Contract
Exhibit 4.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE NOTE UNDER APPLICABLE SECURITIES LAWS OR
UNLESS OFFERED, SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE COMPANY SHALL BE
ENTITLED TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED TO THE EXTENT THAT AN OPINION IS REQUIRED PURSUANT TO
THE AGREEMENT UNDER WHICH THE NOTE WAS ISSUED.
THE RIGHT OF THE HOLDER OF THIS CONVERTIBLE SUBORDINATED NOTE TO RECEIVE PAYMENT
HEREUNDER IS SUBJECT AND SUBORDINATED IN PAYMENT TO THE SENIOR DEBT TO THE EXTENT
AND IN THE MANNER SET FORTH IN PARAGRAPH 3 OF THIS NOTE.
Columbia Laboratories, Inc.
CONVERTIBLE SUBORDINATED
NOTE
NOTE
Issuance Date: December 22, 2006
|
$ |
For value received, Columbia Laboratories, Inc., a Delaware corporation (the “Company”),
hereby promises to pay to , or its registered assigns (“Holder”), the principal amount
of $ together with interest thereon from the date set out above as the Issuance Date (the
“Issuance Date”) until the date such amount becomes due and payable in accordance with the
provisions of this Note.
This Note was issued pursuant to a Securities Purchase Agreement, dated as of December 21,
2006 (as amended and modified from time to time, the “Purchase Agreement”), between the Company and
certain investors, This Convertible Subordinated Note (including all Convertible Subordinated Notes
issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Convertible
Subordinated Notes issued pursuant to the Purchase Agreement on the Issuance Date (collectively,
the “Notes” and such other Convertible Subordinated Notes, the “Other Notes”). The Purchase
Agreement contains terms governing the rights of the Holder, and all provisions of the Purchase
Agreement are hereby incorporated herein in full by reference. Except as defined in paragraph 9 or
unless otherwise indicated herein, capitalized terms used in this Note have the same meanings set
forth in the Purchase Agreement.
1. Payment of Interest. Except as otherwise expressly provided in paragraph 4(b),
interest shall accrue at the Interest Rate computed on the basis of a 360 day year of twelve thirty
day months on the unpaid principal amount of this Note, outstanding from time to time and to the
extent permitted by applicable law, on any interest which has not been paid on the date on which it
is due and payable, or (if less) at the highest rate then permitted under applicable law. Subject
to paragraph 3, the Company shall pay to the Holder in cash all accrued and unpaid interest in
arrears for each calendar quarter on the first day of each April, July, October and January,
beginning April 1, 2007. Any accrued interest which for any reason has not theretofore been paid
shall be paid in full on the date on which the final principal payment on this Note is made.
3. Subordination.
(a) Extent of Subordination. All amounts (including all principal, interest, premiums
and other payments) payable by the Company under the Notes (the “Subordinated Debt”) are and shall
be subordinate and junior in right of payment to the prior payment in full of the Senior Debt (as
defined below) to the extent and in the manner set forth in this paragraph 3. Each holder of the
Senior Debt, whether now outstanding or hereafter incurred, shall be deemed to have acquired the
Senior Debt in reliance upon the provisions contained in this paragraph 3. This paragraph 3 shall
constitute a continuing offer to all persons who become holders of, or continue to hold, the Senior
Debt, and the provisions herein are made for the benefit of the holders of the Senior Debt, and
such holders are made obligees hereunder and any one or more of them may enforce such provisions.
(b) Payment Suspension.
(i) The Holder shall, at all times, be entitled to receive payments on account of the
Subordinated Debt in accordance with the terms of this Note; provided, however, that, if and so
long as a Senior Default (as defined below) has occurred and is continuing, and written notice
thereof (the “Senior Default Notice”) has been delivered by the holders of the Senior Debt to the
holders of the Subordinated Debt and the Company referencing the provisions of this paragraph 3 and
demanding a suspension of payments during the period of such continuance in accordance with this
subparagraph (b) (such period of time being referred to as the “Payment Suspension Period”), then,
except as otherwise set forth below, the Company shall not make, and the holders of the
Subordinated Debt shall not accept or receive from the Company, directly or indirectly, in cash or
other property or by set-off or in any other manner (including, without limitation, from or by way
of any collateral or redemption or sale), payment of all or any part of the Subordinated Debt
unless and until the earlier of (A) the Senior Debt has been paid in full or (B) the Senior Default
has been cured by the Company or waived by the holders of the Senior Debt or the holders of the
outstanding principal amount of the Senior Debt have terminated the Payment Suspension Period, in
each case in accordance with the terms of the relevant agreements governing such Senior Debt.
- 2 -
(ii) “Senior Default” means (i) the occurrence and continuance
(after any applicable grace
period) of a default in payment of all or any part of the Senior Debt, or (ii) the breach or
default by the Company of any term of this Note if the effect of such breach or default it to cause
an amount exceeding $500,000 to become due prior to its stated maturity or to permit the Holder of
this Note to cause an amount exceeding $500,000 to become due prior to its stated maturity, or
(iii) the occurrence of any event that provides the Holder of this Note with cash redemption rights
prior to its stated maturity.
(c) Liquidation, Winding Up, etc. Upon any distribution of assets of the Company or
upon any dissolution, winding up, liquidation or reorganization of the Company, whether in any
bankruptcy, insolvency, reorganization or receivership proceeding or upon an assignment for the
benefit of creditors or any other marshalling of the assets and liabilities of the Company:
(i) the holders of all Senior Debt shall be entitled to receive payment in full of the
principal thereof, the interest due thereon and any premium or other payment obligation with
respect thereto before the holders of the Subordinated Debt are entitled to receive any payment
upon the Subordinated Debt; and
(ii) any payment or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, by set-off or otherwise, to which the holders of the Subordinated
Debt would be entitled but for the provisions of this paragraph 3 shall be paid by the liquidating
trustee or agent or other Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Debt
or their agents or representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Debt may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the principal of, interest on and any premium or
other amounts payable with respect to the Senior Debt held or represented by each such holder, to
the extent necessary to make payment in full of all Senior Debt remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of the Senior Debt.
The consolidation of the Company with, or the merger of the Company into, another entity shall not
be deemed a dissolution, winding up, liquidation or reorganization of the Company for the purposes
of this paragraph 3(c) if such other entity is organized in the United States and such entity, as a
part of such consolidation or merger, succeeds to the Company’s property and business and assumes
the Company’s obligations (including the Senior Debt and the Subordinated Debt).
