Exhibit 10.2

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.  TO THE EXTENT PERMITTED BY APPLICABLE SECURITIES
LAWS, THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY SUCH SECURITIES.

 

Original Issue Date: January 16, 2013

Original Conversion Price (subject to adjustment herein): $0.10

 

$250,000

 

No: R-

 

5% SENIOR SECURED CONVERTIBLE DEBENTURE

DUE JANUARY 16, 2016

 

THIS 5% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly
authorized and validly issued 5% Senior Secured Convertible Debentures of PLC
Systems Inc., a Yukon Territory corporation (the “Company”), having its
principal place of business at 459 Fortune Boulevard, Milford, Massachusetts
01757, designated as its 5% Senior Secured Convertible Debenture due January 16,
2016 (this debenture, this “Debenture” and, collectively with the other
debentures of such series, the “Debentures”).

 

FOR VALUE RECEIVED, the Company promises to pay to GCP IV LLC or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the
principal sum of $250,000 or, if less, the then outstanding principal amount of
this Debenture on January 16, 2016 (the “Maturity Date”) or such earlier date as
this Debenture is required or permitted to be repaid as provided hereunder, and
to pay interest to the Holder on the then outstanding principal amount of this
Debenture in accordance with the provisions hereof.  This Debenture is subject
to the following additional provisions:

 

Section 1.                                           Definitions.  For the
purposes hereof, in addition to the terms defined elsewhere in this Debenture,
(a) capitalized terms not otherwise defined herein shall have the meanings set
forth in the Purchase Agreement and (b) the following terms shall have the
following meanings:

 

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“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) the Company or any
Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X) thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any Significant Subsidiary thereof, as the case may be, (b) there is
commenced against the Company or any Significant Subsidiary thereof any such
case or proceeding that is not dismissed within 60 days after commencement,
(c) the Company or any Significant Subsidiary thereof 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 Significant Subsidiary thereof
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 calendar days
after such appointment, (e) the Company or any Significant Subsidiary thereof
makes a general assignment for the benefit of creditors, (f) the Company or any
Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts or (g) the
Company or any Significant Subsidiary thereof, 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.

 

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

 

“Beneficial Ownership Limitation” shall have the meaning set forth in
Section 4(d).

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

 

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

 

“Change of Control Redemption” shall have the meaning set forth in Section 6(a).

 

“Change of Control Redemption Amount” means the sum of (a) the greater of
(i) the outstanding principal amount of this Debenture to be redeemed divided by
the Conversion Price on the date the Change of Control Redemption Amount is
either (A) demanded (if demand or notice is required to create an Event of
Default) or otherwise due or (B) paid in full, whichever has a lower Conversion
Price, multiplied by the VWAP on the date on which the Change of Control
Redemption Amount is either (x) otherwise due or (y) paid in full, whichever has
a higher VWAP, plus all accrued and unpaid interest thereon, (ii) 130% of the
outstanding principal amount of this Debenture to be

 

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redeemed, plus 100% of accrued and unpaid interest thereon or (iii) the
outstanding principal amount of this Debenture divided by the Conversion Price,
multiplied by the per share value of the consideration payable in the
transaction giving rise to the Change of Control Redemption (based on the number
of shares of Common Stock outstanding on the date such transaction is announced
and the consideration to be received by the Company, its Subsidiaries and/or
their respective shareholders, as applicable in such transaction), plus all
accrued and unpaid interest thereon, and (b) all other amounts, costs, expenses
and liquidated damages due in respect of this Debenture.

 

“Change of Control Redemption Date” shall have the meaning set forth in
Section 6(a).

 

“Change of Control Redemption Notice” shall have the meaning set forth in
Section 6(a).

 

“Change of Control Redemption Notice Date” shall have the meaning set forth in
Section 6(a).

 

“Change of Control Redemption Period” shall have the meaning set forth in
Section 6(a).

 

“Change of Control Transaction” means the occurrence after the date hereof of
any of (a) an acquisition after the date hereof by an individual or legal entity
or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)
of effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 40% of the
voting securities of the Company (other than by means of conversion or exercise
of the Debentures and the Securities  issued together with the Debentures, the
other debentures issued and sold pursuant to the Purchase Agreement (the “Other
Debentures”), the Warrants or any of the securities issued or issuable upon
exercise or conversion of any of the Debentures, the Other Debentures and the
Warrants), (b) the Company merges into or consolidates with any other Person, or
any Person merges into or consolidates with the Company and, after giving effect
to such transaction, the stockholders of the Company immediately prior to such
transaction own less than 60% of the aggregate voting power of the equity
securities of the Company or the successor entity of such transaction, (c) the
Company sells or transfers all or substantially all of its assets to another
Person and the stockholders of the Company immediately prior to such transaction
own less than 60% of the aggregate voting power of the equity securities of the
acquiring entity immediately after the transaction, (d) a replacement at one
time or within a three year period of more than one-half of the members of the
Board of Directors which is not approved by a majority of those individuals who
are members of the Board of Directors on the Original Issue Date (or by those
individuals who are serving as members of the Board of Directors on any date
whose nomination to the Board of Directors was approved by a majority of the
members of the Board of Directors who are members on the date hereof), or
(e) the

 

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execution by the Company of an agreement to which the Company  is a party or by
which it is bound, providing for any of the events set forth in clauses
(a) through (d) above.

 

“Conversion” shall have the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1
attached hereto.

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion of this Debenture in accordance with the terms hereof.

 

“Debenture Register” shall have the meaning set forth in Section 2(b).

