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. 5 $500,000
HORIZON PHARMACIES, INC.
5% CONVERTIBLE DEBENTURE
DUE MARCH 31, 2003
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of HORIZON Pharmacies, Inc., a Delaware corporation, having a
principal place of business at 000 Xxxx Xxxxxx, Xxxxxxx, Xxxxx 00000 (the
"COMPANY"), designated as its 5% Convertible Debentures, due March 31, 2003, in
the aggregate principal amount of Two Million Five Hundred Thousand Dollars
($2,500,000) (the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to Advantage Fund II,
Ltd., or its registered assigns (the "HOLDER"), the principal sum of Five
Hundred Thousand Dollars ($500,000), on March 31, 2003 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 herein) and on the Maturity
Date, in cash or shares of Common Stock (as defined in Section 5). 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 ten Trading Days (as defined in Section 5) 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 on a 360-day year and shall accrue daily commencing on
the Original Issue Date (as defined in Section 5) 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 5) in whose name this Debenture is
registered on the records of the Company regarding
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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 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 (as
defined in Section 5) 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 5) 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 for
a period of five days following the due date of such payment free of
any claim of subordination (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 5), and such failure or breach shall not have been remedied
within 20 days after the date on which notice of such failure or breach
shall have been given;
(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 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
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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 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 an aggregate of two hundred fifty thousand dollars
($250,000), 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 is either delisted from the
American Stock Exchange ("AMEX") or suspended from trading on the AMEX
without resuming trading and/or being relisted or thereon or listed on
the New York Stock Exchange, American Stock Exchange, Nasdaq National
Market or Nasdaq SmallCap Market (each, a "SUBSEQUENT MARKET") or
having such suspension lifted, in either case, for more than the lesser
of five consecutive Trading Days or an aggregate of eight Trading Days
(which need not be consecutive Trading Days);
(vi) the Company shall be a party to any Change
of Control Transaction (as defined in Section 5), shall agree to sell
or dispose all or in excess of 50% 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 $75,000
of shares of Common Stock or other equity securities of the Company
(other than redemptions of Underlying Shares (as defined in Section
5));
(vii) an Underlying Shares Registration Statement
(as defined in Section 6) shall not have been declared effective by the
Commission (as defined in Section 5) by the 180th day after the
Original Issue Date;
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(viii) if, during the Effectiveness Period (as
defined in the Registration Rights Agreement (as defined in Section
8)), 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 an aggregate of twenty-five 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 (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 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 tenth 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;
(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 is delivered hereunder; or
(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, at the
Holder's election immediately due and payable in cash. The aggregate amount
payable upon an Event of Default shall be equal to the sum of (i) the Mandatory
Prepayment Amount (as defined in Section 5) 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 5)
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 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.
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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)(ii) 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 and (y) the Conversion Price (as defined herein) on the Conversion
Date, 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 5) 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 5), 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 (if the shares of Common Stock are
permitted by the Holder to be delivered under this 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 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);
(3) the Common Stock is not listed or quoted on
the AMEX 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)(ii)(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 each
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.
(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, the applicable Conversion Price 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) 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 4.999% 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 4.999% 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
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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) 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 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.
(C) If the Common Stock is then listed
for trading on the AMEX and the Company has not obtained the Shareholder
Approval (as defined below), then the Company may not issue in excess of
1,173,863 shares of Common Stock upon conversions of Debentures or as payment of
interest thereon in shares of Common Stock (such number of shares, the "ISSUABLE
MAXIMUM"). 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. If on any Conversion Date (A) the Common Stock is listed
for trading on the AMEX, (B) the Conversion Price then in effect is such that
the aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding Debentures and as payment of interest
thereon in shares of Common Stock, together with any shares of Common Stock
previously issued upon conversion of Debentures and as payment of interest
thereon, would exceed the Issuable Maximum, and (C) 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
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regulations of the American Stock Exchange (or any successor entity) applicable
to approve the issuance of shares of Common Stock in excess of the Issuable
Maximum pursuant to the terms hereof, then the Company shall issue to the Holder
requesting a conversion a number of shares of Common Stock equal to the Issuable
Maximum and, with respect to the remainder of the principal amount of Debentures
then held by such Holder for which a conversion in accordance with the
Conversion Price would result in an issuance of shares of Common Stock in excess
of the Issuable Maximum (the "EXCESS PRINCIPAL"), 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 the later to occur of
such 60th day or the date of the request therefor, 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 holder shall be
determined pro rata by reference to the percentage of the principal amount of
the Debenture at issue and $2,500,000, 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.