(d) Payment Held in Trust. All payments or distributions by the Company upon or with
respect to the Subordinated Debt which are received by the holders thereof in violation of or
contrary to the provisions of subparagraph (b) or (c) above shall be received in trust for the
benefit of the holders of the Senior Debt and shall be paid over upon demand to such holders in the
same form as so received (with all necessary endorsements) to be applied to the payment of the
Senior Debt.
(e) Subrogation. Upon receipt by the holders of the Senior Debt of amounts sufficient
to pay all Senior Debt in full, to the extent any amounts which are otherwise payable with respect
to the Subordinated Debt but for the provisions of this paragraph 3 have been paid over to the
holders of the Senior Debt, the holders of the Subordinated Debt shall be subrogated to the rights
of the holders of Senior Debt to receive payments or distributions of cash, property
- 3 -
or securities of the Company applicable to Senior Debt until the Subordinated Debt is paid in
full, and no such payments or distributions to the holders of the Senior Debt of cash, property or
securities otherwise distributable to the holders of Subordinated Debt shall, as between the
Company, its creditors (other than the holders of Senior Debt) and the holders of the Subordinated
Debt, be deemed to be payment by the Company to the holders of the Senior Debt. Upon any payment
or distribution of assets of the Company referred to in this paragraph 3, the holders of the
Subordinated Debt shall be entitled to rely upon a certificate of the liquidating trustee or agent
or other Person making any distribution to the holders of the Subordinated Debt for the purpose of
ascertaining the Persons entitled to participate in such distribution, the holders of Senior Debt
and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this paragraph 3. The
provisions of this paragraph 3 shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by
the holders of the Senior Debt for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of the Company) all as though such payment had not been
made. Subject to the foregoing, the subordination provisions in this paragraph 3 shall terminate
when all the Senior Debt has been indefeasibly and irrevocably paid in full.
(f) Rights Not Subordinated. The provisions of this paragraph 3 are for the purpose
of defining the relative rights of the holders of Senior Debt on the one hand and the holders of
Subordinated Debt on the other hand, and nothing herein shall impair (as between the Company, the
holders of the Subordinated Debt) the Company’s obligation to the holders of the Subordinated Debt
to pay to such holders the full amount of the Subordinated Debt in accordance with the terms of the
Purchase Agreement and the Notes. No provision of this paragraph 3 shall be construed to prevent
the holders of the Subordinated Debt from exercising all rights and remedies available under the
Notes, the Purchase Agreement or under applicable law upon the occurrence of an Event of Default or
otherwise, subject to the rights of the holders of the Senior Debt as set forth above to receive
payments otherwise payable to the holders of the Subordinated Debt, and no provision of this
paragraph 3 shall be deemed to subordinate, to any extent, any claim or right of any holder of the
Subordinated Debt to any claim against the Company by any creditor or any other Person except to
the extent expressly provided herein.
(g) Continuing Conversion Rights. Nothing in this paragraph 3 shall affect the right
of the Holder to convert at any time, in accordance with paragraph 5, including, without
limitation, during a Senior Default or the insolvency, bankruptcy or reorganization of the Company.
(h) Amendment. The provisions of this paragraph 3 may not be amended or modified
without the written consent of the holders of all the Senior Debt.
(a) Definition. For purposes of this Note, an Event of Default shall be deemed to
have occurred if:
(i) the Company fails to pay when due and payable (whether at maturity or otherwise) any
principal, interest or other payment on the Note, and such failure to pay any such amount, other
than the principal, is not cured within 30 days after the occurrence thereof;
- 4 -
(ii) the Company breaches any covenant or other term or condition in any Transaction Document
(excluding Article 6 of the Purchase Agreement and the Events of Default set forth in this
paragraph 4), and such breach is not cured within 30 days from the Company’s knowledge thereof;
(iii) the representations and warranties contained in the Purchase Agreement were not true and
correct at the Issuance Date (except to the extent expressly made as of an earlier date, in which
case, as of such earlier date) and such failure, individually or in the aggregate, results in a
material adverse effect on the business, results of operations or financial condition of the
Company and its Subsidiaries taken as a whole;
(iv) the Company or any Subsidiary makes an assignment for the benefit of creditors or admits
in writing its inability to pay its debts generally as they become due; or an order, judgment or
decree is entered adjudicating the Company or any Subsidiary bankrupt or insolvent; or any order
for relief with respect to the Company or any Subsidiary is entered under the Federal Bankruptcy
Code; or the Company or any Subsidiary petitions or applies to any tribunal for the appointment of
a custodian, trustee, receiver or liquidator of the Company or any Subsidiary, or of any
substantial part of the assets of the Company or any Subsidiary, or commences any proceeding (other
than a proceeding for the voluntary liquidation and dissolution of any Subsidiary) relating to the
Company or any Subsidiary under any bankruptcy reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against the Company or any Subsidiary
and either (A) the Company or any such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein or (B) such petition, application or proceeding is not
dismissed within 60 days;
(v) a judgment, to the extent not covered under an insurance policy, in excess of $1,000,000
is rendered against the Company or any Subsidiary and, within 60 days after entry thereof, such
judgment is not discharged in full or execution thereof stayed pending appeal, or within 60 days
after the expiration of any such stay, such judgment is not discharged in full; or
(vi) the Company or any Subsidiary defaults in the performance of any obligation if the effect
of such default is to cause an amount exceeding $500,000 to become due prior to its stated maturity
or to permit the holder or holders of such obligation to cause an amount exceeding $500,000 to
become due prior to its stated maturity.
The foregoing shall constitute Events of Default whatever the reason or cause for any such
Event of Default and whether it is voluntary or involuntary or is 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 and regardless of the effects of any subordination provisions.
(i) Upon the occurrence of an Event of Default the Interest Rate on the Notes shall increase
immediately by an increment of four percentage point(s) per annum to the extent permitted by law.
Any increase of the Interest Rate resulting from the operation of this subparagraph shall terminate
as of the close of business on the date on which no Events of Default exist (subject to subsequent
increases pursuant to this subparagraph).
- 5 -
(ii) If an Event of Default of the type described in subparagraph 4(a)(iv) has occurred, the
aggregate principal amount of the Notes (together with all accrued interest thereon and all other
amounts due and payable with respect thereto) shall become immediately due and payable without any
action on the part of any Holder, and the Company shall immediately pay to the holders of the Notes
all amounts due and payable with respect to the Notes.
(iii) If any Event of Default (other than under subparagraph 4(a)(iv)) has occurred and is
continuing, the holder or holders of Notes representing at least 25% of the aggregate principal
amount of Notes then outstanding may declare all or any portion of the outstanding principal amount
of the Notes (together with all accrued interest thereon and all other amounts due and payable with
respect thereto) to be immediately due and payable and may demand immediate payment of all or any
portion of the outstanding principal amount of the Notes (together with all such other amounts then
due and payable) owned by such holder or holders. The Company shall give prompt written notice of
any such demand to the other holders of Notes, each of which may demand immediate payment of all or
any portion of such holder’s Note. If any holder or holders of the Notes demand immediate payment
of all or any portion of the Notes, the Company shall immediately pay to such holder or holders all
amounts due and payable with respect to such Notes.
