7% CONVERTIBLE DEBENTURE DUE MARCH 10, 2008
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, 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. 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: March 10, 2006
$25,000.00
7%
CONVERTIBLE DEBENTURE
DUE
MARCH 10, 2008
THIS
7%
CONVERTIBLE DEBENTURE is one of a series of duly authorized and issued 7%
Convertible Debentures of Aprecia Inc., a Delaware corporation, having a
principal place of business at c/o 0000
Xxxxxx xx Xxxxxxxx, Xxx Xxxx, XX 00000, Fax:
(000) 000-0000 (the “Company”),
designated as its 7% Convertible Debenture, due March 10, 2008 (the
“Debenture(s)”).
FOR
VALUE
RECEIVED, the Company promises to pay to CMS
CAPITAL,
or its
registered assigns (the “Holder”),
or
shall have paid pursuant to the terms hereunder, the principal sum of $25,000.00
by March 10, 2008, or such earlier date as the Debentures are required or
permitted to be repaid as provided hereunder (the “Maturity
Date”),
and
to pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture in accordance with the provisions hereof.
All
payments shall be made by certified check to the address of the Holder as
provided in Section 9(a) or by wire transfer of immediately available funds
pursuant to instructions as may be provided from time to time by Xxxxxx. 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 have the meanings given
to
such terms in the Purchase Agreement, and (b) the following terms shall have
the
following meanings:
“Alternate
Consideration”
shall
have the meaning set forth in Section 5(d).
“Base
Conversion Price”
shall
have the meaning set forth in Section 5(b).
“Buy-In”
shall
have the meaning set forth in Section 4(d)(v).
“Change
of Control Transaction”
means
the occurrence after the date hereof of any of (i) 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, or (ii) 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 40% of the aggregate voting power of the Company
or the successor entity of such transaction, or (iii) the Company sells or
transfers its assets, as an entirety or substantially as an entirety, to another
Person and the stockholders of the Company immediately prior to such transaction
own less than 40% of the aggregate voting power of the acquiring entity
immediately after the transaction, (iv) a replacement at one time or within
a
three year period of more than one-half of the members of the Company’s board of
directors which is not approved by a majority of those individuals who are
members of the board of directors on the date hereof (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 (v) the
execution by the Company of an agreement to which the Company is a party or
by
which it is bound, providing for any of the events set forth above in (i) or
(iv).
“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
Shares”
means
the shares of Common Stock issuable upon conversion of Debentures, sometimes
referred to as the Underlying Shares, as defined in the Purchase
Agreement.
“Debenture
Register”
shall
have the meaning set forth in Section 2(c).
“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”
shall
mean, during the period in question, (i)
the
Company shall have duly honored all conversions and redemptions scheduled to
occur or occurring by virtue of one or more Notice of Conversions of the Holder,
if any, (ii) all liquidated damages and other amounts owing to the Holder in
respect of the Debentures shall have been paid; (iii)
there is a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable pursuant
to the Transaction Documents, (iv) there is then existing no Event of Default
or
event which, with the passage of time or the giving of notice, would constitute
an Event of Default, (v) if after the date hereof the Company becomes subject
to
the reporting requirements of the Exchange Act, the issuance of the shares
in
question (or, in the case of a redemption, the shares issuable upon conversion
in full of the redemption amount) to the Holder would not violate the
limitations set forth in Section 4(c) and (vi) no public announcement of a
pending or proposed Fundamental Transaction, Change of Control Transaction
or
acquisition transaction has occurred, which transaction has not been
consummated, excluding transaction which have been publicly announced and
subsequently abandoned.
2
“Event
of Default”
shall
have the meaning set forth in Section 8.
“Fundamental
Transaction”
shall
have the meaning set forth in Section 5(d).
“Interest
Payment Date”
shall
have the meaning set forth in Section 2(a).
“Late
Fees”
shall
have the meaning set forth in Section 2(d).
“Mandatory
Prepayment Amount”
for
any
Debentures shall equal the sum of (i) the greater of: (A) 120% of the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, or (B) the principal amount of Debentures to be prepaid, plus all
other
accrued and unpaid interest hereon, divided by the Conversion Price on (x)
the
date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is less,
multiplied by the VWAP on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is greater, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such Debentures.
“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).
