Exhibit 4.1
DATED: DECEMBER 28, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE 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.
No. CCP-2 $1,000,000
CEPTOR CORPORATION
SECURED CONVERTIBLE DEBENTURE
DUE DECEMBER 28, 2008
This Secured Convertible Debenture (the "DEBENTURE") is issued by CEPTOR
CORPORATION, a Delaware corporation (the "Obligor"), to CORNELL CAPITAL
PARTNERS, LP (the "HOLDER"), pursuant to that certain Securities Purchase
Agreement (the "SECURITIES PURCHASE AGREEMENT") of even date herewith.
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or its
successors and assigns the principal sum of One Million Dollars ($1,000,000)
together with accrued but unpaid interest on or before December 28, 2008 (the
"MATURITY DATE") in accordance with the following terms:
INTEREST. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to eight percent (8%). Interest shall be calculated on
the basis of a 360-day year and the actual number of days elapsed, to the extent
permitted by applicable law. Interest hereunder will be paid to the Holder or
its assignee (as defined in Section 5) in whose name this Debenture is
registered on the records of the Obligor regarding registration and transfers of
Debentures (the "DEBENTURE REGISTER").
RIGHT OF REDEMPTION. The Obligor at its option shall have the right, with
three (3) business days advance written notice (the "REDEMPTION NOTICE"), to
redeem a portion or all amounts outstanding under this Debenture prior to the
Maturity Date. If the Closing Bid Price of the Obligor's Common Stock, as
reported by Bloomberg, LP, is less than the Fixed Price at the time of the
Redemption Notice, the Obligor shall pay an amount equal to the principal amount
being redeemed plus a redemption premium equal to eight percent (8%) of the
principal amount being redeemed ("REDEMPTION PREMIUM"), and accrued interest,
(collectively referred to as the "REDEMPTION AMOUNT").
1
In the event the Closing Bid Price of the Obligor's Common Stock is above
the Fixed Price at the time of a Redemption Notice the Obligor can redeem fifty
percent (50%) of the principal amounts outstanding under this Debenture at the
Redemption Amount and the remaining fifty percent (50%) at the greater of (i)
the Redemption Amount and (ii) the market value of this Debenture's underlying
common stock on an as converted basis utilizing the Closing Bid Price of the
Company's Common Stock on the day of the Redemption Notice.
The Obligor shall deliver to the Holder the Redemption Amount on the third
(3rd) business day after the Redemption Notice.
Notwithstanding the foregoing, in the event that the Obligor has elected to
redeem a portion of the outstanding principal amount and accrued interest under
this Debenture the Holder shall be permitted to convert all or any portion of
this Debenture during such three (3) business day period.
In the event the Obligor exercises a redemption of either all or a portion
of the outstanding principal amounts plus accrued interest due and outstanding
under this debenture as outlined herein, the Holder shall receive a warrant to
purchase twenty five thousand (25,000) shares of the Company's Common Stock for
every One Hundred Thousand Dollars ($100,000) redeemed, pro rata. (the
"WARRANT") The Warrant shall be exercisable on a "cash basis" and have an
exercise price of one hundred five percent (105%) of the Closing Bid Price of
the Obligor's Common Stock on the Closing Date, as quoted by Bloomberg, LP, per
share. The Warrant shall have "piggy-back" registration rights and shall survive
for three (3) years from the Closing Date.
SECURITY AGREEMENTS. This Debenture is secured by a Security Agreement (the
"SECURITY AGREEMENT") of even date herewith between the Obligor and the Holder.
CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT SECURITY INTERESTS. So long as
any principal or interest on this Debenture remains unpaid and unconverted, the
Obligor shall not, without the prior written consent of the Holder, (i) issue or
sell shares of Common Stock or Preferred Stock at a discount equal to or greater
than twenty-five percent (25%) of the Closing Bid Price of the Common Stock
determined immediately prior to such issuance or sale, (ii) issue any warrant,
option, right, contract, call, or other security or instrument granting the
holder thereof the right to acquire Common Stock at a discount equal to or
greater than twenty-five percent (25%) of the Closing Bid Price of the Common
Stock determined immediately prior to such issuance , (iii) enter into any
security instrument granting the holder a security interest in any and all
assets of the Obligor, or (iv) file any registration statement on Form S-8
registering more than one million (1,000,000) shares of the Company's Common
Stock to be issued pursuant to the Company's bonafide employee stock option
plan.