(iv) Each Holder shall also have any other rights which such Holder may have pursuant to
applicable law.
(v) The Company hereby waives diligence, presentment, protest and demand and notice of protest
and demand, dishonor and nonpayment of this Note and expressly agrees that this Note, or any
payment hereunder, may be extended from time to time and that the holder hereof may accept security
for this Note or release security for this Note, all without in any way affecting the liability of
the Company hereunder.
5. Conversion.
This Note shall be convertible into shares of Common Stock on the terms and conditions set
forth in this paragraph 5.
(a) Conversion Procedure.
(i) The Holder may convert all or any portion of the outstanding principal amount of this Note
into a number of shares of the Conversion Stock (excluding any fractional share) determined by
dividing the principal amount designated by such Holder to be converted by the Conversion Price
then in effect.
(ii) To convert any principal amount into shares of Conversion Stock on any date (a
“Conversion Date”), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice of conversion
in the form attached hereto as Annex A (the “Conversion Notice”) to the Company and (B) if required
by paragraph 5(a)(iv), surrender this Note to a nationally recognized overnight delivery service
for delivery to the Company (or an indemnification undertaking with respect to this Note in the
case of its loss, theft or destruction). On or before the first Business Day following the date of
receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt
of such Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”).
On or before the third
- 6 -
Business Day following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (1)
(X) if legends are not required to be placed on certificates of Conversion Stock pursuant to the
Purchase Agreement and provided that the Transfer Agent is participating in the Depository Trust
Company’s (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of
shares of Conversion Stock to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal Agent Commission system or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver to the address as specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for the number of shares of Conversion Stock to which the
Holder shall be entitled which certificates shall not bear any restrictive legends unless required
pursuant to Section 3.6 of the Purchase Agreement. The Person or Persons entitled to receive the
shares of Conversion Stock issuable upon a conversion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Conversion Stock on the Conversion Date.
On the date that the Conversion Stock is delivered to the Holder, the Company shall also deliver
to the Holder a payment in an amount equal to the sum of all accrued interest with respect to the
principal amount converted, which has not been paid prior thereto.
(iii) If within three Trading Days after the Company’s receipt of the facsimile copy of a
Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit
the Holder’s balance account with DTC for the number of shares of Conversion Stock to which the
Holder is entitled upon such holder’s conversion of any principal amount (a “Conversion Failure”),
and if on or after such Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Conversion Stock
issuable upon such conversion that the Holder anticipated receiving from the Company (a “Buy-In”),
then the Company shall, within three Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase
price (including brokerage commissions and other out of pocket expenses, if any) for the shares of
Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver
such certificate (and to issue such Conversion Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing such Conversion
Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over
the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the
Conversion Date.
(iv) The Company shall maintain a register (the “Register”) for the
recordation of the names
and addresses of the holders of each Note and the principal amount of the Notes held by such
holders (the “Registered Notes”). The entries in the Register shall be conclusive and binding for
all purposes absent manifest error. The Company and the holders of the Notes shall treat each
Person whose name is recorded in the Register as the owner of a Note for all purposes, including,
without limitation, the right to receive payments of Principal and Interest hereunder,
notwithstanding notice to the contrary. A Registered Note may be assigned or sold in whole or in
part only by registration of such assignment or sale on the Register. Upon its receipt of a
request to assign or sell all or part of any Registered Note by a Holder, the Company shall record
the information contained therein in the Register and issue one or more new Registered Notes in the
same aggregate principal amount as the principal amount of the surrendered Registered Note to the
designated assignee or transferee pursuant to paragraph 13. Notwithstanding anything to the
contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to the Company unless
(A) the full principal amount represented by this Note is being converted or (B) the Holder has
provided the Company with prior written notice
- 7 -
(which notice may be included in a Conversion Notice) requesting reissuance of this Note upon
physical surrender of this Note. The Holder and the Company shall maintain records showing the
principal converted and the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical surrender of this Note
upon conversion.
(v) If any fractional share of Conversion Stock would, except for the provisions hereof, be
deliverable upon conversion of this Note, the Company, in lieu of delivering such fractional share,
shall pay an amount equal to the Market Price of such fractional share as of the date of such
conversion.
(vi) All certificates evidencing the Conversion Shares to be issued to the Holder may bear a
legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED,
SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE COMPANY SHALL BE ENTITLED TO
REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED TO THE EXTENT THAT AN OPINION IS REQUIRED PURSUANT TO THE AGREEMENT
UNDER WHICH THE SECURITIES WERE ISSUED.
(vii) The issuance of certificates for shares of Conversion Stock upon conversion of this Note
shall be made without charge to the Holder for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such conversion and the related issuance of shares of
Conversion Stock. Upon conversion of this Note, the Company shall take all such actions as are
necessary in order to ensure that the Conversion Stock issuable with respect to such conversion
shall be validly issued, fully paid and nonassessable.
(viii) The Company shall not close its books against the transfer of Conversion Stock issued
or issuable upon conversion of this Note in any manner which interferes with the timely conversion
of this Note. The Company shall assist and cooperate with any Holder required to make any
governmental filings or obtain any governmental approval prior to or in connection with the
conversion of this Note (including, without limitation, making any filings required to be made by
the Company).
(b) Conversion Price. The initial Conversion Price shall be $5.25, subject to
adjustment as set forth in this Note.
- 8 -
5(e) and 5(h) hereof, and the Holder of this Note shall not have the right to convert any
portion of this Note pursuant to paragraph 5(a), to the extent that after giving effect to such
conversion, the Holder (together with the Holder’s affiliates) would beneficially own in excess of
9.99% (the “Maximum Percentage”) of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number
of shares of Common Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (A) conversion of the remaining, non-converted portion of this
Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of
the unexercised or non-converted portion of any other securities of the Company (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph 5(c),
beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this paragraph 5(c), in determining the number
of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the Company’s most recent Form 10-K, Form 10-Q or Form 8-K, as the
case may be (y) a more recent public announcement by the Company or (z) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For
any reason at any time, upon the written request of the Holder, the Company shall within one
Business Day confirm in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company, including this
Note, by the Holder or its affiliates since the date as of which such number of outstanding shares
of Common Stock was reported.