“Optional
Redemption Amount”
shall
mean the sum of (i) 100% of the principal amount of the Debenture then
outstanding, (ii) accrued but unpaid interest and (iii) all liquidated damages
and other amounts due in respect of the Debenture.
“Original
Issue Date”
shall
mean the date of the first issuance of the Debentures regardless of the number
of transfers of any Debenture and regardless of the number of instruments which
may be issued to evidence such Debenture.
“Permitted
Debt”
means
trade payables and indebtedness consisting of capitalized lease obligations
and
purchase money indebtedness incurred in connection with acquisition of capital
assets and obligations under sale-leaseback arrangements with respect to newly
acquired or leased assets.
3
“Permitted
Lien”
mean
(a) Liens with respect to the payment of taxes or governmental charges in all
cases which are not yet due or which are subject to a good faith contest; (b)
any Liens incurred in connection with Permitted Debt provided that such liens
are not secured by assets of the Company or its Subsidiaries other than the
assets so acquired or leased; and (c) statutory Liens of landlords or equipment
lessors against any property of the Company or its Subsidiaries existing as
of
the date of the Purchase Agreement in favor of suppliers, mechanics, carriers,
materialmen, warehousemen or workmen.
“Purchase
Agreement”
means
the Securities Purchase Agreement, dated at or about March ___, 2006, to which
the Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
“Trading
Market”
means,
as applicable, the following markets or exchanges on which the Common Stock
is
listed or quoted for trading on the date in question: the American Stock
Exchange, the New York Stock Exchange, the Nasdaq National Market, the Nasdaq
SmallCap Market or the OTC Bulletin Board.
Section
2. Interest.
a) Payment
of Interest.
The
Company shall pay interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 7% per annum,
payable semi-annually on June 30, and December 31, 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 being redeemed) and on the Maturity Date (except that,
if
any such date is not a Business Day, then such payment shall be due on the
next
succeeding Business Day) (each such date, an “Interest
Payment Date”),
in
cash.
b) Interest
Calculations.
Interest shall be calculated on the basis of a 360-day year and shall accrue
daily commencing on the Original Issue Date until payment in full of the
principal sum, together with all accrued and unpaid interest 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 in
fact delivers the Conversion Shares within the time period required by Section
4(d)(ii). 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 Debentures (the “Debenture
Register”).
c) Late
Fee.
All
overdue accrued and unpaid principal and interest to be paid hereunder shall
entail a late fee at the rate of 18% per annum (or such lower maximum amount
of
interest permitted to be charged under applicable law) (“Late
Fees”)
which
will accrue daily, from the date such principal and interest are due hereunder
through and including the date of payment.
4
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 made for such registration of transfer
or
exchange.
b) Investment
Representations.
This
Debenture has been issued subject to certain investment representations of
the
original Holder set forth in the Purchase Agreement and may be transferred
or
exchanged only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
c) Reliance
on Debenture Register.
Prior
to due presentment to the Company for transfer of this Debenture, the Company
and any agent of the Company may treat the Person in whose name this Debenture
is duly registered on the Debenture Register as the owner hereof for the purpose
of receiving payment as herein provided and for all other purposes, whether
or
not this Debenture is overdue, and neither the Company nor any such agent shall
be affected by notice to the contrary.
Section
4. Conversion.
a) Voluntary
Conversion.
At any
time after the Original Issue Date until this Debenture is no longer
outstanding, this Debenture shall be convertible into shares of Common Stock
at
the option of the Holder, in whole or in part at any time and from time to
time
(subject to the limitations on conversion set forth in Section 4(c)
hereof). The Holder shall effect conversions by delivering to the Company the
form of Notice of Conversion attached hereto as Annex
A
(a
“Notice
of Conversion”),
specifying therein the principal amount of Debentures to be converted and the
date on which such conversion is to be effected (a “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 provided hereunder. To
effect conversions hereunder, the Holder shall not be required to physically
surrender Debentures to the Company unless the entire principal amount of this
Debenture plus all accrued and unpaid interest thereon 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 applicable
conversion. The Holder and the Company shall maintain records showing the
principal amount converted and the date of such conversions. The Company shall
deliver any objection to any Notice of Conversion within 2 Business Days of
receipt of such notice. In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest
error. 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 and unconverted principal
amount of this Debenture may be less than the amount stated on the face
hereof.
