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EXHIBIT 4.10
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. 1 $[ ]
NEOTHERAPEUTICS, INC.
5% SUBORDINATED CONVERTIBLE DEBENTURE
DUE [ ](1)
THIS DEBENTURE is one of a series of duly authorized and issued
debentures of NeoTherapeutics, Inc., a Delaware corporation, having a principal
place of business at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"),
designated as its 5% Convertible Debentures, due [ ](2), in the aggregate
principal amount of [ ] (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to [ ], or its
registered assigns (the "Holder"), the principal sum of [ ], on [ ](3) or such
earlier date as the Debentures are required or permitted to be repaid as
provided hereunder (the "Maturity Date") and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this
Debenture at the rate of 5% per annum, payable on each Conversion Date (as
defined in Section 4(a)(i)(C)) with respect to the principal amount then
converted and on the Maturity Date, in cash or shares of Common Stock (as
defined in Section 6). Subject to the terms and conditions set forth herein, the
decision whether to pay interest hereunder in shares of Common Stock or cash
shall be at the discretion of the Company. Not less than ten Trading Days (as
defined in Section 6) prior to each Conversion Date, the Company shall provide
the Holder with written notice of its election to pay interest hereunder either
in cash or shares of Common Stock pursuant to the terms of Section 4(a)(i) (the
Company may indicate in such notice that the election contained in such notice
shall continue for later periods until revised). Failure to timely provide such
written notice shall be deemed an election by the Company to pay the interest on
such Conversion Date in shares of Common Stock pursuant to the terms of Section
4(a)(i). Interest shall be calculated on the basis on a 360-day year and shall
accrue daily commencing on the Original Issue Date (as defined in Section 6)
until payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest hereunder will be paid to the Person (as defined in Section 6) in whose
name this Debenture is
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(1) Five years from the Closing Date.
(2) Five years from the Closing Date.
(3) Five years from the Closing Date.
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registered on the records of the Company regarding registration and transfers of
Debentures (the "Debenture Register"). All overdue accrued and unpaid interest
to be paid in cash hereunder shall entail a late fee at the rate of 18% per
annum (or such lower maximum amount of interest permitted to be charged under
applicable law) to accrue daily, from the date such interest is due hereunder
through and including the date of payment, payable in cash.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for the registration of such exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the Person (as defined in Section 6) in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any
one of the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
(i) any default in the payment of the principal
of, interest on or liquidated damages in respect of, any Debentures,
free of any claim of subordination, as and when the same shall become
due and payable (whether on a Conversion Date or the Maturity Date or
by acceleration or otherwise);
(ii) the Company shall fail to observe or perform
any other covenant, agreement or warranty contained in, or otherwise
commit any breach of any of the Transaction Documents (as defined in
Section 6), and such failure or breach shall not have been remedied
within five Business Days (as defined in Section 6) after the date on
which written notice of such failure or breach shall have been received
by the Company;
(iii) the Company or any of its subsidiaries shall
commence, or there shall be commenced against the Company or any such
subsidiary a case under any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, or the Company
commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter
in effect relating to the Company or any subsidiary thereof or there is
commenced against the Company or any subsidiary thereof any such
bankruptcy, insolvency or other proceeding which remains undismissed
for a period of 60 days; or the Company or any subsidiary thereof is
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adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Company
or any subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Company or any
subsidiary thereof makes a general assignment for the benefit of
creditors; or the Company shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any subsidiary thereof shall call a
meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act expressly
indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company or
any subsidiary thereof for the purpose of effecting any of the
foregoing;
(iv) the Company shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount
exceeding one hundred thousand dollars ($100,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
(v) the Common Stock either be delisted from the
Nasdaq National Market ("NASDAQ") or suspended from trading on the
NASDAQ without resuming trading and/or being relisted thereon or listed
