EXHIBIT 4.3
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
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. THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.
Date of Issuance:___________ ___, 200__(1)
$
7.5% CONVERTIBLE DEBENTURE
DUE _____________ __, 200__(2)
THIS DEBENTURE is one of a series of duly authorized and issued Debentures
of Matritech, Inc., a Delaware corporation, having a principal place of business
at 000 Xxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000 (the "Company"), designated as
its 7.5% Convertible Debentures and issued pursuant to the Purchase Agreement
(the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), the principal
sum of $_______________ on ________________ __, 200__(3) 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 at the rate of 7.5% per
annum, payable quarterly on March 1, June 1, September 1 and December 1,
beginning on __________ __, 200__(4) and on each Conversion Date (as to that
principal amount then being converted), on each
----------
(1) The applicable Closing Date.
(2) 36 months from the applicable Closing Date.
(3) 36 months from the applicable Closing Date.
(4) The first such date after the applicable Closing Date.
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Monthly Redemption Date (as to that principal amount then 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 or shares of Common Stock (or a combination
thereof) at the Interest Conversion Rate; provided, however, payment in shares
of Common Stock may only occur if: (i) there is an effective Underlying Shares
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares of Common Stock to be issued
in lieu of cash (and the Company has not been notified that such effectiveness
will be interrupted in the foreseeable future), (ii) the Common Stock is listed
for trading on a Principal Market (and the Company has not been notified that
trading of the Common Stock on a Principal Market will be interrupted in the
foreseeable future), (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 then issuable pursuant to the Transaction Documents as of such
date, including the shares to be issued for interest in lieu of cash on such
Interest Payment Date, and (iv) such issuance would be permitted in full without
violating the limitations set forth in clauses (A) or (B) of Section 4(a)(ii).
Subject to the terms and conditions herein, the decision whether to pay interest
hereunder in shares of Common Stock or cash shall be at the discretion of the
Company. Not less than 20 Trading Days prior to each Interest Payment Date, the
Company shall provide the Holder with written notice of its election to pay
interest hereunder either in cash or shares of Common Stock (the Company may
indicate in such notice that the election contained in such notice shall
continue for later periods until revised). Within 20 Trading Days prior to an
Interest Payment Date, the Company's election (whether specific to an Interest
Payment Date or continuous notice) shall be irrevocable as to such Interest
Payment Date. Subject to the aforementioned conditions, failure to timely
provide such written notice shall be deemed an election by the Company to pay
the interest on such Interest Payment Date in cash. Interest shall be calculated
on the basis of a 360-day year and shall accrue daily commencing on the Issuance
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.
Payment of interest in shares of Common Stock shall otherwise occur pursuant to
Section 4(b) and for purposes of the payment of interest in shares only, the
Interest Payment Date shall be deemed the Conversion Date. Interest shall cease
to accrue with respect to any principal amount converted, provided that the
Company in fact delivers the Underlying Shares issuable upon such conversion.
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"). Except as otherwise provided herein, if
at anytime the Company pays interest partially in cash and partially in shares
of Common Stock, then such payment shall be distributed ratably among the
Holders based upon the principal amount of Debentures held by each Holder. All
overdue accrued and unpaid interest to be paid hereunder shall entail a late fee
at the rate of 12% per annum (or such lower maximum amount of interest permitted
to be charged under applicable law) ("Late Fee") which will accrue daily, from
the date such interest is due hereunder through and including the date of
payment. EXCEPT AS OTHERWISE PROVIDED HEREIN, THE COMPANY MAY NOT PREPAY ANY
PORTION OF THE PRINCIPAL AMOUNT ON THIS DEBENTURE WITHOUT THE PRIOR WRITTEN
CONSENT OF THE HOLDER.
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This Debenture is subject to the following additional provisions:
Section 1. Subject to restrictions on transfer contained in the
Transaction Documents, 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. 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 terms hereof, the
Purchase Agreement and applicable federal and state securities laws and
regulations. During any 12 month period and except for transfers to an Affiliate
of the Holder, the Holder, collectively with successor Holders, may not transfer
this Debenture in more than two transactions to more than four assignees per
transaction. 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 3. 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 the principal of, interest
on or liquidated damages in respect of, any Debentures, free of any
claim of subordination, 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 is not cured, if possible
to cure, within 10 days of receipt of written notice of such default
sent by the Holder;
(ii) the Company shall materially fail to observe or perform
any other covenant, agreement or warranty contained in, or otherwise
commit any material breach of any of the Transaction Documents
(other than any breach separately addressed in another clause
contained herein) which is not cured, if possible to cure, within 30
days of written notice of such default sent by the Holder (except
with respect to breaches pursuant to Sections 4.8 and 4.9 of the
Purchase Agreement);
(iii) 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
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successor thereto, or the Company 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 there is commenced against the
Company or any subsidiary thereof any such bankruptcy, insolvency or
other proceeding, in each case, which remains undismissed for a
period of 60 days; or the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or 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 60 days; or
the Company or any subsidiary thereof makes a general assignment for
the benefit of creditors; or the Company shall state that it is
unable to pay its debts generally as they become due; or 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 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 any corporate or other
action is taken by the Company or any subsidiary thereof for the
purpose of effecting any of the foregoing;
(iv) the Company 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
Company in an amount exceeding $150,000, 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 not be listed for quotation on or
quoted for trading on the Nasdaq SmallCap Market, New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market
(each, a "Principal Market") and shall not again be eligible for and
quoted or listed for trading thereon within 10 Trading Days;
(vi) the Company shall agree to sell or dispose of all or in
excess of 33% 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 Underlying Shares);
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(vii) an Underlying Shares Registration Statement relating to
the Underlying Shares issuable hereunder shall not have been
declared effective by the Commission on or prior to the 150th
calendar day after the Issuance Date;
(viii) if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Underlying
Shares Registration Statement lapses for any reason or the Holder