So long as any principal or interest on this Debenture remains unpaid and
unconverted, the Obligor shall not, without five (5) business days prior written
notice to the Holder, (i) issue or sell shares of Common Stock or preferred
stock at any discount less than twenty-five percent (25%) of the Closing Bid
Price of the Common Stock determined immediately prior to such issuance or sale,
or (ii) issue any warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock at any
2
discount less than twenty-five percent (25%) of the Closing Bid Price of the
Common Stock determined immediately prior to such issuance.
Notwithstanding the above, the Obligor shall not be required to obtain the
consent of the Holder with respect to the Obligor's proposed stockholder rights
plan (the "RIGHTS PLAN") but shall be required to provide the Holder written
notice ten (10) days prior to such issuance.
RIGHTS OF FIRST REFUSAL. So long as any portion of this Debenture is
outstanding (including principal or accrued interest), if the Obligor intends to
raise additional capital by the issuance or sale of capital stock of the
Obligor, including without limitation shares of any class of Common Stock, any
class of preferred stock, options, warrants or any other securities convertible
or exercisable into shares of Common Stock (whether the offering is conducted by
the Obligor, underwriter, placement agent or any third party) the Obligor shall
be obligated to offer to the Holder ten percent (10%) of such total issuance or
sale of capital stock, by providing in writing the principal amount of capital
it intends to raise and outline of the material terms of such capital raise,
prior to the offering such issuance or sale of capital stock to any third
parties including, but not limited to, current or former officers or directors,
current or former shareholders and/or investors of the obligor, underwriters,
brokers, agents or other third parties, provided however the right of first
refusal shall not apply to the Obligor's current equity financing with Fusion
Capital Fund II, LLC ("FUSION CAPITAL") and the Obligor's bonafide 2004 Stock
Incentive Plan. The Holder shall have five (5) business days from receipt of
such notice of the sale or issuance of capital stock to accept or reject all or
a portion of such capital raising offer.
This Debenture is subject to the following additional provisions:
SECTION 1. 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.
SECTION 2. EVENTS OF DEFAULT.
(a) An "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 the principal of, interest on or
other charges in respect of this Debenture, free of any claim of subordination,
which remains uncured for ten (10) consecutive Business Days after the same
shall have become due and payable (whether on a Conversion Date or the Maturity
Date or by acceleration or otherwise);
(ii) The Obligor shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach or default of
any provision of this Debenture (except as may be covered by Section 2(A)(I)
3
hereof) or any Transaction Document (as defined in Section 5) in any material
respect which is not cured within the time prescribed;
(iii) The Obligor shall commence, or there shall be commenced against
the Obligor under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Obligor 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 Obligor or there
is commenced against the Obligor any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 61 days; or the Obligor is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Obligor suffers any
appointment of any custodian, private or court appointed receiver or the like
for it or any substantial part of its property which continues undischarged or
unstayed for a period of sixty one (61) days; or the Obligor makes a general
assignment for the benefit of creditors; or the Obligor 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 the Obligor shall call a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring of
its debts; or the Obligor shall by any act or failure to act expressly indicate
its consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Obligor for the purpose of effecting
any of the foregoing;
(iv) The Obligor shall default in any of its obligations under any
other debenture or any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness for
borrowed money or money due under any long term leasing or factoring arrangement
of the Obligor in an amount exceeding $100,000, 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;
(v) The Common Stock shall cease to be quoted for trading or listed
for trading on either the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq SmallCap
Market, New York Stock Exchange, American Stock Exchange or the Nasdaq National
Market (each, a "SUBSEQUENT MARKET") and shall not again be quoted or listed for
trading thereon within five (5) Trading Days of such delisting;
