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EXHIBIT 4.3
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. 1 $1,000,000
NEOTHERAPEUTICS, INC.
5% SUBORDINATED CONVERTIBLE DEBENTURE
DUE APRIL 6, 2005
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of NeoTherapeutics, Inc., a Nevada corporation, having a principal
place of business at 000 Xxxxxxxxxx Xxxxx, Xxxxxx, XX 00000 (the "Company"),
designated as its 5% Subordinated Convertible Debentures, due April 6, 2005, in
the aggregate principal amount of Ten Million Dollars ($10,000,000) (the
"Debentures").
FOR VALUE RECEIVED, the Company promises to pay to [ ], or its
registered assigns (the "Holder"), the principal sum of One Million Dollars
($1,000,000), on April 6, 2005 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 5% per annum,
payable on each Conversion Date (as defined in Section 4(a)(i)(C)) with respect
to the principal amount then converted and on the Maturity Date, in cash or
shares of Common Stock (as defined in Section 6). Subject to the terms and
conditions set forth 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 ten Trading Days (as defined in Section 6) prior to each Conversion
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 pursuant to
the terms of Section 4(a)(i) (the Company may indicate in such notice that the
election contained in such notice shall continue for later periods until
revised). Failure to timely provide such written notice shall be deemed an
election by the Company to pay the interest on such Conversion Date in shares of
Common Stock pursuant to the terms of Section 4(a)(i). Interest shall be
calculated on the basis
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on a 360-day year and shall accrue daily commencing on the Original Issue Date
(as defined in Section 6) until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person (as
defined in Section 6) in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of Debentures (the
"Debenture Register"). All overdue accrued and unpaid interest to be paid in
cash hereunder shall entail a late fee at the rate of 18% per annum (or such
lower maximum amount of interest permitted to be charged under applicable law)
to accrue daily, from the date such interest is due hereunder through and
including the date of payment, payable in cash.
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 the registration of such exchange.
Section 2. This Debenture has been issued subject to certain investment
representations of the original Holder set forth in the Purchase Agreement (as
defined in Section 6) and may be transferred or exchanged only in compliance
with the Purchase Agreement. Prior to due presentment to the Company for
transfer of this Debenture, the Company and any agent of the Company may treat
the Person (as defined in Section 6) 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);
(ii) the Company shall fail to observe or perform any
other covenant, agreement or warranty contained in, or otherwise commit
any breach of any of the Transaction Documents (as defined in Section
6), and such failure or breach shall not have been remedied within five
Business Days (as defined in Section 6) after the date on which written
notice of such failure or breach shall have been received by the
Company;
(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
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bankruptcy or insolvency laws as now or hereafter in effect or any
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 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
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 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 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 one hundred thousand dollars ($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 either be delisted from the
Nasdaq National Market ("NASDAQ") or suspended from trading on the
NASDAQ without resuming trading and/or being relisted thereon or listed
on the New York Stock Exchange, American Stock Exchange or the Nasdaq
SmallCap Market (each, a "Subsequent Market") or having such suspension
lifted, in either case, for five consecutive Trading Days or ten
Trading Days in the aggregate (which need not be consecutive Trading
Days);
(vi) the Company shall be a party to any Change of
Control Transaction (as defined in Section 6), shall agree to sell or
dispose all or in excess of 33% of the fair market value 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 of
shares of Common Stock or other equity securities of the Company for an
aggregate of purchase prices in excess of $75,000 (other than
redemptions of Underlying Shares (as defined in Section 6));
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(vii) an Underlying Shares Registration Statement (as
defined in Section 6) shall not have been declared effective by the
Commission (as defined in Section 6) on or prior to the 180th day after
the Original Issue Date;
(viii) if, during the Effectiveness Period (as
defined in the Registration Rights Agreement (as defined in Section
6)), 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, for more than five consecutive Trading Days or an
aggregate of ten Trading Days (which need not be consecutive Trading
Days);
(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 unless no
Registration Delay Payment (as defined in the Registration Rights
Agreement) is due in respect to such Event, and excluding an Event
resulting from a failure of an Underlying Shares Registration Statement
to be declared effective by the Commission on or prior to the 180th day
after the Original Issue Date, which shall be covered by Section
3(a)(vii);
(x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the twelfth (12th) day after a
Conversion Date pursuant to and in accordance with Section 4(b) or the
Company shall provide notice to the Holder, including by way of public
announcement, at any time, of its intention not to comply with requests
for conversions of any Debentures in accordance with the terms hereof;
or
(xi) the Company shall fail for any reason to deliver
the payment in cash pursuant to a Buy-In (as defined herein) within
seven (7) days after notice is deemed delivered hereunder.