 

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

“Equity Conditions” means, during an Change in Control Redemption Period,
(a) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notices of Conversion
of the Holder, if any, (b) the Company shall have paid all liquidated damages
and other amounts due and owing to the Holder in respect of this Debenture,
(c)(i) there is an effective Registration Statement pursuant to which the Holder
is permitted to utilize the prospectus thereunder to resell all of the shares of
Common Stock issuable pursuant to the Transaction Documents (and the Company
believes, in good faith, that such effectiveness will continue uninterrupted for
the foreseeable future) or (ii) all of the Conversion Shares issuable pursuant
to the Transaction Documents (and shares issuable in lieu of cash payments of
interest) may be resold pursuant to Rule 144 without volume or manner-of-sale
restrictions or current public information requirements as determined by the
counsel to the Company as set forth in a written opinion letter to such effect,
addressed and acceptable to the Transfer Agent and the Holder, (d) the Common
Stock is trading on a Trading Market and all of the shares issuable pursuant to
the Transaction Documents are listed or quoted for trading on such Trading
Market (and the Company believes, in good faith, that trading of the Common
Stock on a Trading Market will continue uninterrupted for the foreseeable
future), (e) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the
shares then issuable pursuant to the Transaction Documents, (f) there is no
existing Event of Default and no existing event which, with the passage of time
or the giving of notice, would constitute an Event of Default, and (g) the
applicable Holder is not in possession of any information provided by the
Company that constitutes, or may constitute, material non-public information.

 

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“Event of Default” shall have the meaning set forth in Section 8(a).

 

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“Late Fees” shall have the meaning set forth in Section 2(c).

 

“Mandatory Default Amount”  means the sum of (a) the greater of (i) the
outstanding principal amount of this Debenture divided by the Conversion Price
on the date the Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default) or otherwise due or (B) paid
in full, whichever has a lower Conversion Price, multiplied by the VWAP on the
date on which the Mandatory Default Amount is either (x) demanded or otherwise
due or (y) paid in full, whichever has a higher VWAP, plus all accrued and
unpaid interest hereon, or (ii) 130% of the outstanding principal amount of this
Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other
amounts, costs, expenses and liquidated damages due in respect of this
Debenture.

 

“New York Courts” shall have the meaning set forth in Section 9(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

“Original Issue Date” means the date of the first issuance of the Debentures,
regardless of any transfers of any Debenture and regardless of the number of
instruments which may be issued to evidence such Debentures.

 

“Permitted Indebtedness” means (x) the indebtedness evidenced by the Debentures
and the Other Debentures and the other Transaction Documents and (y) capital
lease obligations and purchase money indebtedness of up to $200,000, in the
aggregate, incurred in connection with the acquisition of capital assets and
lease obligations with respect to newly acquired or leased assets.

 

“Permitted Lien” means the individual and collective reference to the following:
(a) Liens for taxes, assessments and other governmental charges or levies not
yet due or Liens for taxes, assessments and other governmental charges or levies
being contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Company) have been
established in accordance with GAAP, (b) Liens imposed by law which were
incurred in the ordinary course of the business of the Company or any of its
Subsidiaries, such as suppliers’, vendors’, carriers’, warehousemen’s and
mechanics’ Liens, statutory workmen’s, repairmen’s and landlords’ Liens, and
other similar Liens arising in the ordinary course of the business of the
Company or any of its Subsidiaries, and which (x) do not individually or in the
aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings

 

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have the effect of preventing for the foreseeable future the forfeiture or sale
of the property or asset subject to such Lien, (c) Liens incurred in connection
with Permitted Indebtedness under clause (x) thereunder, (d) Liens incurred in
connection with Permitted Indebtedness under clause (y) thereunder, provided
that such Liens are not secured by assets of the Company or its Subsidiaries
other than the assets so acquired or leased, (e) non-exclusive licenses granted
by the Company in respect of its intellectual property, (f) Liens under the
Novadaq Agreements and (g) Liens disclosed on Schedule 3.1(n) to the Purchase
Agreement.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of
February 22, 2011 among the Company and the original Holders, as amended,
modified or supplemented from time to time in accordance with its terms.

 

“Required Holders” means Holders of at least a majority in principal amount of
the then outstanding Debentures and Other Debentures (taken as a whole).

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

“Trading Day” means a day on which the principal Trading Market is open for
trading.

 

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any
successors to any of the foregoing).

 

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then
listed or quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by Pink OTC
Markets, Inc. (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so
reported, or (d) in all other cases, the fair market value of a share of Common
Stock as determined

 

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by an independent appraiser selected in good faith by the Holders of a majority
in interest of the Debentures and the Other Debentures then outstanding and
reasonably acceptable to the Company, the fees and expenses of which shall be
paid by the Company; provided, however, if such Holders have not selected an
independent appraiser within 20 calendar days of the date required to select
such independent appraiser, such failure will not result in an Event of Default.

 

Section 2.                                           Interest.

 

a)                                     Payment of Interest in Cash. The Company
shall pay interest to the Holder on the then outstanding principal amount of
this Debenture at the rate of 5% per annum, payable quarterly on January 1,
April 1, July 1 and October 1, beginning on the first such date after the
Original Issue Date, on each Conversion Date (as to that principal amount then
being converted) on each Optional Redemption Date (as to that principal amount
then being redeemed) and on the Maturity Date (each such date, an “Interest
Payment Date”) (if any Interest Payment Date is not a Business Day, then the
applicable payment shall be due on the next succeeding Business Day), in cash.

 

b)                                     Interest Calculations. Interest shall be
calculated on the basis of a 360-day year, consisting of twelve 30 calendar day
periods, and shall accrue daily commencing on the Original Issue Date until
payment in full of the outstanding principal, together with all accrued and
unpaid interest, liquidated damages and other amounts which may become due
hereunder, has been made.  Interest shall cease to accrue with respect to any
principal amount converted, provided that, the Company actually delivers the
Conversion Shares within the time period required by Section 4(c)(ii) herein.. 
Interest hereunder will be paid to the Person in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of
this Debenture (the “Debenture Register”).