(vi) The Obligor shall be a party to any Change of Control Transaction
(as defined in Section 5);
(vii) The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in Section 5) with the Commission (as defined
in Section 5), or the Underlying Shares Registration Statement shall not have
been declared effective by the Commission, in accordance with the provisions of
Sections 2(b) and 2(c) of the Investor Registration Rights Agreement
("REGISTRATION RIGHTS AGREEMENT") of even date herewith between the Obligor and
the Holder;
4
(viii) If the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be permitted to resell
the shares of Common Stock underlying this Debenture under the Underlying Shares
Registration Statement, in either case, for more than five (5) consecutive
Trading Days or an aggregate of eight Trading Days (which need not be
consecutive Trading Days);
(ix) The Obligor shall fail, due to actions of the Obligor, to deliver
Common Stock certificates to a Holder prior to the fifth (5th) Trading Day after
a Conversion Date or the Obligor 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 this Debenture in accordance with the terms hereof;
(x) The Obligor shall fail for any reason to deliver the payment in
cash pursuant to a Buy-In (as defined herein) within three (3) Business Days
after notice is claimed delivered hereunder;
(b) During the time that any portion of this Debenture is outstanding, if
any Event of Default has occurred, 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, PROVIDED HOWEVER, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Obligor.
In addition to any other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide and the Obligor 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. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. Upon an Event of Default, notwithstanding any
other provision of this Debenture or any Transaction Document, the Holder shall
have no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.
SECTION 3. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER.
(i) 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,
after the Original Issue Date (as defined in Section 5) (subject to the
limitations on conversion set forth in SECTION 3(B) hereof). The number of
shares of Common Stock issuable upon a conversion hereunder equals the quotient
obtained by dividing (x) the outstanding amount of this Debenture to be
converted by (y) the Conversion Price (as defined in Section 3(C)(I)). The
Obligor shall use its best efforts to deliver Common Stock certificates to the
Holder prior to the Fifth (5th) Trading Day after a Conversion Date.
5
(ii) Notwithstanding anything to the contrary contained herein, if on any
Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay principal and interest hereunder in shares of Common
Stock; (2) the Common Stock is not listed or quoted for trading on the OTC or on
a Subsequent Market; (3) the Obligor has failed to timely satisfy its
conversion; or (4) the issuance of such shares of Common Stock would result in a
violation of Section 3(B), then, at the option of the Holder, the Obligor, in
lieu of delivering shares of Common Stock pursuant to Section 3(A)(I), shall
deliver, within three (3) Trading Days of each applicable Conversion Date, an
amount in cash equal to the product of the outstanding principal amount to be
converted plus any interest due therein divided by the Conversion Price, chosen
by the Holder, and multiplied by the highest closing price of the stock from
date of the conversion notice till the date that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in
respect of conversion of this Debenture or as payment of interest thereon by the
fifth (5th) Trading Day after the Conversion Date, the Holder may, by notice to
the Obligor, require the Obligor to issue shares of Common Stock pursuant to
Section 3(C), except that for such purpose the Conversion Price applicable
thereto shall be the lesser of the Conversion Price on the Conversion Date and
the Conversion Price on the date of such Holder demand. Any such shares will be
subject to the provisions of this Section.
(iii) The Holder shall effect conversions by delivering to the Obligor
a completed notice in the form attached hereto as Exhibit A (a "CONVERSION
NOTICE"). The date on which a Conversion Notice is delivered is the "CONVERSION
DATE." Unless the Holder is converting the entire principal amount outstanding
under this Debenture, the Holder is not required to physically surrender this
Debenture to the Obligor in order to effect conversions. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture plus all accrued and unpaid interest thereon in an amount equal to the
applicable conversion. The Holder and the Obligor shall maintain records showing
the principal amount converted and the date of such conversions.
(b) CERTAIN CONVERSION RESTRICTIONS.