(b) During the time that any portion of this Debenture remains
outstanding, 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, immediately
due and payable in cash. The aggregate amount payable upon an Event of Default
shall be equal to the sum of (i) the Mandatory Prepayment Amount (as defined in
Section 6) plus (ii) the product of (A) the number of Underlying Shares issued
in respect of conversions hereunder within thirty (30) days of the date of a
declaration of an Event of Default and then held by the Holder and (B) the Per
Share Market Value (as defined in Section 6) on the date prepayment is due or
the date the full prepayment price is paid, whichever is greater. Interest shall
accrue on the prepayment amount hereunder from the seventh day after such amount
is due (being the date of an Event of Default) through the date of prepayment in
full thereof at the rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law), to accrue daily from the date such
payment is due hereunder through and including the date of payment. All
Debentures and Underlying Shares for which the full prepayment price hereunder
shall have been paid in accordance herewith shall promptly be
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surrendered to or as directed by the Company. The Holder need not provide and
the Company hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded
and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.
Section 4. Conversion.
(a) (i) Conversion at Option of Holder. (A) 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 (subject to the limitations on conversion set forth in Section 4(a)(iii)
hereof). The number of shares of Common Stock issuable upon a conversion
hereunder shall be determined by adding the sum of (i) the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be converted
by (y) the Conversion Price (as defined herein), and (ii) the amount equal to
(I) the product of (x) the outstanding principal amount of this Debenture to be
converted and (y) the product of (1) the quotient obtained by dividing .05 by
360 and (2) the number of days for which such principal amount was outstanding,
divided by (II) the Conversion Price on the Conversion Date, provided, that if
the Company shall have timely elected to pay the interest due on a Conversion
Date in cash pursuant to the terms hereof, subsection (ii) shall not be used in
the calculation of the number of shares of Common Stock issuable upon a
conversion hereunder.
(B) 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 interest hereunder in shares of
Common Stock;
(2) after the Interest Effectiveness Date (as defined
in Section 6) such shares of Common Stock (x) are not registered for
resale pursuant to an effective Underlying Shares Registration
Statement and (y) may not be sold without volume restrictions pursuant
to Rule 144(k) promulgated under the Securities Act (as defined in
Section 6), as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent in
the form and substance acceptable to the applicable Holder and such
transfer agent;
(3) the Common Stock is not listed or quoted on the
NASDAQ or on a Subsequent Market;
(4) the Company has failed to timely satisfy its
conversion obligations hereunder; or
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(5) the issuance of such shares of Common Stock would
result in a violation of Sections 4(a)(iii)(A) and (B),
then, at the option of the Holder, the Company, in
lieu of delivering shares of Common Stock pursuant to Section 4(a)(i)(A)(ii),
shall deliver, within three Trading Days of the applicable Conversion Date, an
amount in cash equal to the product of (a) the outstanding principal amount of
the Debentures to be converted on such Conversion Date and (b) the product of
(x) the quotient obtained by dividing .05 by 360 and (y) the number of days for
which such principal amount was outstanding.
If shares of Common Stock are permitted by the Holder to be delivered
under the conditions described in clause (2) prior to the Effectiveness Date (as
defined in the Registration Rights Agreement) and thereafter an Underlying
Shares Registration Statement shall be declared effective by the Commission, the
Company shall, within three (3) Trading Days after the date of such declaration
of effectiveness, exchange such shares for shares of Common Stock that are free
of restrictive legends of any kind.