 

c)                                      Late Fee.  All overdue accrued and
unpaid interest to be paid hereunder shall entail a late fee at an interest rate
equal to the lesser of 16% per annum or the maximum rate permitted by applicable
law (the “Late Fees”) which shall accrue daily from the date such interest is
due hereunder through and including the date of actual payment in full.

 

d)                                     Prepayment.  Except as otherwise set
forth in this Debenture, the Company may not prepay any portion of the principal
amount of this Debenture without the prior written consent of the Holder.

 

Section 3.                                           Registration of Transfers
and Exchanges.

 

a)                                     Different Denominations. This Debenture
is exchangeable for an equal aggregate principal amount of Debentures of
different authorized denominations, as requested by the Holder surrendering the
same.  No service charge will be payable for such registration of transfer or
exchange.

 

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b)                                     Investment Representations. This
Debenture has been issued subject to certain investment representations of the
original Holder set forth in the Purchase Agreement and this Debenture and the
securities issued or issuable upon conversion hereof may be transferred or
exchanged only in compliance with the Purchase Agreement and applicable
Securities Laws.

 

c)                                      Reliance on Debenture Register. Prior to
due presentment for transfer to the Company of this Debenture, the Company and
any agent of the Company may treat the Person in whose name this Debenture is
duly registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.  In the event of an assignment or transfer
of this Debenture, the assignee or transferee shall be deemed a registered
holder hereunder and a permitted assign pursuant to the Purchase Agreement on
the date the notice of assignment and/or transfer is delivered to the Company in
accordance with the terms hereunder and the Purchase Agreement.

 

Section 4.                                           Conversion.

 

a)                                     Voluntary Conversion. At any time after
the Original Issue Date until this Debenture is no longer outstanding, the
principal of this Debenture shall be convertible, in whole or in part, into
shares of Common Stock at the option of the Holder, at any time and from time to
time (subject to the conversion limitations set forth in Section 4(d) hereof). 
The Holder shall effect conversions by delivering to the Company a Notice of
Conversion, the form of which is attached hereto as Annex A (each, a “Notice of
Conversion”), specifying therein the principal amount of this Debenture to be
converted and the date on which such conversion shall be effected (such date,
the “Conversion Date”).  If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder.  To effect conversions hereunder, the Holder
shall not be required to physically surrender this Debenture to the Company
unless the entire principal amount of this Debenture has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the principal amount
converted.  The Holder and the Company shall maintain records showing the
principal amount(s) converted and the date of such conversion(s).  The Company
may deliver an objection to any Notice of Conversion within two (2) Business
Days of delivery of such Notice of Conversion. The Holder, and any assignee by
acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid principal amount of this Debenture may be less than the
amount stated on the face hereof.

 

b)                                     Conversion Price.  The conversion price
in effect on any Conversion Date shall be equal to $0.10, subject to adjustment
herein (the “Conversion Price”).

 

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c)                                      Mechanics of Conversion.

 

i.                                          Conversion Shares Issuable Upon
Conversion of Principal Amount.  The number of Conversion Shares issuable upon a
conversion hereunder shall be determined by the quotient obtained by dividing
(x) the outstanding principal amount of this Debenture to be converted by
(y) the Conversion Price.

 

ii.                                       Delivery of Certificate Upon
Conversion. Not later than three (3) Trading Days after each Conversion Date
(the “Share Delivery Date”), the Company shall deliver, or cause to be
delivered, to the Holder (A) a certificate or certificates representing the
Conversion Shares which, on or after the earlier of (i) the six month
anniversary of the Original Issue Date or (ii) the Effective Date, shall be free
of restrictive legends and trading restrictions (other than those which may then
be required by the Purchase Agreement) representing the number of Conversion
Shares being acquired upon the conversion of this Debenture and (B) a check in
the amount of accrued and unpaid interest on the principal amount so converted.
Certificates for Conversion Shares shall be transmitted by the Transfer Agent to
the Holder by crediting the account of the Holder’s prime broker with The
Depository Trust Company through its Deposit or Withdrawal at Custodian system
(“DWAC”) if the Company is then a participant in such system and either
(A) there is an effective registration statement permitting the issuance of the
Conversion Shares to or resale of the Conversion Shares by the Holder or (B) the
shares are eligible for resale by the Holder without volume or manner-of-sale
limitations pursuant to Rule 144, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Conversion.

 

iii.                                    Failure to Deliver Certificates.  If, in
the case of any Notice of Conversion, such certificate or certificates are not
delivered to or as directed by the applicable Holder by the Share Delivery Date,
the Holder shall be entitled to elect by written notice to the Company at any
time on or before delivery of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder this
original Debenture, if theretofore delivered to the Company, and the Holder
shall promptly return to the Company the certificates issued to such Holder
pursuant to the rescinded Conversion Notice and repay the interest paid to the
Holder on such conversion.