(ii) Principal Market Regulation. The Company shall not be obligated to issue any
shares of Common Stock upon conversion of this Note, and the Holder of this Note shall not have the
right to receive upon conversion of this Note any shares of Common Stock, if the issuance of such
shares of Common Stock would exceed the aggregate number of shares of Common Stock which the
Company may issue upon conversion or exercise, as applicable, of the Notes and Warrants without
breaching the Company’s obligations under the rules or regulations of the applicable Principal
Market (the number of shares which may be issued without violating such rules and regulations, the
"Exchange Cap”), except that such limitation shall not apply in the event that the Company (A)
obtains the approval of its stockholders as required by the applicable rules of such Principal
Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the Holders. Unless and until such approval or written opinion is
obtained, no purchaser of the Notes pursuant to the Purchase Agreement (the “Purchasers”) shall be
issued in the aggregate, upon conversion or exercise or otherwise, as applicable, of Notes or
Warrants, shares of Common Stock in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the principal amount of Notes issued to such
Purchasers pursuant to the Purchase Agreement on the Closing Date and the denominator of which is
the aggregate principal amount of all Notes issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Purchaser, the “Exchange Cap
Allocation”). In the event that any Purchaser shall sell or otherwise transfer any of such
Purchaser’s Notes, the transferee shall be allocated a pro rata portion of such Purchaser’s
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee
with respect to the portion of the Exchange Cap Allocation allocated to such
- 9 -
transferee. In the event that any holder of Notes shall convert all of such holder’s Notes
into a number of shares of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s Exchange Cap Allocation and the
number of shares of Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of Notes on a pro rata basis in
proportion to the aggregate principal amount of the Notes then held by each such holder.
(d) Subdivision or Combination of Common Stock. If the Company at any time subdivides
(by any stock split, stock dividend or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Company at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
(ii) Redemption Right. No sooner than 20 Trading Days nor later than ten Trading Days
prior to the consummation of a Change of Control, but not prior to the public announcement of such
Change of Control, the Company shall deliver written notice thereof via facsimile and overnight
courier to the Holder (a “Change of Control Notice”). At any time during the period beginning
after the Holder’s receipt of a Change of Control Notice and ending on 20 Trading Days after the
effective date of the Change of Control (the “Effective
- 10 -
(iii) Make-Whole Premium.
(A) Upon the occurrence of a Change of Control, the Holder shall be entitled to receive
from the Company, on the applicable Change of Control Purchase Date, a Make-Whole Premium,
if any, if the Holder converts, in whole or in part, this Note pursuant to paragraph 5
hereof at any time during the Change of Control Redemption/Conversion Period. The
Make-Whole Premium shall be equal to an additional number of shares of Common Stock
calculated in accordance with paragraph 5(e)(iii)(B) hereof. The Make-Whole Premium will be
in addition to, and not in substitution for, any cash, securities or other assets otherwise
due to Holder upon conversion as described in this Note. For purposes of paragraph 5
hereof, the “Change of Control Purchase Date” shall mean the Effective Date; provided that
with respect to any conversion for which a Conversion Notice is delivered after the
Effective Date and during the Change of Control Redemption/Conversion Period, the Change of
Control Purchase Date shall mean the date that is three Business Days following the
applicable Conversion Date.
(B) The “Make-Whole Premium” shall be equal to the principal amount of the portion of
the note being converted divided by $1,000 and multiplied by the applicable number of shares
of Common Stock determined by reference to the table below (the “Make-Whole Premium Table”)
and is based on the Effective Date and the Stock Price.
- 11 -
Make-Whole Premium Table
(Number of Additional Shares of Common Stock)
| Stock Price/ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective Date | $3.50 | $3.85 | $4.20 | $4.55 | $4.90 | $5.25 | $5.60 | $5.95 | $6.30 | $6.65 | $7.00 | $7.35 | $7.70 | $8.05 | $8.40 | $8.75 | $9.10 | $9.45 | $9.80 | $10.15 | $10.50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/31/2006 |
119.133 | 104.543 | 92.711 | 82.959 | 74.809 | 67.917 | 62.027 | 56.948 | 52.532 | 48.666 | 45.257 | 42.236 | 39.543 | 37.130 | 34.960 | 32.999 | 31.221 | 29.602 | 28.215 | 26.771 | 25.528 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/31/2007 |
114.372 | 99.254 | 87.056 | 77.054 | 68.739 | 61.745 | 55.801 | 50.705 | 46.300 | 42.466 | 39.106 | 36.146 | 33.525 | 31.191 | 29.106 | 27.234 | 25.548 | 24.023 | 22.641 | 21.383 | 20.236 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/31/2008 |
108.820 | 92.885 | 80.084 | 69.633 | 60.984 | 53.743 | 47.621 | 42.400 | 37.917 | 34.042 | 30.674 | 27.733 | 25.153 | 22.882 | 20.876 | 19.098 | 17.518 | 16.110 | 14.853 | 13.727 | 12.717 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/31/2009 |
103.252 | 86.470 | 73.153 | 62.402 | 53.583 | 46.243 | 40.046 | 34.746 | 30.155 | 26.131 | 22.564 | 19.371 | 16.488 | 13.866 | 11.468 | 9.266 | 7.237 | 5.364 | 3.654 | 2.042 | 0.382 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/31/2010 |
95.392 | 76.648 | 62.150 | 50.824 | 41.895 | 34.790 | 29.081 | 24.444 | 20.635 | 17.467 | 14.795 | 12.510 | 10.530 | 8.790 | 7.245 | 5.857 | 4.601 | 3.456 | 2.408 | 1.463 | 0.445 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12/31/2011 |
95.238 | 69.264 | 47.619 | 29.304 | 13.703 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(iv) The exact Stock Price and Effective Date may not be set forth on the
Make-Whole Premium Table, in which case, if the Stock Price is between two Stock Prices on
the Make-Whole Premium Table or the Effective Date is between two Effective Dates on the
Make-Whole Premium Table, the Make-Whole Premium shall be determined by straight-line
interpolation between Make-Whole Premium amounts set forth for the higher and lower Stock
Prices and the two Effective Dates, as applicable, based on a 365-day year (or a 366-day
year if the Effective Date occurs in a leap year). The Stock Prices set forth in the column
headers are subject to adjustment pursuant to paragraph 5(d).
(A) If the Stock Price is less than or equal to $3.50 (subject to adjustment
pursuant to paragraph 5(d), the “Stock Price Threshold”), the Make-Whole Premium
shall be equal to zero shares of Common Stock.
(B) If the Stock Price is equal to or greater than $10.50 (subject to
adjustment pursuant to paragraph 5(d), the “Stock Price Cap”), the Make-Whole
Premium shall be equal to zero shares of Common Stock.