(i) A Holder may not convert this Debenture or receive shares of
Common Stock as payment of interest hereunder to the extent such conversion or
receipt of such interest payment would result in the Holder, together with any
affiliate thereof, beneficially owning (as determined in accordance with Section
13(d) of the Exchange Act and the rules promulgated thereunder) in excess of
4.9% of the then issued and outstanding shares of Common Stock, including shares
issuable upon conversion of, and payment of interest on, this Debenture held by
such Holder after application of this Section. Since the Holder will not be
obligated to report to the Obligor the number of shares of Common Stock it may
hold at the time of a conversion hereunder, unless the conversion at issue would
result in the issuance of shares of Common Stock in excess of 4.9% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of this
Debenture is convertible shall be the responsibility and obligation of the
6
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of this Debenture that, without regard to any other shares that the Holder or
its affiliates may beneficially own, would result in the issuance in excess of
the permitted amount hereunder, the Obligor shall notify the Holder of this fact
and shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 3(A)(I) and, at the option of the Holder, either retain any principal
amount tendered for conversion in excess of the permitted amount hereunder for
future conversions or return such excess principal amount to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 65 days prior notice to the Obligor.
Other Holders shall be unaffected by any such waiver.
(c) CONVERSION PRICE AND ADJUSTMENTS TO CONVERSION PRICE.
(i) The Holder shall be entitled to convert, at its sole option, at
any time a portion or all amounts of principal and interest due and outstanding
under this Debenture into shares of the Obligor's Common Stock at the lesser of
(i) a price equal to one hundred five percent (105%) of the Closing Bid Price of
the Obligor's Common Stock on the day prior to the date hereof, as quoted by
Bloomberg, LP (the "FIXED PRICE") or (ii) ninety five percent (95%) of the
lowest closing Bid Price of the Obligor's Common Stock for the twenty (20)
Trading Days immediately preceding the Conversion Date as quoted by Bloomberg,
LP. (the "FLOATING Price"). (the Fixed Price and the Floating Price are
collectively referred to as the "CONVERSION PRICE") The Conversion Price may be
adjusted pursuant to the other terms of this Debenture.
In the event that the Holder is effectuating conversion pursuant to
the Floating Price the Holder shall only be entitled to convert up to One
Hundred Fifty Thousand Dollars ($150,000) of principal due and outstanding under
this Debenture into shares of the Obligor's Common Stock in any thirty (30)
calendar day period, unless otherwise waived by the Obligor, provided however in
the event the Obligor issues or sell shares of Common Stock, preferred stock,
warrants, options, rights, contracts, calls, or other security or instrument
granting the holder thereof the right to acquire Common Stock at any discount of
the Closing Bid Price of the Common Stock determined immediately prior to its
issuance, the Holder shall be entitled to convert without limitation.
(ii) If the Obligor, at any time while this Debenture is outstanding,
shall (a) pay a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock any
shares of capital stock of the Obligor, then the Fixed 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 before such event and of
which the denominator shall be the number of shares of Common Stock outstanding
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.
7
(iii) If the Obligor, at any time while this Debenture is outstanding,
shall issue rights, options or warrants to all holders of Common Stock (and not
to the Holder) entitling them to subscribe for or purchase shares of Common
Stock, except pursuant to the Rights Plan, at a price per share less than the
Fixed Price, then the Fixed Price shall be multiplied by a fraction, of which
the denominator shall be the number of shares of the Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights 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 (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants, plus the number of shares which
the aggregate offering price of the total number of shares so offered would
purchase at the Fixed Price. Such adjustment shall be made whenever such rights
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. However, upon the expiration of any such right, option or
warrant to purchase shares of the Common Stock the issuance of which resulted in
an adjustment in the Fixed Price pursuant to this Section, if any such right,
option or warrant shall expire and shall not have been exercised, the Fixed
Price shall immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it would have
been (but reflecting any other adjustments in the Fixed Price made pursuant to
the provisions of this Section after the issuance of such rights or warrants)
had the adjustment of the Fixed Price made upon the issuance of such rights,
options or warrants been made on the basis of offering for subscription or
purchase only that number of shares of the Common Stock actually purchased upon
the exercise of such rights, options or warrants actually exercised.