on the New York Stock Exchange, American Stock Exchange or the Nasdaq
SmallCap Market (each, a "Subsequent Market") or having such suspension
lifted, in either case, for five consecutive Trading Days or ten
Trading Days in the aggregate (which need not be consecutive Trading
Days);
(vi) the Company shall be a party to any Change
of Control Transaction (as defined in Section 6), shall agree to sell
or dispose all or in excess of 33% of the fair market value of its
assets in one or more transactions (whether or not such sale would
constitute a Change of Control Transaction), or shall redeem or
repurchase of shares of Common Stock or other equity securities of the
Company for an aggregate of purchase prices in excess of $75,000 (other
than redemptions of Underlying Shares (as defined in Section 6));
(vii) an Underlying Shares Registration Statement
(as defined in Section 6) shall not have been declared effective by the
Commission (as defined in Section 6) on or prior to the 180th day after
the Closing Date (as defined in Section 6);
(viii) if, during the Effectiveness Period (as
defined in the Registration Rights Agreement (as defined in Section
6)), the effectiveness of the Underlying Shares Registration Statement
lapses for any reason or the Holder shall not be permitted to resell
Registrable Securities (as defined in the Registration Rights
Agreement) under the Underlying Shares Registration Statement, in
either case, for more than five consecutive
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Trading Days or an aggregate of ten Trading Days (which need not be
consecutive Trading Days);
(ix) an Event (as defined in the Registration
Rights Agreement) shall not have been cured to the satisfaction of the
Holder prior to the expiration of thirty days from the Event Date (as
defined in the Registration Rights Agreement) relating thereto unless
no Registration Delay Payment (as defined in the Registration Rights
Agreement) is due in respect to such Event, and excluding an Event
resulting from a failure of an Underlying Shares Registration Statement
to be timely declared effective by the Commission which shall be
covered by Section 3(a)(vii);
(x) the Company shall fail for any reason to
deliver certificates to a Holder prior to the twelfth (12th) day after
a Conversion Date pursuant to and in accordance with Section 4(b) or
the Company shall provide notice to the Holder, including by way of
public announcement, at any time, of its intention not to comply with
requests for conversions of any Debentures in accordance with the terms
hereof; or
(xi) the Company shall fail for any reason to
deliver the payment in cash pursuant to a Buy-In (as defined herein)
within seven (7) days after notice is deemed delivered hereunder.
(b) During the time that any portion of this Debenture
remains outstanding, if any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof to the date of acceleration, shall become, immediately
due and payable in cash. The aggregate amount payable upon an Event of Default
shall be equal to the sum of (i) the Mandatory Prepayment Amount (as defined in
Section 6) plus (ii) the product of (A) the number of Underlying Shares issued
in respect of conversions hereunder within thirty (30) days of the date of a
declaration of an Event of Default and then held by the Holder and (B) the Per
Share Market Value (as defined in Section 6) on the date prepayment is due or
the date the full prepayment price is paid, whichever is greater. Interest shall
accrue on the prepayment amount hereunder from the seventh day after such amount
is due (being the date of an Event of Default) through the date of prepayment in
full thereof at the rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law), to accrue daily from the date such
payment is due hereunder through and including the date of payment. All
Debentures and Underlying Shares for which the full prepayment price hereunder
shall have been paid in accordance herewith shall promptly be 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
▇▇▇▇▇▇ at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
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Section 4. Section Conversion.
(a) Conversion at Option of Holder.
(A) This Debenture shall be convertible
into shares of Common Stock at the option of the Holder, in
whole or in part at any time and from time to time, after the
Original Issue Date (subject to the limitations on conversion
set forth in Section 4(a)(iii) hereof). The number of shares
of Common Stock issuable upon a conversion hereunder shall be
determined by adding the sum of (i) the quotient obtained by
dividing (x) the outstanding principal amount of this
Debenture to be converted by (y) the Conversion Price (as
defined herein), and (ii) the amount equal to (I) the product
of (x) the outstanding principal amount of this Debenture to
be converted and (y) the product of (1) the quotient obtained
by dividing .05 by 360 and (2) the number of days for which
such principal amount was outstanding, divided by (II) the
Conversion Price on the Conversion Date, provided, that if the
Company shall have timely elected to pay the interest due on a
Conversion Date in cash pursuant to the terms hereof,
subsection (ii) shall not be used in the calculation of the
number of shares of Common Stock issuable upon a conversion
hereunder.