(C) “Stock Price” means the price paid per share of Common Stock
in the
transaction constituting the Change of Control, determined as follows: (i) if
holders of Common Stock receive only cash in the transaction constituting the Change
of Control, the Stock Price shall equal the cash amount paid per share of Common
Stock; and (ii) in all other cases, the Stock Price shall equal the arithmetic
average of the Closing Sale Prices of a share of Common Stock over the five (5)
Trading Day period ending on the fifth (5th) Trading Day immediately
preceding the Effective Date.
(v) The Company shall pay the Make-Whole Premium solely in shares of Common Stock
(other than cash paid in lieu of fractional shares) or in the same form of consideration
into which all or substantially all of the shares of Common Stock have been converted or
exchanged in connection with the Change of Control. If holders of the Common Stock receive
or have the right to receive more than one form of consideration in connection with such
Change of Control, then, for purposes of the foregoing, the forms of consideration in which
the Make-Whole Premium shall be paid shall be in proportion to the different forms of
consideration paid to holders of Common Stock in connection with such Change of Control.
(vi) The Company shall, from time to time, appoint an independent nationally
recognized
investment bank to serve as calculation agent with respect to calculation of the Make-Whole
Premium (the “Calculation Agent”). The Calculation Agent shall, on behalf of and on request
by the Company, calculate (1) the Stock Price and (2) the Make-Whole Premium in respect of
such Stock Price, based on the Effective Date specified by the Company, and shall deliver
its calculation of the Stock Price and Make-Whole Premium to the Company and the Holder
within three Business Days of the request by the Company or the Required Holders. The
Company, (A) shall notify the Holder of the Stock Price and the estimated Make-Whole Premium
per $1,000 of Conversion Amount in respect of a Change of Control as part of the Change of
Control Notice and (B) shall notify the holder of the Notes, promptly upon the opening of
business on the Effective Date, of the number of shares of Common Stock (or such other
securities, assets or property (including cash) into which all or
substantially all of the
shares of Common Stock have been converted as of the Effective Date as described above) to be paid in respect of the Make-Whole Premium in connection
with such Change of Control, in the manner provided in this Note. The Company shall verify,
in writing, all calculations made by the Calculation Agent pursuant to this paragraph
5(e)(vi).
(viii) If the Holder has submitted a Change of Control Redemption Notice in accordance with
paragraph 5(e), the Company shall deliver the applicable Change of Control Redemption Price to the
Holder concurrently with the consummation of such Change of Control if such notice is received
prior to the consummation of such Change of Control and within five Business Days after the
Company’s receipt of such notice otherwise. In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the
Holder a new Note representing the outstanding principal which has not been redeemed. In the event
that the Company does not pay the applicable Change of Control Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company pays such unpaid
Change of Control Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any portion of this Note
representing the Conversion Amount that was submitted for redemption and for which the applicable
Change of Control Redemption Price that has not been paid. Upon the Company’s receipt of such
notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion
Amount, (y) the Company shall immediately return this Note, or issue a new Note to the Holder
representing the sum of such Conversion Amount to be redeemed together with accrued and unpaid
Interest with respect to such Conversion Amount and (z) the Conversion Price of this Note or such
new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on
which the applicable Change of Control Redemption Notice is voided and (B) the lowest Closing Bid
Price of the Common Stock during the period beginning on and including the date on which the
applicable Change of Control Redemption Notice is delivered to the Company and ending on and
including the date on which the applicable Change of Control Redemption Notice is voided.
(f) Certain Events. If any event occurs of the type contemplated by the provisions of
this paragraph 5 but not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company’s Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of each Holder; provided, that no such
adjustment shall increase the Conversion Price as otherwise determined pursuant to this paragraph 5
or decrease the number of shares of Conversion Stock issuable upon conversion of the Notes then
outstanding.
(g) Notices.
(i) Immediately upon any adjustment of the Conversion Price, the Company shall send written
notice thereof to the Holder, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Company shall send written notice to the Holder at least 20 days prior to the
date on
which the Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders
of Common Stock or (C) for determining rights to vote with respect to any Fundamental Change,
dissolution or liquidation.
(iii) The Company shall also give at least 20 days prior written notice of the date on
which
any Fundamental Change, dissolution or liquidation shall take place.
(i) Subject to paragraph 5(c), if at any time from and after December 22, 2009, the
Weighted
Average Price of the Common Stock for each of 20 consecutive Trading Days (the “Mandatory
Conversion Measuring Period”) equals or exceeds 200% of the Conversion Price and there is not then
an Equity Conditions Failure, the Company shall have the right to require the Holder to convert up
to 100% of the outstanding principal amount then remaining under this Note, in each case as
designated in the Mandatory Conversion Notice (as defined below) into fully paid, validly issued
and nonassessable shares of Common Stock in accordance with paragraph 5(a) hereof at the Conversion
Rate as of the Mandatory Conversion Date (as defined below) (a “Mandatory Conversion”).
(ii) The Company may exercise its right to require conversion under this paragraph 5(h) by
delivering within not more than three Trading Days following the end of such Mandatory Conversion
Measuring Period a written notice thereof to all, but not less than all, of the holders of Notes
(the “Mandatory Conversion Notice” and the date all of the holders received such notice is referred
to as the “Mandatory Conversion Notice Date”). The Mandatory Conversion Notice shall be
irrevocable. The Mandatory Conversion Notice shall state (w) the Trading Day selected for the
Mandatory Conversion in accordance with paragraph 5(h)(i), which Trading Day shall be no later than
five Business Days following the Mandatory Conversion Notice Date (the “Mandatory Conversion
Date”), (x) the aggregate principal amount of the Notes subject to mandatory conversion from the
Holder and all of the other holders of the Notes pursuant to this paragraph 5(i) (and analogous
provisions under such other Notes), (y) the number of shares of Common Stock to be issued to such
Holder on the Mandatory Conversion Date, and (z) certify that there is not then an Equity
Conditions Failure.
(iii) If the Company elects to cause a conversion of any principal amount of this Note
pursuant to this paragraph 5(h), then it must simultaneously take the same action in the same
proportion with respect to the other Notes. If the Company elects a Mandatory Conversion of this
Note pursuant to this paragraph 5(h) (or similar provisions under the other Notes) with respect to
less than all of the principal amount of the Notes then outstanding, then the Company shall require
conversion of a principal amount from each of the holders of the Notes equal to the product of (x)
the aggregate principal amount of Notes which the Company has elected to cause to be converted
pursuant to this paragraph 5(h), multiplied by (y) a fraction, the numerator of which is the
principal amount of the Notes held by such holder and the denominator of which is the aggregate
principal amount of the Notes then outstanding.