(C) The Holder shall effect conversions by
surrendering the Debentures (or such portions thereof) to be converted, together
with the form of conversion notice attached hereto as Exhibit A (a "Conversion
Notice") to the Company. Each Conversion Notice shall specify the principal
amount of Debentures to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date such Conversion Notice is
deemed to have been delivered hereunder (a "Conversion Date"). If no Conversion
Date is specified in a Conversion Notice, the Conversion Date shall be the date
that such Conversion Notice is deemed delivered hereunder. Subject to Section
4(b), each Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented by the Debenture(s)
tendered by the Holder with the Conversion Notice, or if a conversion hereunder
cannot be effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall promptly deliver to
such Holder (in the manner and within the time set forth in Section 4(b)) a new
Debenture for such principal amount as has not been converted.
(ii) Automatic Conversion. Subject to the provisions
in this paragraph, the principal amount of Debentures for which conversion
notices have not previously been received or for which prepayment has not been
made or required hereunder shall be automatically converted on the fifth
anniversary of the Original Issue Date (the "Automatic Conversion Date")
pursuant to Section 4(a)(i), at the Conversion Price on such date. The
conversion contemplated by this paragraph shall not occur if (a) (1) an
Underlying Securities Registration Statement is not then effective that names
the Holder as a selling stockholder thereunder and (2) the Holder is not
permitted to resell Underlying Shares pursuant to Rule 144(k) promulgated under
the Securities Act, without volume restrictions, as evidenced by an opinion
letter of counsel acceptable to the Holder and the transfer agent for the Common
Stock; or (b) there are not sufficient shares of Common Stock authorized and
reserved for issuance upon such conversion. Notwithstanding anything herein to
the contrary, the Automatic Conversion Date shall be extended (on a day-for-day
basis) for any Trading Days after the Effectiveness Date that the Holder is
unable to resell Underlying Shares due to (a) the Common Stock not being listed
for trading on the NASDAQ or any Subsequent Market, (b) the
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failure of an Underlying Securities Registration Statement to be declared
effective by the Commission or, if so declared, to remain effective during the
Effectiveness Period as to all Underlying Shares, or (c) the suspension of the
Holder's right to resell Underlying Shares thereunder. Notwithstanding anything
to the contrary contained herein, a conversion pursuant to this Section shall
not be subject to the provisions of Section 4(a)(iii)(A).
(iii) Certain Conversion Restrictions.
(A) A Holder may not convert Debentures 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 (as defined in Section 6) and
the rules promulgated thereunder) in excess of 9.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of interest on, the Debentures held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company 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 9.999% 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
Debentures are convertible shall be the responsibility and obligation of the
Holder. 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. 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 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
(B) If the Common Stock is then listed for trading on
the NASDAQ or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company is precluded from
issuing in excess of 1,907,121 shares of Common Stock (the "Issuable Maximum")
upon conversion of the Debentures and as payment of interest thereon and
exercise of the Class B Warrants (as defined in the Purchase Agreement) in
response to a Call Notice (as defined in the Class B Warrants). The Issuable
Maximum equals 19.999% of the number of shares of Common Stock outstanding
immediately prior to the closing of transactions set forth in the Purchase
Agreement. Accordingly, if on any Conversion Date (A) the Common Stock is listed
for trading on the NASDAQ or the Nasdaq SmallCap Market and (B) the Company
shall not have previously obtained the vote of shareholders (the "Shareholder
Approval"), if any, as may be required by the applicable rules and regulations
of
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the Nasdaq Stock Market (or any successor entity) applicable to approve the
issuance of a number of shares of Common Stock in excess of the Issuable Maximum
at a price below the market price of the Common Stock, then the Company shall
issue to the Holder requesting a conversion a number of shares of Common Stock
equal to the lesser of (x) the number of shares of Common Stock issuable upon
such conversion at the Conversion Price and (y) the Issuable Maximum less all
shares of Common Stock previously issued upon conversion of the Debentures and
as payment of interest thereon and all shares of Common Stock previously issued
upon any exercise of the Class B Warrants in response to a Call Notice. With
respect to the principal amount of Debentures tendered for conversion at issue
for which a conversion in accordance with the Conversion Price would, when
aggregated with all shares of Common Stock previously issued on account of
conversions of Debentures and payment of interest thereon and upon exercise of