(iv) If the Obligor as applicable, at any time while this Debenture is
outstanding, shall issue shares of Common Stock or rights, warrants, options or
other securities or debt that are convertible into or exchangeable for shares of
Common Stock ("COMMON STOCK EQUIVALENTS") except with respect to the Obligor's
existing convertible notes with Harbor Trust, entitling any Person to acquire
shares of Common Stock, at a price per share less than the Fixed Price (if the
holder of the Common Stock or Common Stock Equivalent 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 to be issued by the
obligor at a price per share which is less than the Fixed Price, such issuance
shall be deemed to have occurred for less than the Fixed Price), then, at the
sole option of the Holder, the Fixed Price shall be adjusted to mirror the
conversion, exchange or purchase price for such Common Stock or Common Stock
Equivalents (including any reset provisions thereof) at issue. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are issued.
The Obligor shall notify the Holder in writing, no later than two (2) Business
Days following the issuance of any Common Stock or Common Stock Equivalent
subject to this Section, indicating therein the applicable issuance price, or of
applicable reset price, exchange price, conversion price and other pricing
terms. No adjustment under this Section shall be made as a result of issuances
and exercises of options, warrants or stock grants to purchase shares of Common
Stock issued for compensatory purposes pursuant to any of the Obligor's stock
option or stock purchase plans.
(v) If the Obligor, at any time while this Debenture is outstanding,
shall distribute to all holders of Common Stock (and not to the Holder)
8
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any security, then in each such case the Fixed Price at which this
Debenture shall thereafter be convertible shall be determined by multiplying the
Fixed 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 Closing Bid Price determined as
of the record date mentioned above, and of which the numerator shall be such
Closing Bid Price 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 (1) outstanding share of the Common Stock as
determined by the Obligor's 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 (1) 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.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, at any time while this Debenture is
outstanding, the Holder shall have the right thereafter to, at its option, (A)
convert the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of the Common Stock following
such reclassification or share exchange, and the Holder of this Debenture shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Obligor into which the then
outstanding principal amount, together with all accrued but unpaid interest and
any other amounts then owing hereunder in respect of this Debenture could have
been converted immediately prior to such reclassification or share exchange
would have been entitled, or (B) require the Obligor to prepay the outstanding
principal amount of this Debenture, plus all interest and other amounts due and
payable thereon. The entire prepayment price shall be paid in cash. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(vii) The Obligor shall maintain a share reserve of not less than five
hundred percent (500%) of the shares of Common Stock issuable upon conversion of
this Debenture; and within three (3) Business Days following the receipt by the
Obligor of a Holder's notice that such minimum number of Underlying Shares is
not so reserved, the Obligor shall promptly reserve a sufficient number of
shares of Common Stock to comply with such requirement.
(viii) All calculations under this Section 3 shall be rounded up to
the nearest $0.001 or whole share.
(ix) Whenever the Conversion Price is adjusted pursuant to Section 3
hereof, the Obligor shall promptly mail 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.
(x) If at any time while this Debenture is outstanding (A) the Obligor
shall declare a dividend (or any other distribution) on the Common Stock; (B)
the Obligor shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Obligor shall authorize the granting to
all holders of the Common Stock rights or warrants to subscribe for or purchase
9
any shares of capital stock of any class or of any rights except pursuant to the
Rights Plan; (D) the approval of any stockholders of the Obligor shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Obligor is a party, any sale or transfer of
all or substantially all of the assets of the Obligor, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
property; or (E) the Obligor shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Obligor; then, in
each case, the Obligor 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 address as it shall appear upon the stock
books of the Obligor, at least twenty (20) 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 20-day calendar period commencing
the date of such notice to the effective date of the event triggering such
notice.