6. Dividends. If the Company declares a cash dividend upon the Common Stock (a
“Dividend”), then the Company shall pay to the holders of the Notes at the time of payment thereof
the Dividend which would have been paid to the Holder on the Conversion Stock had this Note been
fully converted immediately prior to the date on which a record is taken for such Dividend (without
regard to any limitations on conversion contained herein), or, if no record is taken, the date as
of which the record holders of Common Stock entitled to such Dividends are to be determined.
7. Purchase Rights. If at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata
to the record holders of Common Stock (the “Purchase Rights”), then each holder of the Notes shall
be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had held the number of shares of
Conversion Stock acquirable upon conversion of such holder’s Note immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights (without regard to
any limitations on conversion herein or elsewhere), or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
8. Amendment and Waiver. Except as otherwise expressly provided herein, the
provisions of the Notes may be amended and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the Company has obtained the
written consent of the holders of at least a majority of the outstanding principal amount of the
Notes; provided that no such action shall change (i) the rate at which or the manner in which
interest accrues on the Notes or the times at which such interest becomes payable, (ii) any
provision relating to the scheduled payments or prepayments of principal on the Notes, (iii) the
Conversion Price of the Notes or the number of shares or the class of stock into which the Notes
are convertible or (iv) any provision of this paragraph 8, without the written consent of the
holders of at least 75% of the outstanding principal amount of the Notes.
9. Definitions. For purposes of the Notes, the following terms have the respective
meaning set forth in this paragraph 9.
“2002 Investment and Royalty Agreement” means that Investment and Royalty Agreement dated July
31, 2002, by and among the Company and PharmaBio, as amended by the Letter Agreement dated January
26, 2004.
“2003 Investment and Royalty Agreement” means that Investment and Royalty Agreement dated
March 5, 2003, by and between the Company and PharmaBio, as amended by the Letter Agreement dated
January 26, 2004 and the Letter Agreement dated April 14, 2006.
“Bloomberg” means Bloomberg Financial Markets.
"Capital Stock” means any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, including, without limitation, in respect of
partnerships, partnership interests (whether general or limited) and any other interest or
participation that confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.
“Change of Control” means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Common Stock or business combination in which the
Company is the publicly traded surviving entity in which holders of the Company’s voting power
immediately prior to such reorganization, recapitalization or reclassification or business
combination continue after such reorganization, recapitalization or reclassification or business
combination to hold publicly traded securities, or (ii) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the Company.
Notwithstanding anything in this Note to the contrary, a merger or consolidation shall not be
deemed to constitute a “Change of Control” if at least 90% of the consideration (excluding cash
payments for fractional shares and cash payments pursuant to dissenters’ appraisal rights) in the
merger or consolidation consists of shares of Capital Stock that are listed on, or immediately
after the transaction will be listed on, any Eligible Market and as a result of such transaction
the obligations of the Company under the Notes are expressly assumed by the Person issuing such
consideration in such merger or consolidation and any Notes surrendered for conversion would become
convertible into such publicly traded securities.
“Closing Bid Price” and “Closing Sale Price” means, for any security as of any
date, the last
closing bid price and last closing trade price, respectively, for such security on the Principal
Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended
hours basis and does not designate the closing bid price or the closing trade price, as the case
may be, then the last bid price or last trade price, respectively, of such security prior to
4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any
market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to paragraph 23. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.
“Common Stock” means the Company’s Common Stock, par value $0.01 per share.
“Convertible Securities” means any stock or securities (directly or indirectly) convertible
into or exchangeable for Common Stock.
“Conversion Stock” means shares of the Company’s authorized but unissued Common Stock;
provided, that if there is a change such that the securities issuable upon conversion of the Notes
are issued by an entity other than the Company or there is a change in the class of securities so
issuable, then the term “Conversion Stock” shall mean one share of the security issuable upon
conversion of this Note if such security is issuable in shares, or shall
mean the smallest unit in which such security is issuable if such security is not issuable in
shares.
“Eligible Market” means The NASDAQ Global Market, The New York Stock Exchange, Inc., the
American Stock Exchange, The NASDAQ Capital Market or The NASDAQ Global Select Market.
“Equity Conditions” means that either (a) the Registration Statement filed pursuant to the
Purchase Agreement shall be effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Purchase Agreement or (b) all shares of Common Stock
issuable upon conversion of the Notes shall be eligible for sale without restriction and without
the need for registration under any applicable federal or state securities laws.
“Equity Conditions Failure” means that on any day during the period commencing ten Trading
Days prior to the applicable Mandatory Conversion Notice Date through the applicable Mandatory
Conversion Date, the Equity Conditions have not been satisfied (or waived in writing by the
Holder).
“Fundamental Transaction” means that (A) the Company shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted
by the holders of more than 50% of the outstanding shares of Voting Stock (not including any shares
of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with
the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than the 50% of the outstanding shares of Voting Stock (not
including any shares of Voting Stock held by the other Person or other Persons making or party to,
or associated or affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or reclassify its Common
Stock, or (B) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock of the
Company.
“Indebtedness” of any Person means, without duplication (i) all indebtedness for borrowed
money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) “capital leases” in accordance with GAAP
(other than trade payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (v) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any leasing or similar
arrangement which, in connection with GAAP, consistently applied for the periods covered
thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and contract rights) owned
by any Person, even though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (viii) all contingent obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.
“Interest Rate” means (i) initially 8% per annum and (ii) following the Company’s receipt
of
Preterm Approval, 5% per annum.
“Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance.
“Market Price” means on any particular date:
(a) if the Common Stock is traded on the Nasdaq Capital Market, the Nasdaq Global Market, the
Nasdaq Global Select Market (or their successors) the average of the closing prices of the Common
Stock on such market over the five trading days ending immediately prior to the applicable date of
valuation;
(b) if the Common Stock is traded on any registered national stock exchange but is not traded
on the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market (or their
successors), the average of the closing prices of the Common Stock on such exchange over the five
trading days ending immediately prior to the applicable date of valuation;
(c) if the Common Stock is traded over-the-counter, but not on the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market or a registered national stock exchange, the
average of the closing bid prices over the 30-day period ending immediately prior to the applicable
date of valuation; and
(d) if there is no active public market for the Common Stock, the value thereof, as determined
in good faith by the Board of Directors of the Company upon due consideration of the proposed
determination thereof by the Holder.
“Options” means any rights or options to subscribe for or purchase Common Stock or Convertible
Securities.