Class B Warrants in response to a Call Notice (the "Excess Principal"), result
in the issuance of a number of shares of Common Stock in excess of the Issuable
Maximum, the converting Holder shall have the option to require the Company to
either (1) use its best efforts to obtain the Shareholder Approval applicable to
such issuance as soon as is possible, but in any event not later than the 60th
day after such request, or (2) pay cash to the converting Holder in an amount
equal to the Mandatory Prepayment Amount for the Excess Principal. If the
converting Holder shall have elected the first option pursuant to the
immediately preceding sentence and the Company shall have failed to obtain the
Shareholder Approval on or prior to the 60th day after such request, then within
three days of such 60th day, the Company shall pay cash to the converting Holder
an amount equal to the Mandatory Prepayment Amount for the Excess Principal. If
the Company fails to pay the Mandatory Prepayment Amount in full pursuant to
this Section within seven days of the date payable, the Company will pay
interest thereon at a rate of 18% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the converting Holder, accruing
daily from the Conversion Date until such amount, plus all such interest
thereon, is paid in full. In the event there is more than one holder of
Debentures, the Issuable Maximum applicable to each Debenture shall be
determined pro rata by reference to the percentage of the principal amount of
such Debenture and $10,000,000, provided that if one or more Debentures shall
have been redeemed or converted without having been issued its pro rata
allocated portion of the Issuable Maximum such unissued shares shall be
allocated pro rata to the remaining Holders. It is understood and agreed that
shares of Common Stock delivered to and held by the Holder or one of its
affiliates on account of conversion hereunder may not cast votes on the matter
of Shareholder Approval. Xxxxxx delivered on account of conversion hereunder and
not held by the Holder or its affiliates may cast votes on the matter of
Shareholder Approval.
(b) (i) Not later than three Trading Days after any Conversion
Date, the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of
Debentures (subject to the limitations set forth in Section 4(a)(iii) hereof),
(ii) Debentures in a principal amount equal to the principal amount of
Debentures not converted, and (iii) a bank check in the amount of accrued and
unpaid interest (if the Company has timely elected or is required to pay accrued
interest in cash) and the Floor Prepayment Price (as defined in Section
4(c)(i)(B)) (if applicable), provided, that the Company shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon
conversion of the principal amount of Debentures until Debentures are delivered
for conversion to the Company, or the Holder notifies the
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Company that such Debentures have been lost, stolen or destroyed and provides a
bond (or other adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith. The
Company shall, upon request of the Holder, if available, 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 third 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 to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the third Trading Day
after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $5,000 for each Trading Day after such
third 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
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures or as payment of
interest thereon by the third Trading Day after the Conversion Date, the Holder
may, by notice to the Company, require the Company to issue shares of Common
Stock pursuant to Section 4(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) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i) by the third Trading Day after the
Conversion Date, and if after such third 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 Company shall (A) pay in
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the 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 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 market price of the
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Underlying Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 4(b)(ii) in respect of the certificates resulting in such Buy-In.
(c) (i)(A) The conversion price (the "Conversion Price") in
effect on any Conversion Date occurring on or prior to the 90th day following
the Original Issue Date shall be $20.25 (the "Initial Conversion Price"),
provided, that for any Conversion Date occurring after the 90th day following
the Original Issue Date, the Conversion Price shall be the lesser of (A) the
Initial Conversion Price and (B) 101% of the average of the ten lowest Per Share
Market Values during the thirty Trading Days immediately preceding the
applicable Conversion Date (which may include Trading Days prior to the Original
Issue Date), provided, however, that such thirty Trading Day period shall be
extended for the number of Trading Days during such period in which (A) trading
in the Common Stock is suspended by the NASDAQ or a Subsequent Market on which
the Common Stock is then listed, or (B) after the date declared effective by the
Commission, the Underlying Shares Registration Statement is not effective, or
(C) after the date declared effective by the Commission, the Prospectus included
in the Underlying Shares Registration Statement may not be used by the Holder
for the resale of Underlying Shares.