shall not be permitted to resell Registrable Securities (as defined
in the Registration Rights Agreement) under the Underlying Shares
Registration Statement, in either case, and except as provided for
in Section 3(h) of the Registration Rights Agreement (subject to
timely payment of liquidated damages), for more than 10 consecutive
Trading Days or 20 non-consecutive Trading Days during any 12 month
period;
(ix) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of the
Holder prior to the expiration of thirty days from the Event Date
(as defined in the Registration Rights Agreement) relating thereto
(other than an Event resulting from a failure of an Underlying
Shares Registration Statement to be declared effective by the
Commission on or prior to the Effectiveness Date (as defined in the
Registration Rights Agreement), which shall be covered by Section
3(a)(vii));
(x) the Company shall fail for any reason to deliver
certificates to a Holder on or prior to the seventh Trading Day
after a Conversion Date pursuant to and in accordance with Section 4
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 being made in
accordance with the terms hereof;
(xi) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined herein) within
seven days after notice thereof is delivered hereunder; or
(xii) the Company shall fail for any reason to deliver
certificates free of the restrictive legend to a Holder on or prior
to the seventh Trading Day after such certificate is delivered to
the Company for removal of restrictive legend pursuant to and in
accordance with Section 4.1 of the Purchase Agreement.
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other
amounts owing in respect thereof, to the date of acceleration shall become
at and upon the Holder's written election made to the Company, immediately
due and payable in cash (except with respect to the payment of interest,
which may be paid in
5
shares of Common Stock subject to the satisfaction of the conditions to any
payment of interest in shares of Common Stock) ("Event of Default Notice"). The
aggregate amount payable upon an Event of Default shall be equal to the
Mandatory Prepayment Amount; provided, however, if the Company delivers in full
the payment required hereunder on or before the 5th day after the date of the
Event of Default Notice, then the Company shall not be required to pay any
accrued but unpaid liquidated damages as part of the Mandatory Prepayment Amount
and the Company's obligations with respect to such liquidated damages shall be
deemed satisfied. Interest shall accrue on the Mandatory Prepayment Amount
hereunder from the 5th day after the date of the Event of Default Notice through
the date of prepayment in full thereof in an amount equal to the Late Fee, to
accrue daily from the date such payment is due hereunder through and including
the date of payment. All Debentures for which the full prepayment price
hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. Except as otherwise expressly set
forth herein, the Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such election 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.
Section 4. Conversion.
(a) (i) At any time after the Closing Date, 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(a)(ii) hereof). The
Holder shall effect conversions by delivering to the Company the form of
conversion notice attached hereto as Annex A (a "Conversion Notice"),
specifying therein the principal amount of Debentures to be converted and
the date on which such conversion is to be effected (a "Conversion Date")
and shall contain a completed schedule in the form of Schedule 1 to the
Conversion Notice (as amended on each Conversion Date, the "Conversion
Schedule") reflecting the remaining principal amount of this Debenture and
all accrued and unpaid interest thereon subsequent to the conversion at
issue. If no Conversion Date is specified in a Conversion Notice, the
Conversion Date shall be the date that such Conversion Notice 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 has been so converted.
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, which shall be
evidenced by entries set forth in the Conversion Schedule.
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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 the figures represented in the Conversion
Schedules within 3 Business Day of receipt of such notice and, in the
event any such objections are determined to be correct, the period for
delivering a certificate upon such conversion shall not be deemed to have
commenced until such objections have been resolved, provided, however, as
to any part of a conversion not in dispute, the Company shall timely meet
its delivery obligations hereunder. 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.
(ii) Certain Conversion Restrictions.
(A) A Holder may not convert this Debenture to the extent such
conversion would result in the Holder, together with its Affiliates,
beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules promulgated thereunder
("Beneficially Owning") in excess of 4.999% of the then issued and
outstanding shares of Common Stock. The Company shall not issue
shares of Common Stock to the Holder hereunder (including, but not
limited to, as payment of interest, in lieu of payment for Monthly
Redemptions or pursuant to a Force Conversion Notice) to the extent
such issuance would result in the Holder, together with its
Affiliates, Beneficially Owning shares of Common Stock in excess of
9.999% of the then issued and outstanding shares of Common Stock
(without including, for purposes of such 9.999% provision, any
shares which may be issuable upon conversion of any Debentures held
by the Holder or its Affiliates or exercise of any Warrants held by
the Holder or its Affiliates). The Holder shall be entitled to rely
on the Company's public filing with respect to the number of shares
of Common Stock which are then issued and outstanding, and the
Holder may inquire of the Company's Chief Financial Officer to
obtain a more current number, which shall be provided within 2
Business Days of written request therefore. To ensure compliance
with this restriction, the Holder will be deemed to represent to the
Company each time it delivers a Conversion Notice that such
Conversion Notice has not violated the restrictions set forth in
this paragraph. Additionally, upon the Company exercising its right
to issue shares of Common Stock under this Debenture, if the Holder
has determined that such issuance will violate the restrictions set
forth in this paragraph, the Holder shall promptly notify the
Company of such violation and, if requested, provide such evidence
thereof as is reasonably requested by the Company. In the event
Holder does not so notify the
7
Company, the Company shall be entitled to presume that such issuance
would not violate the restrictions set forth in this paragraph and
to issue such shares of Common Stock. If the Holder has delivered a
Conversion Notice for a principal amount of Debentures 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 Company 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 4(b) 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. In the event of a merger or consolidation of the Company
with or into another Person, this paragraph shall not apply with
respect to a determination of the number of shares of common stock
issuable upon conversion in full of the Debentures if such
determination is necessary to establish the Securities or other
assets which the holder of Common Stock shall be entitled to receive
upon the effectiveness of such merger or consolidation. The
provisions of this Section 4(a)(ii)(A) 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(a)(ii)(A) 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). No conversion of this Debenture in violation of
this Section 4(a)(ii)(A) but otherwise in accordance with this
Debenture shall affect the status of the Underlying Shares as
validly issued, fully-paid and nonassessable.