(D) For so long as the Common Stock is
listed on the AMEX, Nasdaq National Market or Nasdaq SmallCap Market, unless the
Company shall have previously obtained the vote of the holders of the Common
Stock, if any, as may be required under the rules of the Amex or Nasdaq Stock
Market, as applicable to such issuance, the Holder will not hold in excess of
35% of the shares of Common Stock outstanding on the Original Issue Date as a
result of conversions or other deliveries hereunder.
(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)(ii) 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
-8-
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 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 provision 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
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Holder purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted conversion of Debentures with respect to
which the market price of the Underlying Shares on the date of conversion was a
total of $10,000 under clause (A) of the immediately preceding sentence, the
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 in effect on any
Conversion Date shall be $5.9125 (the "INITIAL CONVERSION PRICE"). However,
subject to the provisions of the immediately following sentence, on up to three
occasions during the period between the 30th Trading Day following the Effective
Date (as defined in Section 5) and the 18th month anniversary of the Effective
Date, the Holder shall be entitled to deliver to the Company a notice (an
"ADJUSTMENT NOTICE") requiring that 1/3 of the original principal amount of all
Debentures acquired by it (and, with respect to the third such notice, the
lesser of 1/3 of such principal amount and the principal amount then outstanding
for which no prior Adjustment Notices have been delivered) are subject to
conversion at a conversion price equal to 92% of the average of the lowest five
Per Share Market Values (which need not occur on consecutive Trading Days)
during the thirty Trading Days immediately preceding the date of the delivery of
the Adjustment Notice (such conversion price, the "ADJUSTED CONVERSION PRICE"),
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 AMEX or a Subsequent Market on which the Common Stock
is then listed, or (B) the Underlying Shares Registration Statement is not
effective or the Prospectus included in the Underlying Shares Registration
Statement may not be used by the Holder for the resale of Underlying Shares. If
after the Effective Date the average of the Per Share Market Values for 20
consecutive Trading Days is greater than 150% of the Initial Conversion Price
(which number shall be subject to equitable adjustment as provided in Section
4(c)(ii)), then the Holder shall not be entitled to deliver any additional
Adjustment Notices. However, previously delivered Adjustment Notices shall
continue to remain in effect. As used herein, the term "CONVERSION PRICE" shall
equal the Initial Conversion Price as adjusted by the Adjusted Conversion Price
and the provisions of this Section with respect to anti-dilution protection.
(B) If on any Conversion Date, the Conversion Price shall
be lower than $4.14 (which number shall be subject to equitable adjustments as
provided in Section 4(C)(ii) (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 at least 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
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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 as equals (x) the quotient obtained by dividing
the aggregate principal amount of Debentures for the conversion at issue by (y)
the difference between (i) the Floor Price and (ii) the Conversion Price on such
Conversion Date (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 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 Per Share Market Value for such shares
shall be the lower of the Per Share Market Value calculated on the date the
Floor Prepayment Price was originally due and the Per Share Market Value 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 any
Debentures are outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to Holders) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Per Share
Market Value at the record date mentioned below, then the Conversion Price shall
be multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of the Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered
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would purchase at such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while Debentures are outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS")
entitling any Person to acquire shares of Common Stock at a price per share less
than the Conversion Price (if the holder of the Common Stock or Common Stock
Equivalent so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights issued in connection with
such issuance, be entitled to receive shares of Common Stock at a price less
than the Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price), then the Conversion Price shall be multiplied
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such shares of Common
Stock or such Common Stock Equivalents plus the number of shares of Common Stock
which the offering price for such shares of Common Stock or Common Stock
Equivalents would purchase at the Conversion Price, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of Common Stock so issued or
issuable, PROVIDED, that for purposes hereof, all shares of Common Stock that
are issuable upon conversion, exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued. However, upon the expiration of any
Common Stock Equivalents the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section, if any such Common Stock Equivalents
shall expire and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to the
provisions of this Section after the issuance of such Common Stock Equivalents)
had the adjustment of the Conversion Price made upon the issuance of such Common
Stock Equivalents been made on the basis of offering for subscription or
purchase only that number of shares of Common Stock actually purchased upon the
exercise of such Common Stock Equivalents actually exercised. Notwithstanding
the foregoing, the following shall not be deemed to be Common Stock Equivalents:
(i) issuances pursuant to a grant or exercise of stock or options
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which may hereafter be granted or exercised under any employee benefit plan of
the Company now existing or to be implemented in the future; (ii) securities
issued in outstanding in connection with a Strategic Transaction (as defined
below) or a payment of purchase price in connection with a bona fide business
combination; (iii) securities issuable pursuant to convertible or exchangeable
securities of the Company that are outstanding on the Original Issue Date and
specified in Schedule 2.1(c) to the Purchase Agreement, and (iv) and (v) a
warrant for the purchase of 10,000 shares of the Company's Common Stock issued
to McKesson Corporation. A "STRATEGIC TRANSACTION" shall mean a transaction or
relationship in which the Company issues Common Stock to an entity which is,
itself or through its subsidiaries, an operating company in a business related
to the business of the Company and in which the Company receives material
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital.