5
b) Conversion
Price.
The
conversion price (the “Conversion
Price”)
in
effect on any Conversion Date shall be equal to $0.12, as same may be adjusted
as described in the Transaction Documents.
c) Conversion
Limitations;
Xxxxxx’s
Restriction on Conversion.
At any
time after the Common Stock is registered under Section 12 of the Exchange
Act,
the Company shall not effect any conversion of this Debenture, and the Holder
shall not have the right to convert any portion of this Debenture, pursuant
to
Section 4(a) or otherwise, to the extent that after giving effect to such
conversion, the Holder (together with the Holder’s affiliates), as set forth on
the applicable Notice of Conversion, would beneficially own in excess of 4.99%
of the number of shares of the Common Stock outstanding immediately after giving
effect to such conversion. 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 the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) conversion of the remaining, nonconverted
portion of this Debenture beneficially owned by the Holder or any of its
affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation,
any other Debentures or the Warrants) subject to a limitation on conversion
or
exercise analogous to the limitation contained herein beneficially owned by
the
Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 4(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act. To the extent
that the limitation contained in this section applies, the determination of
whether this Debenture is convertible (in relation to other securities owned
by
the Holder) and of which a portion of this Debenture is convertible shall be
in
the sole discretion of such Holder. 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 determination. For purposes
of this Section 4(c), in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as reflected in (x) Schedule
3.1(g)
to the
Purchase Agreement, (y) a more recent public announcement by the Company or
(z)
any other 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 the Holder, the Company shall within two Business 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 provisions of this Section 4(c) may be waived
by
the Holder, at the election of the Holder, upon not less than 61 days’ prior
notice to the Company, and the provisions of this Section 4(c) shall continue
to
apply until such 61st day (or such later date, as determined by the Holder,
as
may be specified in such notice of waiver).
6
d)
Mechanics of Conversion
i. Conversion
Shares Issuable Upon Conversion of Principal Amount.
The
number of shares of Common Stock 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 Business Days after any Conversion Date, the Company will
deliver or cause to be delivered to the Holder (A) a certificate or certificates
representing the Conversion Shares which shall be free of restrictive legends
and trading restrictions (other than those required by the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of Debentures and (B) a bank check in the amount of accrued and
unpaid interest. The Company shall, if available and if allowed under applicable
securities laws, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions.
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 third Business
Day
after a Conversion Date, the Holder shall be entitled by written notice to
the
Company at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the principal amount of
Debentures tendered for conversion.
iv. Obligation
Absolute; Partial Liquidated Damages.
If the
Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the third Business Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, for each $1000 of principal amount being
converted, $10 per Business Day (increasing to $20 per Business Day after 10
Business Days after such damages begin to accrue) for each Business Day after
such fifth Business Day until such certificates are delivered. 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
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or
any
violation or alleged violation of law by the Holder or any other person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
such
Conversion Shares; provided,
however,
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 a 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
any
one 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, 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 principal amount
of this Debenture outstanding, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Holder to the extent
it obtains judgment. In the absence of an injunction precluding the same, the
Company shall issue Conversion Shares or, if applicable, cash, upon a properly
noticed conversion. Nothing herein shall limit a Holder’s right to pursue actual
damages or declare an Event of Default pursuant to Section 8 herein for the
Company’s failure to deliver Conversion Shares within the period specified
herein and such Holder shall have the right to pursue all remedies available
to
it 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.
7
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion.
In
addition to any other rights available to the Holder and only if after the
Original Issue Date the Company becomes subject to the reporting requirements
of
the Exchange Act, if the Company fails for any reason to deliver to the Holder
such certificate or certificates pursuant to Section 4(d)(ii) by the third
Business Day after the Conversion Date, and if after such third Business Day
the
Holder is required by its brokerage firm to purchase (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale
by
such Holder of the Conversion Shares which the Holder anticipated receiving
upon
such conversion (a “Buy-In”),
then
the Company shall (A) pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder anticipated receiving from the conversion
at
issue multiplied by (2) the actual sale price of the Common Stock at the time
of
the sale (including brokerage commissions, if any) giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue Debentures in
principal amount equal to the principal amount of the attempted conversion
or
deliver to the Holder the number of shares of Common Stock that would have
been
issued had the Company timely complied with its delivery requirements under
Section 4(d)(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 Debentures with respect to which the actual sale price of the
Conversion Shares at the time of the sale (including brokerage commissions,
if
any) 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.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 4(d)(iv) in respect of the certificates resulting in such
Buy-In.