(B) If the Company has not obtained Shareholder Approval (as
defined below), if required by the applicable rules and regulations
of the Principal Market (or any successor entity), then the Company
may not issue upon conversion of the Debentures, in the aggregate,
in excess of (i) 19.999% of the number of shares of Common Stock
outstanding on the Trading Day immediately preceding the Original
Issue Date, (ii) less any shares of Common Stock issued as payment
of interest, in connection with any redemption of any Debentures, or
to be issued upon exercise of the Warrants issued to Holders of the
Debentures pursuant to the Purchase Agreement or upon exercise of
the warrants issued to Xxxxx Xxxxx for his services in connection
with the transactions contemplated under the Purchase Agreement
(such number of shares, the "Issuable Maximum"). Each Holder shall
be entitled to a portion of the Issuable Maximum equal to the
quotient obtained by dividing (x) the aggregate principal amount of
the Debenture(s) issued and sold to such Holder by (y) the aggregate
principal amount of all Debentures issued and sold by the Company.
If any Holder shall no longer hold
8
Debentures, then such Xxxxxx's remaining portion of the Issuable
Maximum shall be allocated pro-rata among the remaining Holders. If
on any Conversion Date: (A) the applicable Set Price then in effect
is such that the shares issuable under this Debenture on any
Conversion Date together with the aggregate number of shares of
Common Stock that would then be issuable upon conversion in full of
all then outstanding Debentures would exceed the Issuable Maximum,
and (B) Shareholder Approval shall not have been obtained, then the
Company shall issue to the Holder requesting a conversion a number
of shares of Common Stock equal to such Holder's pro-rata portion
(which shall be calculated pursuant to the terms hereof) of the
Issuable Maximum and, with respect to the remainder of the aggregate
principal amount of the Debentures (including any accrued interest)
then held by such Holder for which a conversion in accordance with
the applicable conversion price would result in an issuance of
shares of Common Stock in excess of such Holder's pro-rata portion
(which shall be calculated pursuant to the terms hereof) of the
Issuable Maximum (the "Excess Principal"), the Company shall be
prohibited from converting such Excess Principal, and shall notify
the Holder of the reason therefor. This Debenture shall thereafter
be unconvertible until and unless Shareholder Approval is
subsequently obtained or is otherwise not required, but this
Debenture shall otherwise remain in full force and effect. The
Company and the Holder understand and agree that shares of Common
Stock issued to and then held by the Holder as a result of
conversions of Debentures shall not be entitled to cast votes on any
resolution to obtain Shareholder Approval pursuant hereto. For
clarity, the failure of the Company to actually obtain Shareholder
Approval shall not be a breach of covenant or Event of Default under
Section 3 of this Debenture, provided, that any issuance of
securities which results in an adjustment to the Set Price (other
than pursuant to Section 4(c)(ii)(A)) without the Company having
previously sought Shareholder Approval as set forth in the Purchase
Agreement shall be a breach of covenant in the Purchase Agreement
and an Event of Default under Section 3.
(iii) Underlying Shares Issuable Upon Conversion and Pursuant to
Interest.
(A) Conversion of Principal Amount. The number of shares of
Common Stock issuable upon a conversion shall be determined by the
quotient obtained by dividing (x) the outstanding principal amount
of this Debenture to be converted and (y) the Set Price, and
(B) Payment of Interest in Underlying Shares. In the event the
Company elects to pay the interest due on an Interest Payment Date
in shares of Common Stock, the number of shares of Common Stock
issuable
9
upon payment of interest under this Debenture shall be the number
determined by (x) the product of (I) the outstanding principal
amount of this Debenture to be converted and (II) the product of
(aa) the quotient obtained by dividing 7.5% by 360 and (bb) the
number of days for which such principal amount was outstanding,
divided by (y) the applicable Interest Conversion Rate.
