Debenture in
right of payment, whether with respect of interest, damages or upon liquidation
or dissolution or otherwise. Except for the potential financing transaction
described in
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Schedule 3.1(z) to the Purchase Agreement, the Company will not, and will not
permit any Subsidiary to, directly or indirectly, enter into, create, incur,
assume or suffer to exist any indebtedness of any kind, on or with respect to
any of its property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom, that is senior in any respect to the
Company's obligations under the Debentures, other than indebtedness secured by
purchase money security interests (which will be senior only as to the
underlying assets covered thereby) and indebtedness under capital lease
obligations (which will be senior only as to the assets covered thereby).
10. Charges, Taxes and Expenses. Issuance of certificates for Underlying
Shares upon conversion of (or otherwise in respect of) this Debenture shall be
made without charge to the Holder for any issue or transfer tax, withholding
tax, transfer agent fee or other incidental tax or expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid by
the Company; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Underlying Shares or Debentures in a name
other than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Debenture
or receiving Underlying Shares in respect hereof.
11. Replacement of Debentures. If this Debenture or any certificate
evidencing Underlying Shares is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and substitution for and
upon cancellation hereof, or in lieu of and substitution therefor, a new
certificate or a New Debenture, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants fora new certificate or a New
Debenture under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as
the Company may prescribe.
12. Reservation of Underlying Shares. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Underlying Shares as required hereunder, the number of
Underlying Shares which are then issuable and deliverable upon the conversion of
(and otherwise in respect of) this entire Debenture (taking into account the
adjustments of Section 13), free from preemptive rights or any other contingent
purchase rights of persons other than the Holder. The Company covenants that all
Underlying Shares so issuable and deliverable shall, upon issuance in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
13. Certain Adjustments. The Conversion Price is subject to adjustment
from time to time as set forth in this Section 13.
(a) Stock Dividends and Splits. If the Company, at any time while
this Debenture is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Conversion
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Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding immediately before such event and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to clause
(i) of this paragraph shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that a Conversion Price (or similar price
used in converting cash amounts into shares of Common Stock) is calculated
hereunder, then the calculation thereof shall be adjusted appropriately to
reflect such event.
(b) Pro Rata Distributions. If the Company, at any time while this
Debenture is outstanding, distributes to all holders of Common Stock (i)
evidences of its indebtedness, (ii) any security (other than a distribution of
Common Stock covered by the preceding paragraph), (iii) rights or warrants to
subscribe for or purchase any security, or (iv) any other asset (in each case,
"DISTRIBUTED PROPERTY"), then, at the request of the Holder delivered before the
90th day after the record date fixed for determination of stockholders entitled
to receive such distribution, the Company will deliver to the Holder, within
five Trading Days after such request (or, if later, on the effective date of
such distribution), the Distributed Property that the Holder would have been
entitled to receive in respect of the Underlying Shares for which this Debenture
could have been converted immediately prior to such record date. If such
Distributed Property is not delivered to the Holder pursuant to the preceding
sentence, then upon any conversion of this Debenture that occurs after such
record date, the Holder shall be entitled to receive, in addition to the
Underlying Shares otherwise issuable upon such conversion, the Distributed
Property that the Holder would have been entitled to receive in respect of such
number of Underlying Shares had the Holder been the record holder of such
Underlying Shares immediately prior to such record date. In the event that the
Distributed Property is not the same for each share of Common Stock, the Holder
will be entitled to choose any type of Distributed Property that any holder of
Common Stock is entitled to receive in such distribution.
(c) Fundamental Transactions. If, at any time while this Debenture
is outstanding, (i) the Company effects any merger or consolidation of the
Company with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
"FUNDAMENTAL TRANSACTION"), then upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Underlying Share
that would have been issuable upon such conversion absent such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction,
the holder of one share of Common Stock (the "ALTERNATE CONSIDERATION"). In the
event that more than one type of Alternate Consideration is to be received by
holders of Common Stock in a Fundamental Transaction, the Holder will be
entitled to choose any type of Alternate Consideration
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that any holder of Common Stock is entitled to receive in such Fundamental
Transaction. For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder's right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(c) and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
(d) Subsequent Equity Sales.
(i) If, at any time while this Debenture is outstanding,
the Company or any Subsidiary issues additional shares of Common Stock or
rights, warrants, options or other securities or debt convertible,
exercisable or exchangeable for shares of Common Stock or otherwise
entitling any Person to acquire shares of Common Stock (collectively,
"COMMON STOCK EQUIVALENTS") (except for issuance of Common Stock or
Common Stock Equivalents in a Strategic Transaction or the issuance of up
to an aggregate of 100,000 shares of Common Stock after the date hereof
(appropriately adjusted for stock splits, stock dividends, reverse stock
splits and similar events)) at an effective price per share of Common
Stock (the "EFFECTIVE PRICE") less than the Conversion Price (as adjusted
hereunder to such date), then the Conversion Price shall be reduced to
equal the product of (A) the Exercise Price in effect immediately prior
to such issuance of Common Stock or Common Stock Equivalents times (B) a
fraction, the numerator of which is the sum of (1) the number of shares
of Common Stock outstanding immediately prior to such issuance, plus (2)
the number of shares of Common Stock which the aggregate Effective Price
of the Common Stock issued (or deemed to be issued) would purchase at the
Exercise Price, and the denominator of which is the aggregate number of
shares of Common Stock outstanding or deemed to be outstanding
immediately after such issuance. For purposes of the foregoing
adjustment, in connection with any issuance of any Common Stock
Equivalents, (x) the maximum number of shares of Common Stock potentially
issuable at any time upon conversion, exercise or exchange of such Common
Stock Equivalents (the "DEEMED NUMBER") shall be deemed to be outstanding
upon issuance of such Common Stock Equivalents, (y) the Effective Price
applicable to such Common Stock shall equal the minimum dollar value of
consideration payable to the Company to purchase such Common Stock
Equivalents and to convert, exercise or exchange them into Common Stock,
divided by the Deemed Number, and (z) no further adjustment shall be made
to the Conversion Price
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upon the actual issuance of Common Stock upon conversion, exercise or
exchange of such Common Stock Equivalents.