8
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 solely for the purpose of
issuance upon conversion of the Debentures, as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holder (and the other Holders of the Debentures), not less than
such number of shares of the Common Stock as shall (subject to any additional
requirements of the Company as to reservation of such shares set forth in the
Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding principal
amount of the Debentures. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and, if the Registration Statement is
then
effective under the Securities Act, registered for public sale in accordance
with such Registration Statement.
vii. Fractional
Shares.
Upon a
conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock, but may
if
otherwise permitted, make a cash payment in respect of any final fraction of
a
share based on the VWAP at such time. If the Company elects not, or is unable,
to make such a cash payment, the Holder shall be entitled to receive, in lieu
of
the final fraction of a share, one whole share of Common Stock.
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 certificate, provided that the Company shall not be required to pay
any
tax that may be payable in respect of any transfer involved in the issuance
and
delivery of any such certificate upon conversion in a name other than that
of
the Holder of such Debentures so converted and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such
tax has been paid.
9
Section
5. Certain
Adjustments.
a) Stock
Dividends And Stock Splits.
If the
Company, at any time while this Debenture is outstanding: (A) pays a stock
dividend or otherwise makes a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company pursuant to this Debenture,
including as interest thereon), (B) subdivides outstanding shares of Common
Stock into a larger number of shares, (C) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares,
or (D) issues by reclassification of shares of the Common Stock any shares
of
capital stock of the Company, then the Conversion Price shall be multiplied
by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding 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
and shall become effective immediately after the effective date in the case
of a
subdivision, combination or re-classification.
b) Subsequent
Equity Sales.
If the
Company or any Subsidiary thereof, as applicable, at any time while this
Debenture is outstanding, shall sell, grant any option to purchase or offer,
sell or grant any right to reprice its securities, or otherwise dispose of
or
issue any Common Stock or Common Stock Equivalents entitling any Person to
acquire shares of Common Stock, at an effective price per share less than the
then Conversion Price (such lower price, the "BASE CONVERSION PRICE" and such
issuances collectively, a "DILUTIVE ISSUANCE"), as adjusted hereunder (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 is issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share which is less 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. The Company shall notify the Holder in writing, no later than the
Business Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this section, indicating therein the applicable issuance
price, or of 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,
after the date of such Dilutive Issuance the Holder is entitled to receive
a
number of Conversion Shares based upon the Base Conversion Price regardless
of
whether the Holder accurately refers to the Base Conversion Price in the Notice
of Conversion.
10
c) Pro
Rata Distributions.
If the
Company, at any time while this Debenture is outstanding, shall distribute
to
all holders of Common Stock (and not to the holders of the Debenture) evidences
of its indebtedness or assets (including cash and cash dividends) or rights
or
warrants to subscribe for or purchase any security, 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 so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case
the
adjustments shall be described in a statement provided to the Holder of 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.
d) Fundamental
Transaction.
If, at
any time while this Debenture is outstanding, (A) the Company effects any merger
or consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one or a series
of
related transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (D) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a "FUNDAMENTAL TRANSACTION"), then upon any subsequent
conversion of this Debenture, the Holder shall have the right to receive, for
each Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction, the same
kind and amount of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one share
of
Common Stock (the "ALTERNATE CONSIDERATION"). For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in
such
Fundamental Transaction, and the Company shall apportion the Conversion Price
among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders
of
Common Stock are given any choice as to the securities, cash or property to
be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of
this
Debenture following such Fundamental Transaction. To the extent necessary to
effectuate he foregoing provisions, any successor to the Company or surviving
entity in such Fundamental Transaction shall (i) assume in writing all of the
obligations of the Company under thisDebenture and the other Transaction
Documents pursuant to written agreements in form and substance satisfactory
to
the Holder (such approval not to be unreasonably withheld or delayed) prior
to
such Fundamental Transaction and (ii) to issue to the Holder a new debenture
of
such successor entity evidenced by a written instrument substantially similar
in
form and substance to this Debenture, including, without limitation, having
a
principal amount and interest rate equal to the principal amounts and the
interest rates of the Debentures held by the Holder and having similar ranking
to the Debenture, and satisfactory to the Holder (any such approval not to
be
unreasonably withheld or delayed). The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Debenture.