“Parent Entity” of a Person means an entity that, directly or indirectly, controls the
applicable Person and whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent
Entity with the largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
“Permitted Indebtedness” of any Person means (i) all Indebtedness of a type set forth in
clause (ii) of the definition of Indebtedness, (ii) all Indebtedness of a type set forth in clause
(iii) of the definition of Indebtedness and incurred in the ordinary course of business, (iii)
unsecured Indebtedness between the Company and any of its Subsidiaries or between
Subsidiaries, and (iv) any other Indebtedness in an aggregate original principal amount not to
exceed $4,000,000 at any one time outstanding.
“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good
faith by appropriate proceedings, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or delinquent or that
is being contested in good faith by appropriate proceedings, (iii) any Lien created by operation of
law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary
course of business with respect to a liability that is not yet due or delinquent or that are being
contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment or
other fixed asset (together “equipment”) acquired or held by the Company or any of its Subsidiaries
to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of
financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the
extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in
(iv) above, provided that any extension, renewal or replacement Lien shall be limited to the
property encumbered by the existing Lien and the principal amount of the Indebtedness being
extended, renewed or refinanced does not increase, (vi) leases or subleases and licenses and
sublicenses granted to others in the ordinary course of the Company’s business, not interfering in
any material respect with the business of the Company and its Subsidiaries taken as a whole, (vii)
Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of
custom duties in connection with the importation of goods, and (viii) Liens arising from judgments,
decrees or attachments in circumstances not constituting an Event of Default under paragraph
4(a)(iv), (ix) rights of setoff or bankers’ Liens upon deposits of cash, (x) Liens consisting of
deposits made in the ordinary course of business, (xi) Liens arising by operation of law under
Article 4 of the Uniform Commercial Code, (xii) Liens on property not securing Indebtedness for
borrowed money, which do not interfere in any material respect with the Company’s or any
Subsidiary’s use thereof in the ordinary course of business, and (xiii) Liens securing the Senior
Debt.
“Person” means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
“PharmaBio” means PharmaBio Development Inc., a corporation organized under the laws of the
State of North Carolina, and its successors and assigns.
“Preterm Approval” means approval by the United States Food and Drug Administration to the new
drug application, amendment or supplement for permitting the marketing of progesterone gel 8% for
the prevention of recurrent preterm birth.
“Principal Market” means the principal securities exchange or securities market on which the
Common Stock is then traded.
“Senior Debt” means (i) the total royalties payable by the Company to PharmaBio pursuant to
Section 2.3 of the 2003 Investment and Royalty Agreement up to an aggregate amount of $30,000,000,
(ii) the Repayment Amount (as defined in the 2003 Investment and Royalty Agreement), if any, owing
by the Company to PharmaBio pursuant to Section 2.2 of the 2003 Investment and Royalty Agreement,
and (iii) the total royalties payable
by the Company to PharmaBio pursuant to Section 2.2 of the 2002 Investment and Royalty Agreement up to an
aggregate amount of $8,000,000.
“Subsidiary” means, with respect to any Person, any corporation, limited liability company,
partnership, association or other business entity of which (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a limited liability
company, partnership, association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association or other business
entity gains or losses or shall be or control any managing director or general partner of such
limited liability company, partnership, association or other business entity.
“Successor Entity” means the Person, which may be the Company, formed by, resulting from or
surviving any Fundamental Transaction or the Person with which such Fundamental Transaction shall
have been made, provided that if such Person is not a publicly traded entity whose common stock or
equivalent equity security is quoted or listed for trading on an Eligible Market, Successor Entity
shall mean such Person’s Parent Entity.
“Trading Day” means any day on which the Common Stock is traded on the Principal Market,
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to
trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York Time) and, for purposes of the
definition of “Weighted Average Price”, includes the period from the official open of trading to
the official close of trading on the relevant market.
“Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant
to which the holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other class or classes shall have
or might have voting power by reason of the happening of any contingency).
“Weighted Average Price” means, for the Common Stock as of any date, the dollar
volume-weighted average price for the Common Stock on the Principal Market during such Trading Day,
as reported by Bloomberg through its “Volume at Price” functions, or, if the foregoing does not
apply, the dollar volume-weighted average price of the Common Stock in the over-the-counter market
on the electronic bulletin board for the Common Stock during such Trading Day as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for the Common Stock by
Bloomberg for such Trading Day, the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for the Common Stock as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
(a) The Company shall initially reserve out of its authorized and unissued Common Stock a
number of shares of Common Stock for each of the Notes equal to 100% of the Conversion Rate with
respect to the principal amount of each such Note as of the Issuance Date. So long as any of the
Notes are outstanding, the Company shall take all action necessary to reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion
of the Notes, 100% of the number of shares of Common Stock as shall from time to time be necessary
to effect the conversion of all of the Notes then outstanding; provided that at no time shall the
number of shares of Common Stock so reserved be less than the number of shares required to be
reserved by the previous sentence (without regard to any limitations on conversions) (the “Required
Reserve Amount”). The initial number of shares of Common Stock reserved for conversions of the
Notes and each increase in the number of shares so reserved shall be allocated pro rata among the
holders of the Notes based on the principal amount of the Notes held by each holder at the Closing
(as defined in the Purchase Agreement) or increase in the number of reserved shares, as the case
may be (the “Authorized Share Allocation”). In the event that a holder shall sell or otherwise
transfer any of such holder’s Notes, each transferee shall be allocated a pro rata portion of such
holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro
rata based on the principal amount of the Notes then held by such holders.
(b) If at any time while any of the Notes remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal
to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately
take all action necessary to increase the Company’s authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable
after the date of the occurrence of an Authorized Share Failure, but in no event later than 90 days
after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its
stockholders for the approval of an increase in (the “Authorized Share Failure Deadline”), the
number of authorized shares of Common Stock. In connection with such meeting, the Company shall
provide each stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board
of directors to recommend to the stockholders that they approve such proposal. During all or part
of any thirty-day period (the “Authorized Share Failure Payment Period”) during which the
Authorized Share Failure remains uncured, the Company shall pay to each holder 1% of such holder’s
principal amount of his or her Notes for each Authorized Share Failure Payment Period during which
the Authorized Share Failure remains uncured.
11. Covenants.
(a) All payments due under this Note shall rank pari passu with all Other Notes and shall be
senior to all other Indebtedness of the Company and its Subsidiaries, other than the Senior Debt
and Permitted Indebtedness.
(b) So long as this Note is outstanding, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to
exist any Indebtedness that would rank senior or pari passu to the Notes,
other than (i) the Indebtedness evidenced by this Note and the Other Notes, (ii) the Senior
Debt and (iii) Permitted Indebtedness.
(c) So long as this Note is outstanding, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, allow or suffer to exist any Lien, other
than Permitted Liens.