(C) Notwithstanding anything to the contrary contained herein,
if with respect to 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 honor such conversion;
(2) the Common Stock shall fail to be listed or quoted
for trading on a Principal Market; or
(3) the Company has failed to deliver certificates to
the Holder on or before the fifth Trading Day after such
Conversion Date pursuant to and in accordance with Section 4,
and, with respect to such delivery, no election has been made by the
Holder pursuant to Section 3(b), Section 4(b)(i), Section 4(b)(ii)
or Section 4(b)(iii), then, at the written election of the Holder,
the Company, in lieu of delivering shares of Common Stock pursuant
to this Section 4, shall deliver, within three Trading Days of such
election, an amount in cash equal to the product of the number of
shares of Common Stock otherwise deliverable to the Holder in
connection with such Conversion Date and the highest VWAP during the
period commencing on the Conversion Date and ending on the Trading
Day prior to the date such payment is made. In the event the Holder
elects to receive payment pursuant to this Section 4(a)(iii)(C),
then the Holder shall not be entitled to declare an Event of Default
pursuant to Section 3 hereof with respect to such failure to deliver
the certificates; provided, however, it being understood that this
provision does not preclude the Holder from declaring an Event of
Default for the Company failing to pay any such amounts in the time
period set forth above.
(b) (i) Not later than five Trading Days after any Conversion Date, the
Company will deliver to the Holder (A) a certificate or certificates for
the Shares of Common Stock 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)
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a bank check in the amount of accrued and unpaid interest (if the Company
has elected to pay accrued interest in cash). The Company shall, upon
request of the Holder, 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. If in the
case of any Conversion Notice such certificate or certificates are not
delivered to or as directed by the applicable Holder by the fifth Trading
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.
(ii) If the Company fails for any reason to deliver to the Holder such
certificate or certificates pursuant to and in accordance with Section 4
by the fifth Trading Day after the Conversion Date and, with respect to
such delivery, no prior election has been made by the Holder pursuant to
Section 3(b), Section 4(a)(iii)(C) or Section 4(b)(iii) and such Holder
does not rescind such conversion pursuant to Section 4(b)(i), the Company
shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, for each $5,000 of principal amount being converted, $50 per
Trading Day (increasing to $100 per Trading Day after 3 Trading Days) for
each Trading Day after such fifth Trading Day until such certificates are
delivered. Nothing herein shall limit a Xxxxxx's right to pursue actual
damages or declare an Event of Default pursuant to Section 3 herein for
the Company's failure to deliver certificates representing shares of
Common Stock upon conversion within the period specified therein. 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 Holders from seeking to enforce damages pursuant to
any other Section hereof or under applicable law.
(iii) In addition to any other rights available to the Holder, if the
Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to and in accordance with Section 4 by the fifth
Trading Day after the Conversion Date, and with respect to such delivery,
no prior election has been made by the Holder pursuant to Section 3(b),
Section 4(a)(iii)(C), Section 4(b)(i) or Section 4(b)(ii), if after such
fifth Trading 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 Underlying 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)
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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(b)(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 actual
sale price of the Underlying 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. In the event the Holder elects to receive
payment pursuant to this Section 4(a)(iii)(C), then the Holder shall not
be entitled to declare an Event of Default pursuant to Section 3 hereof
with respect to such failure to deliver the certificates; provided,
however, it being understood that this provision does not preclude the
Holder from declaring an Event of Default for failure to timely make such
Buy-In payments.
(iv) Notwithstanding anything herein to the contrary, if after the
Effective Date the VWAP for any 15 consecutive Trading Days exceeds the
then Set Price by more than 200%, the Company may, within 2 Trading Days
of any such period, deliver a notice to the Holder (a "Forced Conversion
Notice" and the date such notice is received by the Holder, the "Forced
Conversion Notice Date") to cause the Holder to immediately convert all or
part of the then outstanding principal amount of Debentures pursuant to
Section 4(a)(i). The Company may only effect a Forced Conversion Notice if
each of the following shall be true: (i) there is an effective Underlying
Shares Registration Statement pursuant to which the Holder is permitted to
utilize the prospectus thereunder to resell all of the Underlying Shares
issued to the Holder and all of the Underlying Shares as are issuable to
the Holder upon conversion in full of this Debenture subject to the Forced
Conversion Notice (and the Company has not been notified that such
effectiveness will be interrupted in the foreseeable future), (ii) the
Common Stock is listed for trading on a Principal Market (and the Company
has not been notified that trading of the Common Stock on a Principal
Market will be interrupted in the foreseeable future), (iii) all
liquidated damages and other amounts owing in respect of the Debentures
and Underlying Shares shall have been paid or will, concurrently with the
issuance of the Underlying Shares, be paid; (iv) there is a sufficient
number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all the Underlying
12
Shares as are issuable to the Holder upon conversion in full of the
Debentures subject to the Forced Conversion Notice; (v) no Event of
Default nor any event that with the passage of time would constitute an
Event of Default has occurred and is continuing; (vi) such issuance would
be permitted in full without violating the limitations set forth in
clauses (A) or (B) of Section 4(a)(ii) and (vii) no public announcement of
a pending or proposed Change of Control Transaction or Fundamental
Transaction has occurred that has not been consummated.
(c) (i) Set Price. The conversion price in effect on any Conversion Date
shall be equal to $____(5) (subject to adjustment as provided herein)(the
"Set Price").
(ii) Adjustments of Set Price.