11
e) 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
treasury shares, if any) issued and outstanding.
Section
6. Notice
To The Holder.
i.
Adjustment
To Conversion Price.
Whenever the Conversion Price is adjusted pursuant to Section 5, the Company
shall promptly mail to each Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment. If the Company issues a variable rate security, despite the
prohibition thereon in the Purchase Agreement, the Company shall be deemed
to
have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted or
exercised in the case of a Variable Rate Transaction (as defined in the Purchase
Agreement).
12
ii. Notice
To Allow Conversion By Holder.
If (A)
the Company shall declare a dividend (or any other distribution) 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 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, of any compulsory share exchange whereby the Common
Stock
is converted into other securities, cash or property; (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 mailed to the Holder at its last addresses
as
it shall appear upon the stock books of the Company, at least 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 mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
10-day period commencing the date of such notice to the effective date of the
event triggering such notice.
Section
7. Negative
Covenants.
So long
as any portion of this Debenture is outstanding, the Company will not and will
not permit any of its Subsidiaries to directly or indirectly:
13
a) except
with the prior written consent of the Holder, 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, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or
any income or profits therefrom that is senior to, or pari passu
with, in
any respect, the Company’s obligations hereunder;
b) 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, other than Permitted
Liens;
c) amend
its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder;
d) 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 to the extent permitted or required under the Transaction
Documents or as otherwise permitted by the Transaction Documents;
e) enter
into any agreement with respect to any of the foregoing;
or
f) pay
cash
dividends on any equity securities of the Company.
Section
8. Events
of Default.
a) “Event
of Default”,
wherever used herein, means any one of the following events (whatever the reason
and whether it shall be voluntary or involuntary or effected by operation of
law
or pursuant to any judgment, decree or order of any court, or any order, rule
or
regulation of any administrative or governmental body):
i. any
default in the payment of (A) the principal amount of any Debenture, or (B)
interest (including Late Fees) on, or liquidated damages in respect of, 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 Business Days;
ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in this Debenture (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion
which breach is addressed in clause (viii) below) which failure is not cured,
if
possible to cure, within the earlier to occur of (A) 10 Business Days after
notice of such default sent by the Holder or by any other Holder and (B)15
Business Days after the Company shall become or should have become aware of
such
failure;
14
iii. a
default
or event of default (subject to any grace or cure period provided for in the
applicable agreement, document or instrument) shall occur under (A) any of
the
Transaction Documents other than the Debentures, or (B) any other material
agreement, lease, document or instrument to which the Company or any Subsidiary
is bound;
iv. any
representation or warranty made herein,
in any
other Transaction Documents, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate made or
delivered to the Holder or any other holder of Debentures shall
be
untrue or incorrect in any material respect as of the date when made or deemed
made;
v. (i)
the
Company or any of its Subsidiaries shall commence, or there shall be commenced
against the Company or any such Subsidiary, a case under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or any successor
thereto, or the Company or any Subsidiary commences any other proceeding under
any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Company or any Subsidiary
thereof or (ii) there is commenced against the Company or any Subsidiary thereof
any such bankruptcy, insolvency or other proceeding which remains undismissed
for a period of 45 days; or (iii) the Company or any Subsidiary thereof is
adjudicated by a court of competent jurisdiction insolvent or bankrupt; or
any
order of relief or other order approving any such case or proceeding is entered;
or (iv) the Company or any Subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 45 days; or (v) the Company
or any Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally as they become
due; or (vii) the Company or any Subsidiary thereof shall call a meeting of
its
creditors with a view to arranging a composition, adjustment or restructuring
of
its debts; or (viii) the Company or any Subsidiary thereof shall by any act
or
failure to act expressly indicate its consent to, approval of or acquiescence
in
any of the foregoing; or (ix) any corporate or other action is taken by the
Company or any Subsidiary thereof for the purpose of effecting any of the
foregoing;
vi. the
Company or any Subsidiary shall default in 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 of the Company in an amount
exceeding $50,000, whether such indebtedness now exists or shall hereafter
be
created and such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;
15
vii. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction, shall agree to sell or dispose of all or in excess of 45% of its
assets in one or more transactions (whether or not such sale would constitute
a
Change of Control Transaction) or shall redeem or repurchase more than a de
minimis number of its outstanding shares of Common Stock or other equity
securities of the Company (other than redemptions of Conversion Shares and
repurchases of shares of Common Stock or other equity securities of departing
officers and directors of the Company; provided such repurchases shall not
exceed $50,000, in the aggregate, for all officers and directors during the
term
of this Debenture); or
viii. the
Company shall fail for any reason to deliver certificates to a Holder prior
to
the 7th
Business
Day after a Conversion Date pursuant to and in accordance with Section 4(d)
or
the Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests for
conversions of any Debentures in accordance with the terms hereof.