(xi) In case of any (1) merger or consolidation of the Obligor or any
subsidiary of the Obligor with or into another Person, or (2) sale by the
Obligor of more than one-half of the assets of the Obligor in one or a series of
related transactions, at any time while this Debenture is outstanding, a Holder
shall have the right to (A) exercise any rights under Section 2(B), (B) convert
the aggregate amount of this Debenture then outstanding into the shares of stock
and other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and such
Holder shall be entitled upon such event or series of related events to receive
such amount of securities, cash and property as the shares of Common Stock into
which such aggregate principal amount of this Debenture could have been
converted immediately prior to such merger, consolidation or sales would have
been entitled, or (C) in the case of a merger or consolidation, require the
surviving entity to issue to the Holder a convertible Debenture with a principal
amount equal to the aggregate principal amount of this Debenture then held by
such Holder, plus all accrued and unpaid interest and other amounts owing
thereon, which such newly issued convertible Debenture shall have terms
identical (including with respect to conversion) to the terms of this Debenture,
and shall be entitled to all of the rights and privileges of the Holder of this
Debenture set forth herein and the agreements pursuant to which this Debentures
were issued. In the case of clause (C), the conversion price applicable for the
newly issued shares of convertible preferred stock or convertible Debentures
shall be based upon the amount of securities, cash and property that each share
of Common Stock would receive in such transaction and the Conversion Price in
effect immediately prior to the effectiveness or closing date for such
transaction. The terms of any such merger, sale or consolidation shall include
such terms so as to continue to give the Holder the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
successive such events.
10
(d) OTHER PROVISIONS.
(i) The Obligor 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 this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Obligor as to reservation of such shares set
forth in this Debenture) be issuable (taking into account the adjustments and
restrictions of Sections 2(B) AND 3(C)) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder. The
Obligor 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 Underlying Shares Registration Statement has been
declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(ii) Upon a conversion hereunder the Obligor 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 Closing Bid Price at such time. If the Obligor
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.
(iii) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Obligor 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 Debenture so converted and the Obligor
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 Obligor
the amount of such tax or shall have established to the satisfaction of the
Obligor that such tax has been paid.
(iv) Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to Section 2 herein for the
Obligor 's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and the 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.
(v) In addition to any other rights available to the Holder, if the
Obligor fails to deliver to the Holder such certificate or certificates pursuant
to Section 3(A)(I), and if after such fifth (5th) Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying Shares which the
Holder anticipated receiving upon such conversion (a "BUY-IN"), then the Obligor
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
11
(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 market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either reissue
a Debenture in the 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 Obligor timely complied with its
delivery requirements under Section 3(A)(I). 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 market price of the Underlying Shares on the date of conversion was a
total of $10,000 under clause (A) of the immediately preceding sentence, the
Obligor shall be required to pay the Holder $1,000. The Holder shall provide the
Obligor written notice indicating the amounts payable to the Holder in respect
of the Buy-In.
SECTION 4. NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms hereof must be
in writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Trading Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company, to: CepTor Corporation
000 Xxxxxxxxxxxxx Xxxxxx - Xxxxx 0000
Xxxx Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Olshan Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
Park Avenue Tower
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
12
With a copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
SECTION 5. DEFINITIONS. For the purposes hereof, the following terms shall
have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence 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 Obligor,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Obligor (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Obligor 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 (c) the merger, consolidation or sale of fifty percent (50%) or more
of the assets of the Obligor or any subsidiary of the Obligor in one or a series
of related transactions with or into another entity,.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $0.0001, of the Obligor
and stock of any other class into which such shares may hereafter be changed or
reclassified.
"CONVERSION DATE" shall mean the date upon which the Holder gives the
Obligor notice of their intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.
13
"CLOSING BID PRICE" means the price per share in the last reported trade of
the Common Stock on the OTC or on the exchange which the Common Stock is then
listed as quoted by Bloomberg, LP.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"PERSON" means a corporation, a limited liability company, an association,
a partnership, organization, a business, an individual, a
government or political subdivision thereof or a governmental agency.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"TRADING DAY" means a day on which the shares of Common Stock are quoted on
the OTC or quoted or traded on such Subsequent Market on which the shares of
Common Stock are then quoted or listed; provided, that in the event that the
shares of Common Stock are not listed or quoted, then Trading Day shall mean a
Business Day.