(A) Stock Splits, etc. The number and kind of securities
issuable upon the conversion of this Debenture and the Set Price
shall be subject to adjustment from time to time upon the happening
of any of the events set forth below. In case the Company shall (i)
pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock to holders of its outstanding Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a greater
number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue
any shares of its capital stock in a reclassification of the Common
Stock, then the number of Underlying Shares issuable upon conversion
of this Debenture immediately prior thereto shall be adjusted so
that the Holder shall be entitled to receive the kind and number of
Underlying Shares or other securities of the Company which it would
have owned or have been entitled to receive had such Debenture been
converted in advance thereof. Upon each such adjustment of the kind
and number of Underlying Shares or other securities of the Company
which are issuable hereunder, the Holder shall thereafter be
entitled to purchase the number of Underlying Shares or other
securities resulting from such adjustment at a Set Price per
Underlying Share or other security obtained by multiplying the Set
Price in effect immediately prior to such adjustment by the number
of Underlying Shares issuable pursuant hereto immediately prior to
such adjustment and dividing by the number of Underlying Shares or
other securities of the Company resulting from such adjustment. An
adjustment made pursuant to this paragraph shall become effective
immediately after the effective date of such event retroactive to
the record date, if any, for such event.
----------
5 112% of the Closing Price on the applicable Closing Date.
13
(B) Future Issuance Anti-Dilution Provisions. Until this
Debenture is not longer outstanding, if and whenever the Company
issues or sells, or in accordance with this Section 4(c)(ii)(B)
hereof is deemed to have issued or sold, any shares of Common Stock
for an effective consideration per share of Common Stock less than
89% of the then Set Price or for no consideration (such lower price,
the "Base Share Price" and such issuances collectively, a "Dilutive
Issuance"), then, the Set Price shall be reduced to equal 112% of
the Base Share Price. Such adjustment shall be made whenever such
shares of Common Stock are issued or deemed to have been issued in
accordance with this Section 4(c)(ii)(B). For purposes of
determining the adjusted Set Price under this Section 4(c)(ii)(B)
hereof, the following will be applicable:
(1) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options,
whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or other securities exercisable,
convertible into or exchangeable for Common Stock
("Convertible Securities") (such warrants, rights and options
to purchase Common Stock or Convertible Securities are
hereinafter referred to as "Options") and the effective price
per share for which Common Stock is issuable upon the exercise
of such Options is less than the Set Price ("Below Base Price
Options"), then the maximum total number of shares of Common
Stock issuable upon the exercise of all such Below Base Price
Options (assuming full exercise, conversion or exchange of
Convertible Securities, if applicable) will, as of the date of
the issuance or grant of such Below Base Price Options, be
deemed to be outstanding and to have been issued and sold by
the Company for such price per share and the maximum
consideration payable to the Company upon such exercise
(assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will be deemed to have been
received by the Company. For purposes of the preceding
sentence, the "effective price per share for which Common
Stock is issuable upon the exercise of such Below Base Price
Options" is determined by dividing (i) the total amount, if
any, received or receivable by the Company as consideration
for the issuance or granting of all such Below Base Price
Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
exercise of all such Below Base Price Options, plus, in the
case of Convertible Securities issuable upon the exercise of
such Below Base Price Options, the minimum aggregate amount of
additional consideration payable upon the exercise, conversion
or exchange
14
thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon the
exercise of all such Below Base Price Options (assuming full
conversion of Convertible Securities, if applicable). No
further adjustment to the Set Price will be made upon the
actual issuance of such Common Stock upon the exercise of such
Below Base Price Options or upon the exercise, conversion or
exchange of Convertible Securities issuable upon exercise of
such Below Base Price Options.
(2) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities,
whether or not immediately convertible (other than where the
same are issuable upon the exercise of Options) and the
effective price per share for which Common Stock is issuable
upon such exercise, conversion or exchange is less than the
Set Price, then the maximum total number of shares of Common
Stock issuable upon the exercise, conversion or exchange of
all such Convertible Securities will, as of the date of the
issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company
for such price per share and the maximum consideration payable
to the Company upon such exercise (assuming full exercise,
conversion or exchange of Convertible Securities, if
applicable) will be deemed to have been received by the
Company. For the purposes of the preceding sentence, the
"effective price per share for which Common Stock is issuable
upon such exercise, conversion or exchange" is determined by
dividing (i) the total amount, if any, received or receivable
by the Company as consideration for the issuance or sale of
all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable,
convertible or exchangeable, by (ii) the maximum total number
of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities. No
further adjustment to the Set Price will be made upon the
actual issuance of such Common Stock upon exercise, conversion
or exchange of such Convertible Securities.
(3) Change in Option Price or Conversion Rate. If there
is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any
Options; (ii) the amount of additional consideration, if any,
payable to the Company
15
upon the exercise, conversion or exchange of any Convertible
Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common
Stock (in each such case, other than under or by reason of
provisions designed to protect against dilution), the Set
Price in effect at the time of such change will be readjusted
to the Set Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially
granted, issued or sold.
(4) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted
or sold for cash, the consideration received therefor for
purposes of this Debenture will be the amount received by the
Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Company in connection with
such issuance, grant or sale. In case any Common Stock,
Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash,
the amount of the consideration other than cash received by
the Company will be the fair market value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received
by the Company will be the fair market value (closing bid
price, if traded on any market) thereof as of the date of
receipt. In case any Common Stock, Options or Convertible
Securities are issued in connection with any merger or
consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be
deemed to be the fair market value of such portion of the net
assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined
in good faith by an investment banker or other appropriate
expert of national reputation selected by the Company and
reasonably acceptable to the holder hereof, with the costs of
such appraisal to be borne by the Company.