b) Remedies
Upon Event of Default.
If any
Event of Default occurs, the full principal amount of this Debenture, together
with interest and other amounts owing in respect thereof, to the date of
acceleration shall become, at the Holder’s election, immediately due and payable
in cash. The aggregate amount payable upon an Event of Default shall be equal
to
the Mandatory Prepayment Amount. Commencing 15 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 the rate of 18% per annum,
or such lower maximum amount of interest permitted to be charged under
applicable law. All Debentures for which the full Mandatory Prepayment Amount
hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. 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 declaration may be rescinded
and annulled by Xxxxxx at any time prior to payment hereunder and the Holder
shall have all rights as a Debenture holder until such time, if any, as the
full
payment under this Section shall have been received by it. No such rescission
or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.
16
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, sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set forth
above, facsimile number: (000) 000-0000,
Attn:
Xxxx Xxxx, Esq., or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holders delivered in accordance
with
this Section. Any and all notices or other communications or deliveries to
be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile telephone number or address of such
Xxxxxx appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder.
Any
notice or other communication or deliveries hereunder shall be deemed given
and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:30 p.m. (New York City time), (ii) the
date
after the date of transmission, if such notice or communication is delivered
via
facsimile at the facsimile telephone number specified in this Section later
than
5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New
York
City time) on such date, (iii) the second Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be
given.
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, interest and liquidated damages (if any) 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 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 principal amount of this Debenture
so mutilated, lost, stolen or destroyed but only upon receipt of evidence of
such loss, theft or destruction of such Debenture, and of the ownership hereof,
and indemnity, if requested, all reasonably satisfactory to the
Company.
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 conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated 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
any such court, or such New York Courts are improper or inconvenient venue
for
such proceeding. 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 manner permitted by 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 either 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 with the investigation,
preparation and prosecution of such action or proceeding.
17
e) Waiver.
Any
waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not
be
considered a waiver or deprive that party of the right thereafter to insist
upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
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 applicable laws governing usury,
the applicable rate of interest due hereunder shall automatically be lowered
to
equal the maximum permitted rate of interest. 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 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
indenture, 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 impeded 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.
18
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.
*********************
19
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.
|
|
|
|
| By: | /s/Xxxxxxx
Xxxxxxxxx
Name:
Xxxxxxx Xxxxxxxxx
Title:
Pres and CEO
|
|
20
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the 7% Convertible
Debenture of Aprecia Inc., a Delaware corporation (the “Company”),
due
on March ___, 2008, into shares of common stock, par value $0.0001 per share
(the “Common
Stock”),
of
the Company according to the conditions hereof, as of the date written below.
If
shares are to be issued in the name of a person other than 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 holder 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
determined in accordance with Section 13(d) of the Exchange Act, specified
under
Section 4 of this Debenture.
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 Debentures to be Converted:
Payment
of Interest in Common Stock __ yes __ no
If
yes,
$_____ of Interest Accrued on Account of Conversion at Issue.
Number
of
shares of Common Stock to be issued:
Signature:
Name:
Address:
21
Schedule
1
CONVERSION
SCHEDULE
The
7%
Convertible Debentures due on March ___, 2008, in the aggregate principal amount
of $____________ issued by Aprecia Inc., a __________ 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
Conversion
|
Aggregate
Principal
Amount
Remaining
Subsequent
to Conversion
(or
original Principal Amount)
|
Company
Attest
|
|
|
|||
22
