EXHIBIT 10.8
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
$13,300,000.00
November 26, 2003
New York, New York
FOR VALUE
RECEIVED, Advanced Aesthetics, Inc., a Delaware corporation
(the
"Company"), hereby promises to pay to the
order of FCPR L Capital, a fonds
commun de placements a risque, represented
by L Capital Management SAS, a
societe par actions simplifiee (the
"Investor"), the principal sum of Thirteen
Million, Three Hundred Thousand and 00/100
Dollars ($13,300,000.00), together
with all accrued but unpaid interest, all
as provided in this Subordinated
Convertible Promissory Note (this
"Note").
1.
Definitions. Capitalized terms used but not defined herein shall
have
the meanings assigned to them in the
Glossary attached to the Securities
Purchase Agreement dated as of November 4,
2003 between the Company and the
Investor.
2.
Maturity. All outstanding principal and unpaid interest under this
Note
shall be due and payable by the Company on
the seventh anniversary of the date
hereof.
3.
Interest.
3.1
Payment of
Interest.
(a) The Investor
shall be entitled to receive interest on the unpaid
principal amount of this Note at the rate
of 10% per annum, $66,500 of such
interest, or $107,500 from and after such
time, if any, as the Investor shall
purchase the Investor Series D Shares from
the Company in accordance with the
Purchase Agreement (or a proportionate
amount of such US$66,500 or US$107,500,
as the case may be, if this Note is repaid
in part), shall be payable in cash on
the last Business Day of each December,
March, June and September to occur while
there is unpaid principal hereunder;
provided, however, that the first such
payment shall be an amount equal to
US$66,500 multiplied by a fraction, the
numerator of which is the number of days
this Note shall have been outstanding
at the time of such payment and the
denominator of which is the total number of
days in the quarter in which such payment
is made). The remaining interest shall
accrue and be cumulative and be compounded
annually at the rate of 8% per annum
(or 6.766% per annum from and after such
time, if any, as the Investor shall
purchase the Investor Series D Shares from
the Company in accordance with the
Purchase Agreement) and shall not be paid
until the principal is due and payable
hereunder (whether at maturity or by
acceleration or otherwise). Interest shall
accumulate hereunder during each year on
the basis of the actual number of days
in such year. Accumulated but unpaid
interest shall only be paid to the extent
necessary, upon the occurrence of an Exit
Event, to increase the IRR of the
Investor to a maximum of 25% with respect
to its investment in this Note (after
giving effect to a calculation for the
Value of this Note, including, without
limitation, interest paid in cash, but
before giving effect to the Value of any
Tranche I Escrow Shares) as of the
occurrence of such Exit Event.
(b) Upon
conversion of this Note pursuant to Section 4.1 or 4.2 or
prepayment pursuant to Section 6, all
accumulated but unpaid interest thereon
that is due pursuant to Section 3.1(a)
shall, at the option of the Company, be
paid: (i) in cash; or (ii) by issuance of
the Five-Year Note; provided, however,
in the event that this Note shall have been
converted pursuant to
<PAGE>
Section 4.1 or 4.2 or prepaid pursuant to
Section 6 prior to the occurrence of
an Exit Event and the Company shall have
issued the Five-Year Note to pay
accumulated but unpaid interest, then, upon
the occurrence of an Exit Event, the
Company's obligation under such Five-Year
Note shall be cancelled to the extent
that the Investor shall have received an
IRR of 25% or more with respect to its
investment in this Note (after giving
effect to a calculation of the Value of
this Note, including, without limitation,
interest paid in cash and any payment
due on the Five-Year Note that is necessary
to increase the IRR of the Investor
to 25% but before giving effect to the
value of any Tranche I Escrow Shares) as
of the occurrence of such Exit Event. The
Company shall exercise the foregoing
option to pay accumulated but unpaid
interest under this Note in cash or by
issuance of the Five-Year Note by
delivering to the Investor written notice of
its election, as well as the cash the
Five-Year Note that is due, in either case
within five Business Days following the
date of conversion or the date of
prepayment, as the case may be.
3.2
Maximum Rate. The Investor and the Company intend this Note to
comply
in all respects with all provisions of law
and not to violate, in any way, any
legal limitations on interest charges.