 

iv.                                   Obligation Absolute; Partial Liquidated
Damages.  Except as set forth in the next succeeding sentence, to the extent
permitted by applicable law,  the Company’s obligations to issue and deliver the
Conversion Shares upon conversion of this Debenture in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any prior 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

 

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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 Conversion Shares; provided, however, that such delivery shall not operate
as a waiver by the Company of any such action the Company may have against the
Holder.  In the event the Holder of this Debenture shall elect to convert any or
all of the outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or anyone associated or affiliated
with the Holder has been engaged in any violation of law, agreement or for any
other reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this Debenture shall
have been sought and obtained, and the Company posts a surety bond for the
benefit of the Holder in the amount of 150% of the outstanding principal amount
of this Debenture so elected to be converted, which is subject to the
injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to the Holder to the extent it obtains judgment.  In the absence of
such injunction, the Company shall issue Conversion Shares upon a properly
noticed conversion.  If the Company fails for any reason (other than as set
forth in the second preceding sentence) to deliver to the Holder such
certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery
Date, the Company shall pay to the Holder, in cash, as liquidated damages and
not as a penalty, for each $1,000 of principal amount being converted, $10 per
Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day
after such liquidated damages begin to accrue) for each Trading Day after such
Share Delivery Date until such certificates are delivered or Holder rescinds
such conversion.    Nothing herein shall limit a Holder’s right to pursue actual
damages or declare an Event of Default pursuant to Section 8 hereof for the
Company’s failure to deliver Conversion Shares within the period specified
herein and the Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.  The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.

 

v.                                      Compensation for Buy-In on Failure to
Timely Deliver Certificates Upon Conversion. In addition to any other rights
available to the Holder, if the Company fails for any reason to deliver to the
Holder such certificate or certificates by the Share Delivery Date pursuant to
Section 4(c)(ii), and if after such Share Delivery Date and prior to the
delivery of such certificate or certificates the Holder is required by its
brokerage firm to purchase (in an open market transaction or otherwise), or the
Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Conversion Shares which the
Holder was entitled to receive upon the conversion relating to such Share
Delivery Date (a “Buy-In”), then the

 

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Company shall (A) pay in cash to the Holder (in addition to any other remedies
available to or elected by the Holder) the amount, if any, by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that the Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B)  at the option of the Holder, either reissue (if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion (in which case such conversion shall be deemed
rescinded) or deliver to the Holder the number of shares of Common Stock that
would have been issued if the Company had timely complied with its delivery
requirements under Section 4(c)(ii).  For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of this Debenture with respect to which the
actual sale price of the Conversion Shares (including any brokerage commissions)
giving rise to such purchase obligation was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall be required to pay
the Holder $1,000.  The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and, upon
request of the Company, evidence of the amount of such loss.  Nothing herein
shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
conversion of this Debenture as required pursuant to the terms hereof.

 

vi.                                   Reservation of Shares Issuable Upon
Conversion. The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock for the sole
purpose of issuance upon conversion of the Debentures and the Other Debentures,
each as herein provided, free from preemptive rights or any other actual
contingent purchase rights of Persons other than the Holder (and the other
holders of the Debentures and the Other Debentures), not less than such
aggregate number of shares of the Common Stock as shall (subject to the terms
and conditions set forth in the Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5) upon the conversion of
the then outstanding principal amount of the Debentures and the Other
Debentures.  The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly authorized, validly issued, fully paid
and nonassessable.

 

vii.                                Fractional Shares. No fractional shares or
scrip representing fractional shares shall be issued upon the conversion of this
Debenture.  As to any fraction of a share which the Holder would otherwise be
entitled to purchase upon such conversion, the Company shall at its election,
either pay a cash adjustment in

 

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respect of such final fraction in an amount equal to such fraction multiplied by
the Conversion Price or round up to the next whole share.

 

viii.                             Transfer Taxes.  The issuance of certificates
for shares of the Common Stock on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such certificates,
provided that, the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the Holder of this
Debenture so converted and the Company shall not be required to issue or deliver
such certificates unless or until the Person or Persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.

 

d)                                     Holder’s Conversion Limitations.  The
Company shall not effect any conversion of this Debenture, and a Holder shall
not have the right to convert any portion of this Debenture, to the extent that
after giving effect to the conversion set forth on the applicable Notice of
Conversion, the Holder (together with the Holder’s Affiliates, and any Persons
acting as a group together with the Holder or any of the Holder’s Affiliates)
would beneficially own in excess of the Beneficial Ownership Limitation (as
defined below).  For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates shall include
the number of shares of Common Stock issuable upon conversion of this Debenture
with respect to which such determination is being made, but shall exclude the
number of shares of Common Stock which are issuable upon (i) conversion of the
remaining, unconverted principal amount of this Debenture beneficially owned by
the Holder or any of its Affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
subject to a limitation on conversion or exercise analogous to the limitation
contained herein (including, without limitation, any other Debentures or the
Warrants) beneficially owned by the Holder or any of its Affiliates.  Except as
set forth in the preceding sentence, for purposes of this Section 4(d),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.  To the
extent that the limitation contained in this Section 4(d) applies, the
determination of whether this Debenture is convertible (in relation to other
securities owned by the Holder together with any Affiliates) and of which
principal amount of this Debenture is convertible shall be in the sole
discretion of the Holder, and the submission of a Notice of Conversion shall be
deemed to be the Holder’s determination of whether this Debenture may be
converted (in relation to other securities owned by the Holder together with any
Affiliates) and which principal amount of this Debenture is convertible, in each
case subject to the Beneficial Ownership Limitation. To ensure compliance with
this restriction, the Holder will be deemed to represent to the Company each
time it delivers a Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the Company shall have
no obligation to verify or confirm the accuracy of such

 

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determination.  In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.   For
purposes of this Section 4(d), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as stated in the most recent of the following: (i) the Company’s
most recent periodic or annual report filed with the Commission, as the case may
be, (ii) a more recent public announcement by the Company, or (iii) a more
recent written notice by the Company or the Company’s transfer agent setting
forth the number of shares of Common Stock outstanding.  Upon the written or
oral request of a Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Debenture, by the Holder or its
Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99%
of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon conversion of
this Debenture held by the Holder.  The Holder, upon not less than 61 days’
prior notice to the Company, may increase or decrease the Beneficial Ownership
Limitation provisions of this Section 4(d), provided that the Beneficial
Ownership Limitation in no event exceeds 9.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock upon conversion of this Debenture held by the Holder and
the Beneficial Ownership Limitation provisions of this Section 4(d) shall
continue to apply.  Any such increase or decrease will not be effective until
the 61st day after such notice is delivered to the Company.  The Beneficial
Ownership Limitation provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 4(d) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
contained herein or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Debenture.