(5) Exceptions. Notwithstanding the foregoing, no
adjustment will be made under this paragraph (c) in respect of
the issuance of (1) shares of Common Stock or Options to
employees, consultants, advisors, officers or directors of the
Company pursuant
16
to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee
directors established for such purpose, (2) securities upon
the exercise of, or in connection with the payment of interest
on or redemption of, the Debentures or any Debentures of this
series or of any other series or security issued by the
Company in connection with the offer and sale of this
Company's securities pursuant to the Purchase Agreement, or
(3) securities upon the exercise of or conversion of any
convertible securities, options or warrants issued and
outstanding on the Original Issue Date, provided that the
securities have not been amended since the date of the
Purchase Agreement, (4) securities in connection with
acquisitions or strategic investments (including, without
limitation, any licensing or distribution arrangements), the
primary purpose of which is not to raise capital, or (5)
securities to financial institutions or lessors in connection
with commercial credit arrangements, equipment financings or
similar transactions, where the principal consideration for
such transactions not the issuance of such securities.
(C) Minimum Adjustment of Set Price. No adjustment of the Set
Price shall be made in an amount of less than 1% of the Set Price in
effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment
which, together with any adjustments so carried forward, shall
amount to not less than 1% of such Set Price.
(D) All calculations under this Section 4 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 4.
(E) If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon exercise,
conversion or exchange of any Convertible Security is not, in fact,
issued and the rights to exercise such Option or to exercise,
convert or exchange such Convertible Security shall have expired or
terminated, the Set Price then in effect will be readjusted to the
Set Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities,
to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of
Common Stock issued upon exercise or conversion thereof), never been
issued; provided, however,
17
prior to such adjustment, the Company shall have notified the Holder
at least 5 Trading Days prior to the date such adjustment occurs.
(F) The Company agrees that it is prohibited from entering
into any Dilutive Issuance which would result in any adjustment to
the Set Price under this Section 4(c)(ii)(B) to the extent the
Holder would not be able to convert the entire amount outstanding of
this Debenture and the Warrants held by such Holder without
violating Section 4(a)(ii)(B). The Company shall promptly mail to
each Holder a notice setting forth the Set Price after such
adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(iii) Notification. 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 the Debentures, and shall
cause to be mailed to the Holders at their last addresses as they shall
appear upon the stock books of the Company, at least 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. Holders are entitled to convert Debentures
during the 20-day period commencing the date of such notice to the
effective date of the event triggering such notice.
18
(iv) Fundamental Transactions/Change of Control. 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 Underlying
Share that would have been issuable upon such conversion absent such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of
such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of one share of Common Stock (the
"Alternate Consideration"). For purposes of any such conversion, the
determination of the Set 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 Set Price
among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration.
If holders of Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new Debenture
consistent with the foregoing provisions and evidencing the Holder's right
to convert such Debenture into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply
with the provisions of this paragraph (c) and insuring that this Debenture
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction. In the
event of a Change of Control Transaction, including any Fundamental
Transaction which constitutes or results in a Change of Control
Transaction, then at the request of the Holder delivered before the 90th
day after such Fundamental Transaction, the Company (or any such successor
or surviving entity) will purchase the Debenture from the Holder for a
purchase price, payable in cash within five Trading Days after such
request (or, if later, on the effective date of the Fundamental
Transaction), equal to 100% of the remaining unconverted principal amount
of this
19
Debenture on the date of such request, plus all accrued and unpaid
interest thereon, plus all other accrued and unpaid amounts due hereunder.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock an amount
equal to 130% of the Actual Minimum, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holders. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issuance in accordance with the terms of the Transaction Documents, 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.
(e) 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.
(f) The issuance of certificates for shares of the Common Stock on
conversion of the Debentures shall be made without charge to the Holders 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 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.
(g) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Company, at the address set
forth above, FACSIMILE NUMBER (000) 000-0000, ATTN: XXXXXXX X. XXXXX WITH A COPY
TO XXXXX, XXXXXXX & XXXXXXXXX, LLP, 000 XXXX XXXXXX, XXXXXX, XXXXXXXXXXXXX
00000, FACSIMILE NUMBER (000) 000-0000, ATTN: XXXXX X. XXXX, 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
20
service or sent by certified or registered mail, postage prepaid, addressed to
each Holder at the facsimile telephone number or address of such Holder
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) four days after deposit in the United States
mail, (iv) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given. NOTWITHSTANDING THE FOREGOING, ANY
CONVERSION NOTICES SHALL BE REQUIRED TO ALSO BE DELIVERED BY FACSIMILE ON THE
DATE SET FORTH IN SUCH CONVERSION NOTICE.
Section 5. Redemption.
(a) Optional Redemption. Subject to the provisions of this Section 5, the
Company may, at any time, deliver a notice to the Holders (an "Optional
Redemption Notice" and the date such notice is deemed delivered hereunder, the
"Optional Redemption Notice Date") of its irrevocable election to redeem all,
but not less than all, of the then outstanding Debentures held by the Holder,
for an amount, in cash, equal to the Optional Redemption Amount on a date
designated by the Company in the Optional Redemption Notice, such date to be at
least 30 Trading Days following the Optional Redemption Notice Date (such date,
the "Optional Redemption Date" and such redemption, the "Optional Redemption").
The Optional Redemption Amount is due in full on the Optional Redemption Date.