Accordingly, if, for any reason, the
Company is required to pay, or has paid,
interest at a rate in excess of the
Maximum Rate, then the interest rate shall
be deemed to be reduced,
automatically and immediately, to the
Maximum Rate, and interest payable
hereunder shall be computed and paid at the
Maximum Rate and the portion of all
prior payments of interest in excess of the
Maximum Rate shall be deemed to have
been payments in reduction of the
outstanding principal of this Note and applied
as partial prepayments.
4.
Conversion.
4.1
Right to
Convert.
(a) This
Note shall be convertible, in whole but not in part, at the
option of the Investor upon exercise in
accordance with Section 4.1(b), without
payment of additional consideration, into
5,966,444 (as such number may be
adjusted from time to time, the
"Convertible Note Conversion Number") fully paid
and nonassessable shares of Common
Stock.
(b) The
Investor may effect the optional conversion thereof in
accordance
with Section 4.1(a) by making written
demand for such conversion (a "Convertible
Note Conversion Demand") upon the Company
at its principal executive offices
that sets forth the proposed date of such
conversion, which shall be a Business
Day not less than 10 nor more than 20
Business Days after the date of such
Convertible Note Conversion Demand (the
"Convertible Note Conversion Date"). The
Convertible Note Conversion Demand shall be
accompanied by this Note or, if this
Note has been lost or stolen, an affidavit
and indemnification agreement in form
and substance satisfactory to the Company
and, if the Company shall so request,
evidence that the Investor shall have
posted a bond satisfactory to the Company.
As soon as practicable after the
Convertible Note Conversion Date, the Company
shall issue and deliver to the Investor a
certificate for the number of shares
of Common Stock issuable upon such
conversion in accordance with the provisions
hereof (rounded down to the nearest whole
share).
(c) This
Note shall, on the Convertible Note Conversion Date, be
converted
into Common Stock for all purposes. On and
after the Convertible Note Conversion
Date, (i) this Note shall not be deemed to
be outstanding or be transferable (to
the extent transferable
-2-
<PAGE>
in accordance with the terms hereof) on the
books of the Company, and (ii) the
Investor shall not be entitled to receive
any interest or to receive notices or
to exercise or to enjoy any other powers,
preferences or rights to which the
Investor is entitled in respect hereof,
other than the right, upon surrender of
this Note to receive a certificate for the
number of shares of Common Stock into
which such this Note shall have been
converted.
4.2
Mandatory
Conversion.
(a) The
Company may, at its option, give the Investor not less than 15
Business Days prior written notice of a
Threshold Transaction. Such notice shall
state that a Threshold Transaction is going
to occur and specify the expected
date thereof. Upon the consummation of such
Threshold Transaction, this Note
shall be automatically converted into a
number of shares of Common Stock equal
to the Convertible Note Conversion
Number.
(b)
Promptly following receipt of the notice referred to in Section
4.2(a), the Investor shall deliver this
Note to the Company or, if this Note has
been lost or stolen, the Investor shall
deliver to the Company an affidavit and
indemnification agreement in form and
substance satisfactory to the Company and,
if the Company shall so request, evidence
that the Investor shall have posted a
bond satisfactory to the Company. As soon
as practicable after the Company's
receipt of this Note (or such affidavit and
indemnification agreement and, if
requested, such bond), the Company shall
issue and deliver to the Investor a
certificate for the number of shares of
Common Stock issuable upon such
conversion in accordance with the
provisions hereof (rounded down to the nearest
whole share).
(c) This
Note shall, on the date of a Threshold Transaction with respect
to which the Company shall have given the
Investor a notice pursuant to Section
4.2(a), be converted into Common Stock for
all purposes. On and after such date,
(i) this Note shall not be deemed to be
outstanding or be transferable (to the
extent transferable in accordance with the
terms hereof) on the books of the
Company, and (ii) the Investor shall not be
entitled to receive any interest or
to receive notices or to exercise or to
enjoy any other powers, preferences or
rights to which the Investor is entitled in
respect hereof, other than the
right, upon surrender of this Note to
receive a certificate for the number of
shares of Common Stock into which such this
Note shall have been converted.
4.3
Issuances Below
the Conversion Price; Certain Dividends.