 

Section 5.                                           Certain Adjustments.

 

a)                                     Stock Dividends and Stock Splits.  If the
Company, at any time while this Debenture is outstanding: (i) pays a stock
dividend or otherwise makes a distribution or distributions payable in shares of
Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
for avoidance of doubt, shall not include any shares of Common Stock issued by
the Company upon conversion of the Debentures, the Other Debentures or the
exercise of the Warrants), (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, (iii) combines (including by way of a reverse
stock split) outstanding shares of Common Stock into a smaller number of shares
or (iv) issues, in the event of a reclassification of shares of the Common
Stock, any shares of capital stock of the Company, then the Conversion Price
shall be multiplied by a

 

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fraction of which the numerator shall be the number of shares of Common Stock
(excluding any treasury shares of the Company) 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
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
(provided that if the declaration of such dividend or distribution is rescinded
or otherwise cancelled, then such adjustment shall be reversed upon notice to
the Holder of the termination of such proposed declaration or distribution as to
any unconverted principal amount at the time of such rescission or cancellation)
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

 

b)                                     Subsequent Equity Sales.  If, at any time
while this Debenture is outstanding,  the Company or any Subsidiary, as
applicable, sells or grants any option to purchase or sells or grants any right
to reprice, or otherwise disposes of or issues (or announces any sale, grant or
any option to purchase or other disposition), any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock from the
Company or any Subsidiary at an effective price per share that is lower than the
then Conversion Price (such lower price, the “Base Conversion Price” and such
issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
per share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share that is lower
than the Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price on such date of the Dilutive Issuance), then the
Conversion Price shall be reduced to equal the Base Conversion Price.  Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  Notwithstanding the foregoing, no adjustment will be made under
this Section 5(b) in respect of an Exempt Issuance.  If the Company enters into
a Variable Rate Transaction, despite the prohibition set forth in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion price at which such
securities may be converted or exercised. The Company shall notify the Holder in
writing, no later than the Trading Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this Section 5(b), indicating
therein the applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice, the “Dilutive
Issuance Notice”).  For purposes of clarification, whether or not the Company
provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the
occurrence of any Dilutive Issuance, the Holder is entitled to receive a number
of Conversion Shares based upon the Base Conversion Price on or after the date
of such Dilutive Issuance, regardless of whether the Holder accurately refers to
the Base Conversion Price in the Notice of Conversion.

 

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c)                                      Subsequent Rights Offerings.  Unless an
adjustment is otherwise made pursuant to Section 5(b), if the Company, at any
time while this Debenture is outstanding, shall issue rights, options or
warrants to all holders of Common Stock (and not to the Holders) entitling them
to subscribe for or purchase shares of Common Stock at a price per share that is
lower than the VWAP on the record date referenced below, then the Conversion
Price shall be multiplied by a fraction of which the denominator shall be the
number of shares of the Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock outstanding on the date of issuance of such
rights, options or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered (assuming delivery to
the Company in full of all consideration payable upon exercise of such rights,
options or warrants) would purchase at such VWAP.  Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants (provided that if such rights,
options or warrants are not in fact issued, then such adjustment shall be
reversed upon notice to the Holder of the termination of such proposed issuance
as to any unconverted principal amount at the time of such cancellation of
issuance).

 

d)                                     Pro Rata Distributions. If the Company,
at any time while this Debenture is outstanding, distributes to all holders of
Common Stock (and not to the Holders) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security (other than the Common Stock, which shall be subject to
Section 5(b)), then in each such case the Conversion Price shall be adjusted by
multiplying such Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness or rights or warrants so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors of the Company in good faith.  In either
case the adjustments shall be described in a statement delivered to the Holder
describing the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock.  Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above (provided that if
such distribution is not in fact made, then such adjustment shall be reversed
upon notice to the Holder of the termination of such proposed distribution as to
any unconverted principal amount at the time of such cancellation of such
distribution).

 

e)                                      Fundamental Transaction. If, at any time
while this Debenture is outstanding, (i) the Company, directly or indirectly, in
one or more related transactions effects any merger or consolidation of the
Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer,

 

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conveyance or other disposition of all or substantially all of its assets in one
or a series of related transactions, (iii) any, direct or indirect, purchase
offer, tender offer or exchange offer (whether by the Company or another Person)
is completed pursuant to which holders of Common Stock are permitted to sell,
tender or exchange their shares for other securities, cash or property and has
been accepted by the holders of 50% or more of the outstanding Common Stock,
(iv) the Company, directly or indirectly, in one or more related transactions
effects any reclassification, reorganization or recapitalization 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,
(v) the Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock or share purchase agreement or other business combination) (each a
“Fundamental Transaction”), then, upon any subsequent conversion of this
Debenture, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction (without regard to any limitation in
Section 4(d) on the conversion of this Debenture), the number of shares of
Common Stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by a
holder one share of Common Stock.  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 (1) 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.  The Company shall cause any successor
entity in a Fundamental Transaction in which the Company is not the survivor
(the “Successor Entity”) to assume in writing all of the obligations of the
Company under this Debenture and the other Transaction Documents (as defined in
the Purchase Agreement) in accordance with the provisions of this
Section 5(e) pursuant to written agreements in form and substance reasonably
satisfactory to the Holder and approved by the Holder (without unreasonable
delay) prior to such Fundamental Transaction and shall, at the option of the
Holder of this Debenture, deliver to the Holder in exchange for this Debenture a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Debenture which is convertible for a
corresponding number of shares of capital stock of such Successor Entity (or its
parent entity) equivalent to the shares of Common Stock acquirable and
receivable upon conversion of this Debenture (without regard to any