(B) If on any Conversion Date, the Conversion Price shall
be lower than $14.00 (which number shall be subject to equitable adjustments for
stock splits, recombinations and similar events) (such Conversion Price, the
"Floor Price" and a Conversion Date on which such condition is met, a "Record
Date"), then the Company will have the right, exercisable by delivery of a
written notice to the Holders delivered no later than twenty Trading Days prior
to the Record Date (the "Company Notice"), which notice shall remain in effect
until a subsequent such notice is provided by the Company to the Holders, to
elect to honor the conversion at issue by either: (x) issuing the number of
shares of Common Stock issuable at the actual Conversion Price pursuant to
Section 4(c)(i)(A), or (y) issue the number of shares of Common Stock issuable
upon the conversion at issue, as if the conversion price applicable to such
conversion was equal to the Floor Price and pay cash, no later than the third
Trading Day following the applicable Conversion Date, to the Holder, in an
amount equal to the product of (A) the average of the Per Share Market Values
for the five Trading Days preceding the Conversion Date for such conversion and
(B) the number of shares of Common Stock otherwise issuable at the actual
Conversion Price then in effect less the number of shares of Common Stock
issuable upon such conversion at the Floor Price (the "Floor Prepayment Price").
Failure by the Company to timely deliver the Company Notice to the Holder
pursuant to the terms of this Section shall result conclusively be deemed an
election by the Company under subsection (x) hereunder. Failure by the Company
to pay any portion of the Floor Prepayment Price by the third Trading Day
following the applicable Conversion Date shall result in the invalidation ab
initio of the unpaid portion of such optional prepayment. In such event, the
Company shall, at the option of the Holder, either, (i) not later than three
Trading Days from receipt of Holder's request for such election, return to the
Holder all of the principal amount of Debentures for which such Floor
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Convertible Debenture
11
Prepayment Price has not been paid in full (the "Unpaid Prepayment Debentures")
or (ii) convert all or any portion of the Unpaid Prepayment Debentures in which
event the applicable Conversion Price shall be the lower of the Per Share Market
Value Conversion Price calculated on the date the Floor Prepayment Price was
originally due and the Per Share Market Value Conversion Price as of the
Holder's written demand for conversion. If the Holder elects option (ii) above,
the Company shall within three Trading Days of its receipt of such election
deliver to the Holder the shares of Common Stock issuable upon conversion of the
Unpaid Prepayment Debentures subject to such Holder conversion demand and
otherwise perform its obligations hereunder with respect thereto.
(ii) If the Company, at any time while any Debentures are
outstanding, (a) shall 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 Company, then the Initial
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding 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.
(iii) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to
Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security other than with respect to rights granted
pursuant to a stockholders rights plan adopted by the Company, then in each such
case the Initial Conversion Price shall be adjusted by multiplying the Initial
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value determined
as of the record date mentioned above, and of which the numerator shall be such
Per Share Market Value on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(iv) 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, the Holders shall have the right
thereafter to, at their 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 only 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
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Convertible Debenture
12
such reclassification or share exchange, and the Holders of the Debentures shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company 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 Company to prepay the aggregate of
its outstanding principal amount of Debentures, plus all interest and other
amounts due and payable thereon, at a price determined in accordance with
Section 3(b). The entire prepayment price shall be paid in cash. This provision
shall similarly apply to successive reclassifications or share exchanges.