The Company may only effect an Optional Redemption if from the Optional
Redemption Notice Date through to the Optional Redemption Date, each of the
following shall be true: (i) there is an effective Registration Statement
pursuant to which the Holder is permitted to utilize the prospectus thereunder
to resell all of the Underlying Shares issued to the Holder and all of the
Underlying Shares as are issuable to the Holder upon conversion in full of the
Debenture subject to such Optional Redemption (and the Company has not been
notified that such effectiveness will be interrupted in the foreseeable future),
(ii) the Common Stock is listed for trading on a Principal Market (and the
Company has not been notified that trading of the Common Stock on the Principal
Market will be interrupted in the foreseeable future), (iii) all liquidated
damages and other amounts owing in respect of the Debenture shall have been paid
or will, concurrently with the delivery of the Optional Redemption Notice, be
paid; (iv) there is a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock for the issuance of all of the shares then
issuable pursuant to the Transaction Documents as of such date; (v) conversion
of this Debenture would be permitted in full without violating the limitations
set forth in Section
21
4(a)(ii)(B); (vi) no Event of Default nor any event that with the passage of
time would constitute an Event of Default has occurred and is continuing; and
(vii) no public announcement of a pending or proposed Change of Control
Transaction or Fundamental Transaction has occurred that has not been
consummated.. If any of the foregoing conditions shall cease to be satisfied at
any time during the required period, then the Holder may elect to nullify the
Optional Redemption Notice in which case the Optional Redemption Notice shall be
null and void, ab initio. The Holders may convert, pursuant to Section 4 hereof,
any shares of Debentures subject to an Optional Redemption at any time prior to
the date that the Optional Redemption Amount and all amounts owing thereon are
due and paid in full. The Company covenants and agrees that it will honor all
Conversion Notices tendered from the time of delivery of the Optional Redemption
Notice through the date all amounts owing thereon are due and paid in full.
(b) Monthly Redemption. On each Monthly Redemption Date, the Company shall
redeem each Holder's Pro-Rata Portion of the Monthly Redemption Amount plus
accrued but unpaid interest, the sum of all liquidated damages and any other
amounts then owing to such Holder in respect of the Debenture. "Pro Rata
Portion" is the ratio of (x) the principal amount of this Debenture on the
Issuance Date and (y) the sum of the aggregate original principal amounts of the
Debentures issued to all Holders on the Issuance Date. If any Holder shall no
longer holds Debentures, then the Pro Rata Portion shall be recalculated to
exclude such Holder's principal amount from clause (y) above. The Monthly
Redemption Amount due on each Monthly Redemption Date shall, except as provided
in this Section, be paid in cash. As to any Monthly Redemption and upon 20
Trading Days' prior written irrevocable notice, in lieu of a cash redemption
payment the Company may elect to pay 100% of a Monthly Redemption in Underlying
Shares based on a conversion price equal to 90% of the average of the 20 VWAPs
immediately prior to the applicable Monthly Redemption Date (subject to
adjustment for any stock dividend, stock split, stock combination or other
similar event affecting the Common Stock during such 20 Trading Day period) (the
"Monthly Conversion Price"); provided, however, that the Company may not pay the
Monthly Redemption Amount in Underlying Shares unless, on the Monthly Redemption
Date and during the 20 Trading Day period immediately prior thereto, (i) there
is an effective Registration Statement pursuant to which the Holder is permitted
to utilize the prospectus thereunder to resell all of the Underlying Shares
issued to the Holder and all of the Underlying Shares as are issuable to the
Holder upon conversion in full of the Debenture subject to such Monthly
Redemption (and the Company has not been notified that such effectiveness will
be interrupted in the foreseeable future), (ii) the Common Stock is listed for
trading on a Principal Market (and the Company has not been notified that
trading of the Common Stock on the Principal Market will be interrupted in the
foreseeable future), (iii) on or prior to the 20th Trading Day prior to such
Monthly Redemption Date, the Company irrevocably notifies the Holder that it
will issue Underlying Shares in lieu of cash; (iv) all liquidated damages and
other amounts owing in respect of the Debenture shall have been paid or will,
concurrently with the issuance of the Underlying Shares, be paid; (v) there is a
22
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares then issuable pursuant to the
Transaction Documents as of such date; (vi) such issuance would be permitted in
full without violating the limitations set forth in Section 4(a)(ii)(A) or (B);
(vii) no Event of Default nor any event that with the passage of time would
constitute an Event of Default has occurred and is continuing; and (viii) no
public announcement of a pending or proposed Change of Control Transaction or
Fundamental Transaction has occurred that has not been consummated. The Holders
may convert, pursuant to Section 4, any principal amount of the Debenture
subject to a Monthly Redemption at any time prior to the date that the Monthly
Redemption Amount and all amounts owing thereon are due and paid in full. The
Company covenants and agrees that it will honor all Conversion Notices tendered
up until such amounts are paid in full.