 

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limitations on the conversion of this Debenture) prior to such Fundamental
Transaction, and with a conversion price which applies the conversion price
hereunder to such shares of capital stock (but taking into account the relative
value of the shares of Common Stock pursuant to such Fundamental Transaction and
the value of such shares of capital stock, such number of shares of capital
stock and such conversion price being for the purpose of protecting the economic
value of this Debenture immediately prior to the consummation of such
Fundamental Transaction), and which is reasonably satisfactory in form and
substance to the Holder. Upon the occurrence of any such Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Debenture and the other Transaction Documents referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Debenture and the other Transaction Documents with the same effect as
if such Successor Entity had been named as the Company herein.

 

f)             Calculations.  All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be. 
For purposes of this Section 5, the number of shares of Common Stock deemed to
be issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding any treasury shares of the Company) issued and
outstanding.

 

g)             Notice to the Holder.

 

i.                                          Adjustment to Conversion Price. 
Whenever the Conversion Price is adjusted pursuant to any provision of this
Section 5, the Company shall promptly deliver to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.

 

ii.                                       Notice to Allow Conversion by Holder. 
If (A) the Company shall declare a dividend (or any other distribution in
whatever form) on the Common Stock, (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock of
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be delivered to the Holder at its last address as it

 

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shall appear upon the Debenture Register, at least ten (10) calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice.  To the extent that any notice provided hereunder constitutes,
or contains, material, non-public information regarding the Company or any of
the Subsidiaries, the Company shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain
entitled to convert this Debenture during the 10-day period commencing on the
date of such notice through the effective date of the event triggering such
notice except as may otherwise be expressly set forth herein.

 

Section 6.                                           Redemption.

 

a)                                                             Change of Control
Redemption at Election of Company.  Subject to the provisions of this
Section 6(a), if at any time after February 22, 2012, the Company shall announce
entering into a Change of Control Transaction or Fundamental Transaction; the
Company may deliver a notice to the Holder on the Trading Day that such
transaction is announced (a “Change of Control Redemption Notice” and the date
such notice is deemed delivered hereunder, the “Change of Control Redemption
Notice Date”) of its irrevocable election to redeem all of the then outstanding
principal amount of this Debenture for cash in an amount equal to the Change of
Control Redemption Amount on the Trading Day immediately prior to the
consummation of such Change of Control Transaction or Fundamental Transaction
provided that such Change of Control Transaction or Fundamental Transaction
shall not occur within 20 Trading Days of the announcement of such transaction
(such consummation date, the “Change of Control Redemption Date”, such Trading
Day period between the Change of Control Redemption Notice Date and the Change
of Control Redemption Date, the “Change of Control Redemption Period” and such
redemption, the “Change of Control Redemption”).  The Company may only effect a
Change in Control Redemption if each of the Equity Conditions shall have been
met (unless waived in writing by the Required Holders) on each Trading Day
during the period commencing on the Change in Control Redemption Notice Date
through to the Change in Control Redemption Date and through and including the
date payment of the Change in Control Redemption Amount is actually made in
full.  If any of the Equity Conditions shall cease to be satisfied at any time
during

 

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the Change in Control Redemption Period, then the Holder may elect to nullify
the Change in Control Redemption Notice by notice to the Company within 3
Trading Days after the first day on which any such Equity Condition has not been
met (provided that if, by a provision of the Transaction Documents, the Company
is obligated to notify the Holder of the non-existence of an Equity Condition,
such notice period shall be extended to the third Trading Day after proper
notice from the Company) in which case the Change in Control Redemption Notice
shall be null and void, ab initio.  The Change of Control Redemption Amount is
payable in full on the Change of Control Redemption Date.  The Company covenants
and agrees that it will honor all Notices of Conversion tendered from the time
of delivery of the Optional Redemption Notice through the date all amounts owing
thereon are due and paid in full. The Company’s determination to pay a Change of
Control Redemption in cash shall be applied ratably to all of the holders of the
then outstanding Debentures based on the then outstanding principal amounts of
the Debentures and the Other Debentures.

 

b)                                     Redemption Procedure.  The payment of
cash pursuant to a Change of Control Redemption shall be payable on the Change
of Control Redemption Date.  If any portion of the payment pursuant to an Change
of Control Redemption shall not be paid by the Company by the applicable due
date, interest shall accrue thereon at an interest rate equal to the lesser of
16% per annum or the maximum rate permitted by applicable law until such amount
is paid in full.  Notwithstanding anything herein contained to the contrary, if
any portion of the Change of Control Redemption Amount remains unpaid after such
date, the Holder may elect, by written notice to the Company given at any time
thereafter, to invalidate such Change of Control Redemption, ab initio, and,
with respect to the Company’s failure to honor the Change of Control Redemption,
the Company shall have no further right to exercise such Change of Control
Redemption.  The Holder may elect to convert the outstanding principal amount of
the Debenture pursuant to Section 4 (without regard to any limitation in
Section 4(d) on the conversion of this Debenture) prior to actual payment in
cash for any redemption under this Section 6 by the delivery of a Notice of
Conversion to the Company.