12. Notice by the Company. The Company shall send Notice to the Holder of the
Company’s receipt of the Preterm Approval within ten business days of its receipt thereof.
13. Transfers. The Company shall maintain a register for recording the ownership and
the transfer of the Notes. Upon surrender of this Note for registration of transfer or for
exchange to the Company at its principal office, the Company at its sole expense shall execute and
deliver in exchange therefor a new Note or Notes, as the case may be, as requested by the holder or
transferee, which aggregate the unpaid principal amount of such Note, registered as such holder or
transferee may request, dated so that there will be no loss of interest on such surrendered Note
and otherwise of like tenor. The issuance of new Note(s) shall be made without charge to the
holder(s) of the surrendered Note for any issuance tax in respect thereof or other cost incurred by
the Company in connection with such issuance; provided that the Holder shall pay any transfer taxes
associated therewith. The Company shall be entitled to regard the registered holder of this Note
as the owner and holder of the Notes so registered for all purposes until the Company is required
to record a transfer of this Note on its register.
14. Replacement. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or
destruction of this Note, upon receipt of an indemnity reasonably satisfactory to the Company
(provided that, if the holder of this Note is a financial institution, its own unsecured agreement
shall be satisfactory) or, in the case of any such mutilation, upon the surrender and cancellation
of this Note, the Company, at its expense, shall execute and deliver, in lieu thereof, a new Note
of like tenor and dated the date of such lost, stolen, destroyed or mutilated Note. Any Note in
lieu of which any such new Note has been so executed and delivered by the Company shall not be
deemed to be an outstanding Note.
15. Waivers. The Company hereby waives presentation for payment, demand, notice of
nonpayment and notice of protest with respect to this Note.
16. Cancellation. After all principal and accrued interest at any time owed on this
Note has been paid in full, this Note shall be surrendered to the Company for cancellation and
shall not be reissued.
17. Form of Payments. All payments to be made to the holders of the Notes shall be
made in the lawful money of the United States of America in immediately available funds, with no
offsets against or withholding from any payments due hereunder.
18. Place of Payment. Payments of principal and interest shall be delivered to
at the following address:
or to such other address or to the attention of such other person as specified by prior written
notice to the Company.
19. Notices. All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Note shall be in writing and shall be deemed to have
been given when delivered personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other communications shall
be sent to the Holder and to the Company at the respective addresses indicated below:
If to the Company:
Columbia Laboratories, Inc.
000 Xxxxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attention: General Counsel
000 Xxxxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attention: General Counsel
With a copy to:
Xxxx Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
If to the Holder:
or to such other address or to the attention of such other person as the recipient party has
specified by prior written notice to the sending party.
20. Business Days. If any payment is due, or any time period for giving notice or
taking action expires, on a day which is a Saturday, Sunday or legal holiday in the State of New
York, the payment shall be due and payable on, and the time period shall automatically be extended
to, the next business day immediately following such Saturday, Sunday or legal holiday, and
interest shall continue to accrue at the required rate hereunder until any such payment is made.
21. Governing Law. All issues and questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by, and construed in accordance with,
the laws of the State of New York, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of
New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction other than the State
of New York.
22. Usury Laws. It is the intention of the Company and the Holder to conform strictly
to all applicable usury laws now or hereafter in force, and any interest payable under this Note
shall be subject to reduction to the amount not in excess of the maximum legal amount allowed under
the applicable usury laws as now or hereafter construed by the courts having jurisdiction over such
matters. If the maturity of this Note is accelerated by reason of an election by the Holder
resulting from an Event of Default, voluntary prepayment by the Company or otherwise, then earned
interest may never include more than the maximum amount permitted by law, computed from the
Issuance Date until payment, and any interest in excess of the maximum amount permitted by law
shall be canceled automatically and, if theretofore paid, shall at the option of the Holder either
be rebated to the Company or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to the Company. The aggregate of all interest (whether
designated as interest, service charges, points or otherwise) contracted for, chargeable, or
receivable under this Note shall under no circumstances exceed the maximum legal rate upon the
unpaid principal balance of this Note remaining unpaid from time to time. If such interest does
exceed the maximum legal rate, it shall be deemed a mistake and such excess shall be canceled
automatically and, if theretofore paid, rebated to the Company or credited on the principal amount
of this Note, or if this Note has been repaid, then such excess shall be rebated to the Company.
23. Dispute Resolution. In the case of a dispute as to the determination of a Market
Price, the Closing Bid Price, the Closing Sale Price, Change of Control Redemption Price or the
Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Company shall
submit the disputed determinations or arithmetic calculations via facsimile within two Business
Days of receipt, or deemed receipt, of the applicable notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon
such determination or calculation within two Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall, within two Business
Days submit via facsimile (a) the disputed determination of a Market Price, the Closing Bid Price,
the Closing Sale Price, Change of Control Redemption Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Company and approved by the Holder or (b)
the disputed arithmetic calculation of the Conversion Rate to the Company’s independent, outside
accountant. The Company, at the Company’s expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five Business Days from the time it receives
the disputed determinations or calculations. Such investment bank’s or accountant’s determination
or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.
* * *
[Signature Page Follows]
| COLUMBIA LABORATORIES, INC. | ||||||
Attest
|
By | |||||
| Its | ||||||
Convertible Subordinate Note Signature Page
ANNEX A
COLUMBIA LABORATORIES, INC.
CONVERSION NOTICE
CONVERSION NOTICE
Reference is made to the Convertible Subordinated Note (the “Note”) issued to the undersigned by
Columbia Laboratories, Inc. (the “Company”). In accordance with and pursuant to the Note, the
undersigned hereby elects to convert the principal amount of the Note indicated below into shares
of Common Stock par value $0.01 per share (the “Common Stock”) of the Company, as of the date
specified below.
| Date of Conversion: | ||||||
| Aggregate Principal Amount to be converted: | ||||||
| Please confirm the following information: | ||||||
| Conversion Price: | ||||||
| Number of shares of Common Stock to be issued: | ||||||
| Please issue the Common Stock into which the Note is being converted in the following name and to the following address: | ||||||
| Issue to: | ||||
| Facsimile Number: | ||||||||
| Authorization: | ||||||||
| By: | ||||||||
| Title: | ||||||||
Dated: |
||
| Account Number: | ||||
| (if electronic book entry transfer) | ||||
| Transaction Code Number: | ||||
| (if electronic book entry transfer) | ||||
A-1
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs American Stock
Transfer & Trust Company to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated December 21, 2006 from the Company and
acknowledged and agreed to by American Stock Transfer & Trust Company.
| COLUMBIA LABORATORIES, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
A-2