(ii) If, at any time while this Debenture is outstanding,
the Company or any Subsidiary issues Common Stock Equivalents with an
Effective Price that floats or resets or otherwise varies or is subject
to adjustment based on market prices of the Common Stock (a "FLOATING
PRICE SECURITY"), then for purposes of applying the preceding paragraph
in connection with any subsequent conversion, the Effective Price will be
determined separately on each Conversion Date and will be deemed to equal
the lowest Effective Price at which any holder of such Floating Price
Security is entitled to acquire shares of Common Stock on such Conversion
Date (regardless of whether any such holder actually acquires any shares
on such date).
(iii) Notwithstanding the foregoing, no adjustment will be
made under this paragraph (d) in respect of (A) the issuance of Common
Stock upon exercise or conversion of any Common Stock Equivalents
described in Schedule 3.1(g) to the Purchase Agreement (provided that
such exercise or conversion occurs in accordance with the terms thereof,
without amendment or modification, and that the applicable exercise or
conversion price or ratio is described in such schedule), or (B) any
grant of options to employees, officers or directors of the Company
pursuant to any stock option plan duly adopted by the Company's board of
directors or in respect of the issuance of Common Stock upon exercise of
any such options.
(e) Calculations. All calculations under this Section 13 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
(f) Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 13, the Company at its expense will promptly compute
such adjustment in accordance with the terms hereof and prepare a certificate
describing in reasonable detail such adjustment and the transactions giving rise
thereto, including all facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such certificate to
the Holder.
(h) Notice of Corporate Events. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction, at least 20 calendar days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to convert this
Debenture prior to such time so as to participate in or vote with
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respect to such transaction; provided, however, that the failure to deliver such
notice or any defect therein shall not affect the validity of the corporate
action required to be described in such notice.
14. Limitation on Conversion. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any conversion of this Debenture (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following
such conversion (or other issuance), the total number of shares of Common Stock
then beneficially owned by such Holder and its Affiliates and any other Persons
whose beneficial ownership of Common Stock would be aggregated with the Holder's
for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the
"MAXIMUM PERCENTAGE") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock issuable
upon such conversion). For such purposes, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. Each delivery of a Conversion Notice by
the Holder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Underlying Shares requested in such Conversion Notice is
permitted under this paragraph, and the Company will have no liability for such
determination. By written notice to the Company, the Holder may waive the
provisions of this Section or increase or decrease the Maximum Percentage to any
other percentage specified in such notice, but (i) any such waiver or increase
will not be effective until the 61st day after such notice is delivered to the
Company, and (ii) any such waiver or increase or decrease will apply only to the
Holder and not to any other holder of Debentures.
15. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Underlying Shares on conversion of this Debenture.
If any fraction of an Underlying Share would, except for the provisions of this
Section, be issuable upon conversion of this Debenture, the Company shall pay an
amount in cash equal to the average of the Closing Prices of the Common Stock
for the five Trading Days immediately prior to (but not including) the
Conversion Date multiplied by such fraction; provided that, unless the Holder
requests otherwise, no payment shall be required to the Holder pursuant to this
sentence until the aggregate amount payable to the Holder in connection with
such conversion (together with unpaid amounts from prior conversions) exceeds
$1,000, at which time all previously deferred payments shall be made.
16. Notices. Any and all notices or other communications or deliveries
hereunder (including without limitation any Conversion Notice) shall be in
writing and shall be deemed given and effective on the earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be those set
forth in the Purchase Agreement (with copies as indicated therein) or such other
address or facsimile number as either party may provide to the other in
accordance with this Section.
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17. Miscellaneous.
(a) This Debenture shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns. This Debenture
may be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 17(a), above, nothing in this Debenture
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this
Debenture. This Debenture shall inure to the sole and exclusive benefit of the
Company and the Holder.
(c) The corporate laws of the State of California shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Debenture shall be governed by and construed and enforced
in accordance with the internal laws of the State of Texas, without regard to
the principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in Dallas, Texas for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
(d) The headings herein are for convenience only, do not
constitute a part of this Debenture and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this Debenture
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Debenture shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Debenture.
(f) No provision of this Debenture may be waived or amended except
in a written instrument signed, in the case of an amendment, by the Company and
the Holder or, or, in the case of a waiver, by the Holder. No waiver of any
default with respect to any provision, condition or requirement of this
Debenture shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
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[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
PROCOM TECHNOLOGY, INC.
By:
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Name:
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Title:
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FORM OF CONVERSION NOTICE
(To be executed by the registered Holder
in order to convert Debenture)
The undersigned hereby elects to convert the specified principal amount of 6%
Convertible Debentures (the "DEBENTURES") into shares of common stock, par value
$.01 per share (the "COMMON STOCK"), of Procom Technologies, Inc., a California
corporation (the "COMPANY"), according to the conditions hereof, as of the date
written below.
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Date to Effect Conversion
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Principal amount of Debentures owned prior to conversion
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Principal amount of Debentures to be Converted
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Number of shares of Common Stock to be Issued
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Applicable Conversion Price
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Principal amount of Debentures owned subsequent to Conversion
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Name of Holder
By:
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Name:
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Title:
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