(a) If the
Company shall, while this Note is outstanding, issue shares of
its Common Stock (or securities exercisable
or exchangeable for, or convertible
into, Common Stock) without consideration
or at a price per share less than the
Convertible Note Conversion Price in effect
immediately prior to such issuance,
then in each such case the Convertible Note
Conversion Number, except as
hereinafter provided, shall be increased so
as to be equal to an amount
determined by multiplying the Convertible
Note Conversion Number in effect
immediately prior to such issuance by a
fraction:
(i) the numerator of which shall be the number of Common Share
Equivalents immediately prior to the issuance of such additional
shares of
Common
Stock plus the number of such additional shares of Common Stock
so
issued;
and
-3-
<PAGE>
(ii) the denominator of which shall be the sum of the number of
Common Share
Equivalents immediately prior to such issuance plus the
number of
shares of Common Stock that the aggregate gross proceeds
received
by the Company for the total number of such additional shares
of
Common
Stock so issued would purchase at a price per share equal to
the
Convertible Note Conversion Price in effect immediately prior to
such
issuance.
(b) If the
Company shall while this Note is outstanding declare a dividend
on the outstanding shares of Common Stock,
other than dividends pursuant to
Section 4.4, then the Convertible Note
Conversion Number shall be increased to
an amount determined by multiplying the
Convertible Note Conversion Number in
effect immediately prior to such
declaration by a fraction: (i) the numerator of
which shall be fair market value of a share
of Common Stock on the record date
referred to below, as Determined by the
Board; and (ii) the denominator of which
shall be such fair market value minus the
amount of such dividend. Such
adjustment shall be made whenever any such
dividend is paid and shall become
effective retroactively to a date
immediately following the close of business on
the record date for the determination of
stockholders entitled to receive such
dividend.
(c) If the
Company shall while this Note is outstanding declare a dividend
payable in shares of Common Stock on the
outstanding shares of any class of
capital stock of the Company (other than
the Common Stock or the Series D
Preferred Stock), then in each such case
the Convertible Note Conversion Number
shall be increased to an amount determined
by multiplying the Convertible Note
Conversion Number in effect immediately
prior to such declaration by a fraction:
(i) the numerator of which shall be the
number of Common Share Equivalents
immediately prior to such declaration plus
the total number of shares of Common
Stock to be issued to the holders of the
class of capital stock with respect to
which such dividend is declared; and (ii)
the denominator of which shall be the
number of Common Share Equivalents
immediately prior to such declaration. Such
adjustment shall be made whenever any such
dividend is paid and shall become
effective retroactively to a date
immediately following the close of business on
the record date for the determination of
stockholders entitled to receive such
dividend.
(d) The
issuance of any security exercisable or exchangeable for, or
convertible into, Common Stock shall be
deemed to be the issuance of the number
of shares of Common Stock initially
issuable upon the exercise, exchange or
conversion thereof (without regard to any
anti-dilution adjustments).
(e) The
price per share of any security exercisable or exchangeable
for,
or convertible into, Common Stock shall be
deemed equal to the quotient obtained
by dividing (i) the sum of the purchase
price for such security plus any
additional consideration payable upon the
exercise, exchange or conversion
thereof into Common Stock by (ii) the
number of shares of Common Stock initially
issuable upon exercise, exchange or
conversion thereof (without regard to any
anti-dilution adjustments).
(f) The
determination of whether any adjustment, if any, is required by
reason of the issuance of any shares of
Common Stock upon exercise, exchange or
conversion of securities shall be made only
at the time of the issuance of such
securities and not at the
-4-
<PAGE>
subsequent time of issuance of shares of
Common Stock upon exercise, exchange or
conversion thereof.
(g) If the
right to acquire shares of Common Stock upon exercise, exchange
or conversion of any security that shall
have given rise to an adjustment shall
expire or terminate prior to the exercise,
exchange or conversion thereof, then
the Convertible Note Conversion Number
shall be readjusted to eliminate any
shares of Common Stock issuable upon
exercise, exchange or conversion of the
security that shall have so expired or
terminated.
(h) If
there shall be an increase or decrease or increases or
decreases,
with the passage of time or otherwise, in
the price payable upon the exercise,
exchange or conversion of any security,
then the Convertible Note Conversion
Number shall be adjusted to give effect to
the additional or lesser
consideration received or receivable
therefor.
(i) The consideration per share for the issuance or sale of any
shares of
Common Stock (or any securities exercisable or exchangeable
for,
or
convertible into, Common Stock) shall, irrespective of the
accounting
treatment
of such consideration:
(i) insofar as such consideration consists of cash, equal the
amount
of cash
received by the Company;
(ii) insofar as such consideration consists of property
(including
securities) other than cash, equal the fair market value thereof at
the
time of
such issuance or sale; and
(iii) in case shares of Common Stock (or any securities exe