(v) 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, then in each such case the Conversion
Price at which Debentures shall thereafter be convertible shall be determined by
multiplying the 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.
(vi) In case of any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common Stock
is converted into other securities, cash or property, 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 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.
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(vii) 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.
(viii) Whenever either the Initial Conversion Price
or the Conversion Price is adjusted pursuant to any of Section 4(c)(ii) - (v),
the Company shall promptly mail to each Holder a notice setting forth the
Initial Conversion Price or Conversion Price (as applicable) after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(ix) 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.
(x) In case 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 an as valued 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, (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 such event or series of related events to receive such amount
of
-14-
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, or (C) in
the case of a merger or consolidation, (x) require the surviving entity to issue
shares of convertible preferred stock or convertible debentures with such
aggregate stated value or in such face amount, as the case may be, equal to the
aggregate principal amount of Debentures then held by such Holder, plus all
accrued and unpaid interest and other amounts owing thereon, which newly issued
shares of preferred stock or debentures shall have terms identical (including
with respect to conversion) to the terms of this Debenture (except, in the case
of preferred stock, as may be required to reflect the differences between equity
and debt) and shall be entitled to all of the rights and privileges of a Holder
of Debentures set forth herein and the agreements pursuant to which the
Debentures were issued (including, without limitation, as such rights relate to
the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger or consolidation. In the case of
clause (C), the conversion price applicable for the newly issued shares of
convertible preferred stock or convertible debentures shall be based upon the
amount of securities, cash and property that each share of Common Stock would
receive in such transaction and the Conversion Price in effect immediately prior
to the effectiveness or closing date for such transaction. The terms of any such
merger, sale or consolidation shall include such terms so as to continue to give
the 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
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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
000 Xxxx Xxxxxx, Xxxxxxx, Xxxxx 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 & Xxxxxx L.L.P., 3700
Xxxxxxxx Xxxx Center, 0000 Xxxx Xxxxxx, Xxxxxx, Xxxxx 00000-0000 (facsimile
number (214) 220- 7716), attention: Xxx 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 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. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York or the State of Texas 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 50% 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
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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
of the Company with or into another entity that is not wholly-owned by the
Company, consolidation 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, $.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.
"EFFECTIVE DATE" shall mean the date that an Underlying Shares
Registration Statement is declared effective by the Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"INTEREST EFFECTIVENESS DATE" means the earlier to occur of
(x) the Effectiveness Date and (y) the Effective Date.
"MANDATORY PREPAYMENT AMOUNT" for any Debentures shall equal
the sum of (i) the greater of (A) 115% 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.
"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 AMEX 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
AMEX 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 AMEX 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
-17-
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,
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 AMEX 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 AMEX 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, 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 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 6. 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
-18-
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 7. 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 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. Other than indebtedness now or hereafter owing to McKesson &
Company pursuant to the Company's Credit Agreement, dated as of July 2, 1998 (as
amended) and to Bank One, Texas, National Association, pursuant to the Loan
Agreement, dated as of July 31, 1999, no indebtedness of the Company is senior
to this Debenture in right of payment, whether with respect to interest, damages
or upon liquidation or dissolution or otherwise. Except under the Credit
Agreement, referred to in the immediately prior sentence, 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
right of payment to this Debenture
SECTION 10. 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
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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 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.
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.
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SIGNATURE PAGE FOLLOWS]
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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.
HORIZON PHARMACIES, INC.
By: /s/ Xxxx X. XxXxxx
-------------------------------
Name: Xxxx X. XxXxxx
Title: President
Attest:
By:_______________________________
Name:
Title:
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