 

Section 7.                                           Negative Covenants. As long
as any portion of this Debenture remains outstanding, unless the Required
Holders shall have otherwise given prior written consent, the Company shall not,
and shall not permit any of the Subsidiaries to, directly or indirectly:

 

c)                                      other than Permitted Indebtedness, enter
into, create, incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including, but not limited to, a guarantee of
indebtedness for borrowed money;

 

d)                                     other than Permitted Liens, enter into,
create, incur, assume or suffer to exist any Liens 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;

 

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e)                                      amend its charter documents, including,
without limitation, its certificate of incorporation and bylaws, in any manner
that materially and adversely affects any rights of the Holder;

 

f)                                       repay, repurchase or offer to repay,
repurchase or otherwise acquire more than a de minimis number of shares of its
Common Stock or Common Stock Equivalents other than as to the Conversion Shares
or Warrant Shares as permitted or required under the Transaction Documents;

 

g)                                      repay, repurchase or offer to repay,
repurchase or otherwise acquire any Indebtedness, other than the Debentures, the
Other Debentures if on a pro-rata basis (based on the then outstanding principal
amounts thereof) and Permitted Indebtedness, other than regularly scheduled
payments, as such terms are in effect as of the Original Issue Date or, as to
Permitted Indebtedness hereafter incurred, as such terms are in effect at the
time of incurrence, provided that such payments shall not be permitted if, at
such time, or after giving effect to such payment, any Event of Default exist or
occur;

 

h)                                     pay cash dividends or distributions on
any equity securities of the Company;

 

i)                                         enter into any transaction with any
Affiliate of the Company which would be required to be disclosed in any public
filing with the Commission, unless such transaction is made on an arm’s-length
basis and expressly approved by a majority of the disinterested directors of the
Company (even if less than a quorum is otherwise required for board approval);
or

 

j)                                        enter into any agreement with respect
to any of the foregoing.

 

Section 8.                                           Events of Default.

 

a)                                     “Event of Default” means, wherever used
herein, any of the following events (whatever the reason for such event and
whether such event shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order,
rule or regulation of any administrative or governmental body):

 

i.                                          any default in the payment of
(A) the principal amount of any Debenture or (B) interest, liquidated damages
and other amounts owing to a Holder on any Debenture, as and when the same shall
become due and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of an interest
payment or other default under clause (B) above, is not cured within 3 Trading
Days;

 

ii.                                       the Company shall fail to observe or
perform any other covenant or agreement contained in the Debentures (other than
a breach by the Company of its

 

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obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (ix) below) which failure is not cured, if
possible to cure, within the earlier to occur of (A) 7 Trading Days after notice
of such failure sent by the Holder or by any other Holder to the Company and
(B) 10 Trading Days after the Company has become or should have become aware of
such failure;

 

iii.                                    a default or event of default (subject
to any grace or cure period provided in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents or (B) any
(other material agreement, lease, document or instrument to which  the Company
or any Subsidiary is obligated (and not covered by clause (vi) below );

 

iv.                                   any representation or warranty made in
this Debenture, any other Transaction Documents, any written statement pursuant
hereto or thereto or any other report, financial statement or certificate made
or delivered to the Holder or any other Holder shall be untrue or incorrect in
any material respect as of the date when made or deemed made;

 

v.                                      the Company or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X)  shall be
subject to a Bankruptcy Event;

 

vi.                                   the Company or any Significant Subsidiary
(as such term is defined in Rule 1-02(w) of Regulation S-X) shall default on any
of its obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which there
may be issued, or by which there may be secured or evidenced, any indebtedness
for borrowed money or money due under any long term leasing or factoring
arrangement that (a) involves an obligation greater than $150,000, whether such
indebtedness now exists or shall hereafter be created, and (b) results in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable;

 

vii.                                the Common Stock shall not be eligible for
listing or quotation for trading on a Trading Market and shall not be eligible
to resume listing or quotation for trading thereon within five Trading Days;

 

viii.                             the Company shall be a party to any Change of
Control Transaction or Fundamental Transaction or shall agree to sell or dispose
of all or in excess of 40% of its assets in one transaction or a series of
related transactions (whether or not such sale would constitute a Change of
Control Transaction);

 

ix.                                   the Company shall fail for any reason to
deliver certificates to the Holder prior to the fifth Trading Day after a
Conversion Date pursuant to Section

 

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4(c) or the Company shall provide at any time notice to the Holder, including by
way of public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof;

 

x.                                      any monetary judgment, writ or similar
final process shall be entered or filed against the Company, any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) or any of
their respective property or other assets for more than $100,000, and such
judgment, writ or similar final process shall remain unvacated, unbonded or
unstayed for a period of 45 calendar days; or

 

xi.                                   the Company does not meet the current
public information requirements under Rule 144 in respect of the Underlying
Shares.

 

Notwithstanding anything to the contrary in this Debenture, the Company entering
into an agreement for a Change of Control Transaction or Fundamental Transaction
shall not be deemed an Event of Default solely to the extent that the Company
has elected and complies with all of the terms and conditions of a Change of
Control Redemption pursuant to Section 6 herein.

 

b)                                     Remedies Upon Event of Default. If any
Event of Default occurs, the outstanding principal amount of this Debenture,
plus accrued but unpaid interest, liquidated damages and other amounts owing in
respect thereof through the date of acceleration, shall become, at the Holder’s
election, immediately due and payable in cash at the Mandatory Default Amount. 
Commencing 5 days after the occurrence of any Event of Default that results in
the eventual acceleration of this Debenture, the interest rate on this Debenture
shall accrue at an interest rate equal to the lesser of 16% per annum or the
maximum rate permitted under applicable law.  Upon the payment in full of the
Mandatory Default Amount, the Holder shall promptly surrender this Debenture to
or as directed by the Company.  In connection with such acceleration described
herein, the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law.  Such acceleration may be rescinded and annulled by Holder at
any time prior to payment hereunder and the Holder shall have all rights as a
holder of the Debenture until such time, if any, as the Holder receives full
payment pursuant to this Section 8(b).  No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent thereon.