"TRANSACTION DOCUMENTS" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Security Agreement, the Irrevocable Transfer
Agent Instructions, and the Registration Rights Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement,
covering among other things the resale of the Underlying Shares and naming the
Holder as a "selling stockholder" thereunder.
SECTION 6. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Obligor shall not, without the consent of the Holder, (i) amend
its certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder; (ii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Underlying Shares to the extent permitted
or required under the Transaction Documents; or (iii) enter into any agreement
with respect to any of the foregoing.
SECTION 7. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Obligor, including without limitation, the right to
14
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Obligor,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
SECTION 8. If this Debenture is mutilated, lost, stolen or destroyed, the
Obligor shall execute and deliver, in exchange and substitution for and upon
cancellation of the 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 Obligor.
SECTION 9. No indebtedness of the Obligor is senior to this Debenture in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution or otherwise. Without the Holder's consent, the Obligor will not,
directly or indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom that is senior in any respect to the obligations of the Obligor under
this Debenture.
SECTION 10. This Debenture shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to conflicts of
laws thereof. Each of the parties consents to the jurisdiction of the Superior
Courts of the State of New Jersey sitting in Xxxxxx County, New Jersey and the
U.S. District Court for the District of New Jersey sitting in Newark, New Jersey
in connection with any dispute arising under this Debenture and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on FORUM NON CONVENIENS to the bringing of any such proceeding in such
jurisdictions.
SECTION 11. If the Obligor fails to strictly comply with the terms of this
Debenture, then the Obligor shall reimburse the Holder promptly for all fees,
costs and expenses, including, without limitation, reasonable attorneys' fees
and expenses reasonably incurred by the Holder in any action in connection with
this Debenture, including, without limitation, those incurred: (i) during any
workout, attempted workout, and/or in connection with the rendering of legal
advice as to the Holder's rights, remedies and obligations, (ii) collecting any
sums which become due to the Holder, (iii) defending or prosecuting any
proceeding or any counterclaim to any proceeding or appeal; or (iv) the
protection, preservation or enforcement of any rights or remedies of the Holder.
SECTION 12. Any waiver by 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 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.
SECTION 13. 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
15
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Obligor 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 Obligor 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 Obligor (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.
SECTION 14. 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.
SECTION 15. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]
16
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
CEPTOR CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: Chief Executive Officer
17
EXHIBIT "A"
NOTICE OF CONVERSION
--------------------
(TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE)
TO:
The undersigned hereby irrevocably elects to convert $ __________________
of the principal amount of the above Debenture into Shares of Common Stock of
CepTor Corporation, according to the conditions stated therein, as of the
Conversion Date written below.
CONVERSION DATE: ____________________________________________
APPLICABLE CONVERSION PRICE: ____________________________________________
SIGNATURE: ____________________________________________
NAME: ____________________________________________
ADDRESS: ____________________________________________
AMOUNT TO BE CONVERTED: $___________________________________________
AMOUNT OF DEBENTURE UNCONVERTED: $___________________________________________
CONVERSION PRICE PER SHARE: $___________________________________________
NUMBER OF SHARES OF COMMON
STOCK TO BE ISSUED: ____________________________________________
PLEASE ISSUE THE SHARES OF
COMMON STOCK IN THE FOLLOWING
NAME AND TO THE FOLLOWING
ADDRESS: ____________________________________________
ISSUE TO: ____________________________________________
AUTHORIZED SIGNATURE: ____________________________________________
NAME: ____________________________________________
TITLE: ____________________________________________
PHONE NUMBER: ____________________________________________
BROKER DTC PARTICIPANT CODE: ____________________________________________
ACCOUNT NUMBER: ____________________________________________