(c) Redemption Procedure. The payment of cash and/or issuance of Common
Stock, as the case may be, pursuant to a Monthly Redemption shall be made on the
Monthly Redemption Date and the payment pursuant to an Optional Redemption shall
be made on the Optional Redemption Date. If any portion of the cash payment for
a Monthly Redemption or Optional Redemption shall not be paid by the Company by
the respective due date, interest shall accrue thereon at the rate of 15% per
annum (or the maximum rate permitted by applicable law, whichever is less) until
the payment of the Monthly Redemption Amount or Optional Redemption Amount, as
applicable, plus all amounts owing thereon is paid in full. Alternatively, if
any portion of the Monthly Redemption Amount or Optional Redemption Amount, as
applicable, remains unpaid after such date, the Holders subject to such
redemption may elect, by written notice to the Company given at any time
thereafter, to invalidate ab initio such redemption, notwithstanding anything
herein contained to the contrary, and, with respect the failure to honor an
Optional Redemption only, the Company shall have no further right to exercise
such Optional Redemption Right. Notwithstanding anything to the contrary in this
Section 5, the Company's determination to redeem in cash or shares of Common
Stock shall be applied ratably among the Holders of Debentures issued on the
Issuance Date based upon the principal amount of Debentures initially purchased
by each Holder on such Issuance Date, adjusted upward ratably in the event all
of the shares of Debentures of any Holder issued on such Issuance Date are no
longer outstanding.
Section 6. 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:
"Actual Minimum" shall have the meaning set forth in the Purchase
Agreement.
"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 in the State of New York are authorized or
required by law or other government action to close.
23
"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) a replacement at one time or within a one 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 (iii) 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
(ii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $0.01 par value per share, of
the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Date" shall have the meaning set forth in Section
4(a)(i).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Interest Conversion Rate" means 95% of the lesser of (i) the
average of the 20 VWAPs immediately prior to the applicable Interest
Payment Date or (ii) the average of the 20 VWAPs immediately prior to the
date the applicable interest payment shares are issued and delivered if
after the Interest Payment Date.
"Issuance Date" shall mean the date of first issuance of this
Debenture, regardless of the number of transfers of such Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Late Fees" shall have the meaning set forth in the second paragraph
to this Debenture.
"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, plus all other
accrued and unpaid amounts due hereunder, or (B) the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon,
plus all other accrued and unpaid amounts due hereunder, divided by the
Set Price
24
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.
"Monthly Conversion Price" shall have the meaning set forth in
Section 5(b).
"Monthly Redemption" shall mean the redemption of the Debenture
pursuant to Section 5(a).
"Monthly Redemption Amount" shall mean, as to a Monthly Redemption,
1/26th of the aggregate Subscription Amounts paid by all holders of the
Debentures on the Issuance Date.
"Monthly Redemption Date" means the 1st of each month, commencing
immediately following the 11 month anniversary of the Issuance Date and
continuing until this Debenture is no longer outstanding.
"Optional Redemption Amount" shall mean the sum of (i) 120% 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 Debentures.
"Optional Redemption Date" shall have the meaning set forth in
Section 5(a).
"Original Issue Date" shall mean the date of the first issuance of
any Debenture pursuant to the Purchase Agreement.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of the Original Issue Date, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time
in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company and
the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
25
"Set Price" shall have the meaning set forth in Section 4(c)(i).
"Shareholder Approval" means such approval as may be required by the
applicable rules and regulations of the Principal Market (or any successor
entity) from the shareholders of the Company with respect to the
transactions contemplated by the Transaction Documents, including the
issuance of all of the Underlying Shares and shares of Common Stock
issuable upon exercise of the Warrants.
"Trading Day" means (a) a day on which the shares of Common Stock
are traded on the Principal Market on which the shares of Common Stock are
then listed or quoted, or (b) if the shares of Common Stock are not quoted
on a Principal Market, a day on which the shares of Common Stock are
quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, that in the event
that the shares of Common Stock are not listed or quoted as set forth in
(a), (b) and (c) hereof, then Trading Day shall mean a Business Day.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of Debentures 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.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Principal Market or the OTC Bulletin Board, the daily volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Principal Market (or OTC Bulletin Board) on which
the Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a Trading Day from 9:30 a.m. ET to 4:02 p.m.
Eastern Time) using the VAP function; (b) if the Common Stock is not then
listed or quoted on a Principal Market or the OTC Bulletin Board and if
prices for the Common Stock are then reported in the "pink sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or
(c) in all other cases, the fair market value of a share of Common Stock
as determined by a nationally recognized independent appraiser selected in
good faith by Purchasers holding a majority of the outstanding principal
amount of Debentures.
26
Section 7. 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. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders, (a) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (b) 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 (c) enter into any agreement with respect to any of
the foregoing.
Section 8. 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.
Section 9. The Company will not and will not permit any of its
subsidiaries to, directly or indirectly, enter into, create, incur, assume or
suffer to exist any indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom that is senior in any respect to the Company's
obligations under the Debentures.
Section 10. 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
27
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.
Section 11. 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.
Section 12. 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 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 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 the Debentures 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.
Section 13. 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.
*********************
28
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
MATRITECH, INC.
By:_____________________________________
Name:
Title:
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal and, if specified, interest
under the 7.5% Convertible Debenture of Matritech, Inc., (the "Company") due on
_____________ __, 200__, into shares of common stock, $0.01 par value 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 Company's 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:
Applicable Conversion Price:
Signature:
Name:
Address:
SCHEDULE 1
CONVERSION SCHEDULE
7.5% Convertible Debentures due on _____________ __, 200__(6), in the aggregate
principal amount of $____________ issued by Xxxxxxxxx, Inc. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
Aggregate Principal
Amount Remaining
Subsequent to
Date of Conversion Conversion
(or for first entry, Amount of Conversion (or original Company Attest
Issuance Date) Principal
Amount)
------------------------------ ------------------------- --------------------- ------------------------------
----------
6 The applicable Closing Date.
31