 

Section 9.                                           Miscellaneous.

 

a)                                     Notices.  Any and all notices or other
communications or deliveries to be provided by the Holder hereunder, including,
without limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, provided

 

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confirmation of transmission is mechanically or electronically generated and
kept on file by the Holder, or email, or sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set forth in
the Purchase Agreement, or such other facsimile number, email address or address
as the Company may specify for such purposes by notice to the Holder delivered
in accordance with this Section 9(a).  Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
Company, or email, or sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile number, email address or address of
the Holder appearing on the books of the Company, or if no such facsimile
number, email address or address appears on the books of the Company, at the
principal place of business of such Holder, as set forth in the Purchase
Agreement.  Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile or email at the
facsimile number or email address set forth on the signature pages attached
hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile or email at the facsimile number or email address set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the
second Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (iv) upon actual receipt by the party to
whom such notice is required to be given.

 

b)                                     Absolute Obligation. Except as expressly
provided herein, no provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, liquidated damages, if any, and accrued interest, as applicable,
on this Debenture at the time, place, and rate, and in the coin or currency,
herein prescribed.  This Debenture is a direct debt obligation of the Company. 
This Debenture ranks pari passu with all other Debentures and the Other
Debentures now or hereafter issued under the terms set forth herein.

 

c)                                      Lost or Mutilated Debenture.  If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the outstanding principal amount of
this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and, in case of loss, theft or destruction, of indemnity or
security (which shall not include the posting of any bond), in each case
reasonably satisfactory to the Company.

 

d)                                     Governing Law.  All 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 New York, without regard to the principles of conflict of
laws thereof.  Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions contemplated

 

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by any of the Transaction Documents (whether brought against a party hereto or
its respective Affiliates, directors, officers, shareholders, employees or
agents) shall be commenced in the state and federal courts sitting in the City
of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such proceeding. 
None of the foregoing provisions of this Section 9(d) shall, however, apply with
respect to this Debenture and legal proceedings concerning this Debenture which
explicitly provide for the applicability of German law.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture
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 other manner permitted by
applicable law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If any party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its attorneys fees and other costs and expenses incurred in the investigation,
preparation and prosecution of such action or proceeding.

 

e)                                      Amendment; Waiver.  No provision of the
Debentures or the Other Debentures may be waived, modified, supplemented or
amended except in a written instrument signed by the Company and Required
Holders.  Any waiver by the Company or the Required Holders of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture.  The failure of the Company or the Required Holders to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this Debenture
on any other occasion.  Any waiver by the Company or the Required Holders must
be in writing

 

f)                                       Severability.  If any provision of this
Debenture is invalid, illegal or unenforceable, the balance of this Debenture
shall remain in effect, and if any provision is inapplicable to any Person or
circumstance, it shall nevertheless remain applicable to all other Persons and
circumstances.  If it shall be found that any interest or other amount deemed
interest due hereunder violates the applicable law governing usury, the
applicable rate of interest due hereunder shall automatically be lowered to
equal the maximum rate of interest permitted under applicable law. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner

 

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whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Debenture as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Debenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such as
though no such law has been enacted.

 

g)             Next Business Day.  Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.

 

h)            Headings.  The headings contained 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.

 

i)              Secured Obligation.  The obligations of the Company under this
Debenture are secured by all assets of the Company and each Subsidiary pursuant
to the Security Agreement, dated as of February 22, 2011, between the Company,
the Subsidiaries of the Company and the Secured Parties (as defined therein)
(the “Security Agreement”) and further agreements with respect to certain
foreign assets of the Company and its Subsidiaries.

 

*********************

 

(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.

 

 

 

PLC SYSTEMS INC.

 

 

 

 

 

By:

 

 

 

Name: Gregory W. Mann

 

 

Title: Chief Financial Officer

 

Facsimile No. for delivery of Notices:

 

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ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned registered holder hereby elects to convert principal under the
5% Senior Secured Convertible Debenture due January 16, 2016 of PLC Systems
Inc., a Yukon Territory corporation (the “Company”), No. R-     (the
“Debenture”) into shares of common stock (the “Common Stock”) of the Company in
accordance with the terms and conditions of the Debenture, as of the date
written below.  If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance therewith.  No fee
will be charged to the undersigned registered holder of the Debenture for any
conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Debenture, as determined in
accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable Securities Laws in connection with any transfer of the aforesaid
shares of Common Stock.

 

Conversion calculations:

 

Date to Effect Conversion:

 

Principal Amount of Debenture to be Converted:

 

Number of shares of Common Stock to be issued:

 

Signature:

 

Name:

 

Address for Delivery of Common Stock Certificates:

 

Or

 

DWAC Instructions:

 

Broker No:

Account No:

 

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Schedule 1

 

CONVERSION SCHEDULE

 

The 5% Senior Secured Convertible Debenture due on January 16, 2016 No. R-    
in the original principal amount of $250,000 is issued by PLC Systems Inc., a
Yukon Territory corporation.  This Conversion Schedule reflects conversions made
under Section 4 of the above referenced Debenture.

 

Dated:

 

Date of Conversion
(or for first entry,

Original Issue Date)

 

Amount of

Converted

Principal

 

Aggregate

Principal

Amount

Remaining

Subsequent to

Conversion
(or original

Principal

Amount)

 

Company Attest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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