(v) 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. No
adjustments in either the Conversion Price or the Initial Conversion Price shall
be required if such adjustment is less than $0.01, provided, however, that any
adjustments which by reason of this Section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(vi) Whenever the Initial Conversion Price is adjusted
pursuant to Section 4(c)(ii) or (iii), the Company shall promptly mail to each
Holder a notice setting forth the Initial Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(vii) 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
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Convertible Debenture
13
to convert Debentures during the 20-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(viii) In case of the closing of any (1) merger or
consolidation of the Company with or into another Person, or (2) sale by the
Company of more than one-half of the assets of the Company (on a market value
basis) in one or a series of related transactions, a Holder shall have the right
to (A) if permitted under Section 3(b) hereof, exercise its rights of prepayment
under Section 3(b) with respect to such event, or (B) convert its aggregate
principal amount of Debentures 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 conversion of the Debentures to receive such
amount of securities, cash and property as the shares of Common Stock into which
such aggregate principal amount of Debentures could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled. The terms of any such merger, sale or consolidation shall include such
terms so as to continue to give the Holders 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.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(b)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the 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 Per Share Market Value 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
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Convertible Debenture
14
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 of the Debentures 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
000 Xxxxxxxxxx Xxxxx, Xxxxxx, XX 00000, Facsimile No.: (000) 000-0000, attention
Chief Financial Officer, 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, with a copy to Xxxxxx & Xxxxxxx, 000 Xxxx Xxxxxx
Xxxxx, Xxxxx 0000, Xxxxx Xxxx, XX 00000-0000 (facsimile number (000) 000-0000),
attention Xxxx X. Xxxxxx, Esq. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each Holder of the Debentures 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 6:30 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 6:30 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.
Section 5. Optional Prepayment.
(a) During the time that any portion of this Debenture remains
outstanding, the Company shall have the right, exercisable on any Trading Day in
which the Conversion Price shall be less than $14.00 (which number shall be
subject to equitable adjustments for stock splits, recombinations and similar
events), in accordance with the terms hereof and upon three Trading Days' prior
written notice to the Holders to be prepaid (an "Optional Prepayment Notice"),
to prepay all or any portion of the outstanding principal amount of the
Debentures which has not previously been repaid or for which Conversion Notices
have not previously been delivered. The prepayment price applicable to
prepayments under this Section 5(a) shall equal the Optional Prepayment Price
(as defined in Section 6) and shall be paid in cash. Any such prepayment shall
be free of any claim of subordination. The Holders shall have the right to
tender, and the Company shall honor, Conversion Notices delivered on or prior to
the expiration of the third Trading Day after receipt by the Holders of an
Optional Prepayment Notice for such Debentures (the third Trading Day after
receipt by the Holders of an Optional Prepayment Notice is referred to herein as
the "Optional Prepayment Date").
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Convertible Debenture
15
(b) The Company shall not be entitled to deliver an Optional
Prepayment Notice to the Holder (and, if after delivery thereof and prior to the
Optional Prepayment Date, any of the following conditions shall cease to be met,
such notice, at the option of the Holders, shall be deemed no longer effective)
if: (i) the number of shares of Common Stock at the time authorized, unissued
and unreserved for all purposes is insufficient to satisfy the Company's
conversion obligations of the aggregate principal amount of Debentures then
outstanding, or (ii) there is neither an effective Underlying Shares
Registration Statement under which the Holders can resell all of the issued
Underlying Shares and all of the Underlying Shares as are issuable upon
conversion in full of the principal amount of Debentures subject to an Optional
Prepayment Notice nor may all of such issued and issuable Underlying Shares be
sold by the Holders subject to such prepayment without volume restrictions
pursuant to Rule 144 promulgated under the Securities Act, as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the Holders and
such transfer agent, or (iii) the Common Stock is not then listed for trading on
the NASDAQ or on a Subsequent Market.
(c) If any portion of the Optional Prepayment Price shall not
be paid by the Company by the second (2nd) Business Day following the Optional
Prepayment Date, the Optional Prepayment Price shall bear interest at the rate
of 18% per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to accrue daily from the date such interest is due hereunder
through and including the date of payment (which amount shall be paid as
liquidated damages and not as a penalty). In addition, if any portion of the
Optional Prepayment Price remains unpaid through the expiration of the Optional
Prepayment Date, the Holder subject to such prepayment may elect by written
notice to the Company to either (x) demand conversion in accordance with the
formula and the time period therefor set forth in Section 4 of any portion of
the principal amount of Debentures for which the Optional Prepayment Price, plus
accrued interest thereon, has not been paid in full (the "Unpaid Prepayment
Principal Amount"), in which event the applicable Per Share Market Value shall
be the lower of the Per Share Market Value calculated on the Optional Prepayment
Date and the Per Share Market Value as of the Holder's written demand for
conversion, or (y) invalidate ab initio such optional prepayment,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (x) above, the Company shall, within three Trading Days after such
election is deemed delivered hereunder, deliver to the Holder the shares of
Common Stock issuable upon conversion of the Unpaid Prepayment Principal Amount
subject to such conversion demand and otherwise perform its obligations
hereunder with respect thereto. If the Holder elects option (y) above, the
Company shall promptly, and in any event not later than three Trading Days from
receipt of notice of such election, return to the Holder new Debentures for the
full Unpaid Prepayment Principal Amount and shall no longer have any prepayment
rights under this Debenture. If, upon an election under option (x) above, the
Company fails to deliver certificates representing the shares of Common Stock
issuable upon conversion of the Unpaid Prepayment Principal Amount within the
time period set forth in this Section, the Company shall pay to the Holder in
cash, as liquidated damages and not as a penalty, $5,000 per day until the
Company delivers such certificates to the Holder.
Section 6. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
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Convertible Debenture
16
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York or the State of California are authorized or required by law
or other government action to close.
"Change of Control Transaction" means the occurrence 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 33% of the
voting securities of the Company, (ii) a replacement at one time or over time 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), (iii) the merger or consolidation of the Company
with or into another entity that is not wholly-owned by the Company upon the
completion of which the stockholders of the Company, immediately before such
merger or consolidation, own or control less than 2/3 of the voting securities
of the surviving entity, or sale of 50% or more of the assets of the Company in
one or a series of related transactions, or (iv) 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), (ii) or (iii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.001 par value per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Interest Effectiveness Date" means the earlier to occur of
(x) the Effectiveness Date (as defined in the Registration Rights Agreement) and
(y) the date that an Underlying Shares Registration Statement is declared
effective by the Commission.
"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, and (B) the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, divided by the Conversion Price on (x) the date the Mandatory
Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory
Prepayment Amount is paid in full, whichever is less, multiplied by the Per
Share Market Value 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.
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Convertible Debenture
17
"Optional Prepayment Price" shall equal the sum of (i) 106% of
the principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such Debentures.
"Original Issue Date" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the shares of Common Stock are then listed or
quoted, or if there is no such price on such date, then the closing bid price on
the NASDAQ or on such Subsequent Market on the date nearest preceding such date,
or (b) if the shares of Common Stock are not then listed or quoted on the NASDAQ
or a Subsequent Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the shares of
Common Stock are not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority in interest of the principal amount of Debentures then
outstanding.
"Person" means a corporation, an association, a partnership,
an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Debenture 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.
"Trading Day" means (a) a day on which the shares of Common
Stock are traded on the NASDAQ or on such Subsequent Market on which the shares
of Common Stock are then listed or quoted, or (b) if the shares of Common Stock
are not listed on the NASDAQ or a Subsequent Market, a day on which the shares
of Common Stock are traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (c) if the shares of Common Stock are not quoted on the
OTC Bulletin Board, 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, however, 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
-17-
Convertible Debenture
18
Day shall mean any day except Saturday, Sunday and any day which shall be a
legal holiday 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.
"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.
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 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, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (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. The Company may only voluntarily prepay the outstanding principal
amount on the Debentures in accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to 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
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. 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 10. This Debenture is subordinate to all bank debt of the
Company outstanding as of the Original Issue Date and set forth in Schedule
2.1(n) to the Purchase Agreement or at any time thereafter.
-18-
Convertible Debenture
19
Section 11. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, 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 that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument 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.
Section 12. 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 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
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.
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.
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SIGNATURE PAGE FOLLOWS]
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Convertible Debenture
20
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.
NEOTHERAPEUTICS, INC.
By:________________________
Name:
Title:
Attest:
By:______________________________
Name:
Title:
Convertible Debenture
21
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
common stock, $.001 par value per share (the "Common Stock"), of
NeoTherapeutics, Inc. (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 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.
Conversion calculations:
______________________________________________
Date to Effect Conversion
______________________________________________
Principal Amount of Debentures to be Converted
______________________________________________
Number of shares of Common Stock to be Issued
______________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
Convertible Debenture