(B) Notwithstanding anything to the
contrary contained herein, if on any Conversion Date:
(1) the number of shares of
Common Stock at the time authorized, unissued and
unreserved for all purposes, or held as treasury
stock, is insufficient to pay interest hereunder in
shares of Common Stock;
(2) after the Interest
Effectiveness Date (as defined in Section 6) such
shares of Common Stock (x) are not registered for
resale pursuant to an effective Underlying Shares
Registration Statement and (y) may not be sold
without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as defined in
Section 6), as determined by counsel to the Company
pursuant to a written opinion letter, addressed to
the Company's transfer agent in the form and
substance acceptable to the applicable Holder and
such transfer agent;
(3) the Common Stock is not
listed or quoted on the NASDAQ or on a Subsequent
Market;
(4) the Company has failed to
timely satisfy its conversion obligations hereunder;
or
(5) the issuance of such shares
of Common Stock would result in a violation of
Sections 4(a)(iii)(A) and (B),
then, at the option of the Holder, the Company, in lieu of delivering shares of
Common Stock pursuant to Section 4(a)(i)(A)(ii), shall deliver, within three
Trading Days of the applicable Conversion Date, an amount in cash equal to the
product of (a) the outstanding principal amount
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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, provided that a Holder shall not be required to
surrender any such Debenture if the Corporation has failed to
deliver such Debenture to such Holder pursuant to the Purchase
Agreement prior to the applicable Conversion Date. Each
Conversion Notice shall specify the principal amount of
Debentures to be converted and the date on which such
conversion is to be effected, which date may not be prior to
the date such Conversion Notice is deemed to have been
delivered hereunder (a "Conversion Date"). If no Conversion
Date is specified in a Conversion Notice, the Conversion Date
shall be the date that such Conversion Notice is deemed
delivered hereunder. Subject to Section 4(b), each Conversion
Notice, once given, shall be irrevocable. If the Holder is
converting less than all of the principal amount represented
by the Debenture(s) tendered by the Holder with the Conversion
Notice, or if a conversion hereunder cannot be effected in
full for any reason, the Company shall honor such conversion
to the extent permissible hereunder and shall promptly deliver
to such Holder (in the manner and within the time set forth in
Section 4(b)) a new Debenture for such principal amount as has
not been converted.
(ii) Automatic Conversion. Subject to the
provisions in this paragraph, the principal amount of Debentures for
which conversion notices have not previously been received or for which
prepayment has not been made or required hereunder shall be
automatically converted on the fifth anniversary of the Closing Date
(the "Automatic Conversion Date") pursuant to Section 4(a)(i), at the
Conversion Price on such date. The conversion contemplated by this
paragraph shall not occur if (a) (1) an Underlying Securities
Registration Statement is not then effective that names the Holder as a
selling stockholder thereunder and (2) the Holder is not permitted to
resell Underlying Shares pursuant to Rule 144(k) promulgated under the
Securities Act, without volume restrictions, as evidenced by an opinion
letter of counsel acceptable to the Holder and the transfer agent for
the Common Stock; or (b) there are not sufficient shares of Common
Stock authorized and reserved for issuance upon such conversion.
Notwithstanding anything herein to the contrary, the Automatic
Conversion Date shall be extended (on a day-for-day basis) for any
Trading Days after the Effectiveness Date that the Holder is both
unable to resell Underlying Shares pursuant to Rule 144(k) promulgated
under the Securities Act, without volume restrictions, and unable to
resell Underlying Shares due to (a) the Common Stock not being listed
for trading on the NASDAQ or any Subsequent Market, (b) the failure of
an Underlying Securities Registration Statement to be declared
effective by the Commission or, if so declared, to remain effective
during the Effectiveness Period as to all Underlying Shares, or (c) the
suspension of the Holder's right to resell Underlying Shares
thereunder. Notwithstanding anything to the contrary contained herein,
a conversion pursuant to this Section shall not be subject to the
provisions of Section 4(a)(iii)(A) and (B).
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(iii) Certain Conversion Restrictions.
(A) A Holder may not convert Debentures
or receive shares of Common Stock as payment of interest
hereunder to the extent such conversion or receipt of such
interest payment would result in the Holder, together with any
affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined
in Section 6) and the rules promulgated thereunder) in excess
of 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 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
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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) At any time when the Common Stock
is listed for trading on the Nasdaq or the Nasdaq SmallCap
Market and the Corporation has not obtained the Shareholder
Approval (as defined below), then the Corporation may not
issue in excess of [ ] shares of Common Stock (which equals
19.999% of the number of shares of Common Stock outstanding on
the Trading Day immediately preceding the Original Issue Date)
(i) upon conversions of Debentures, (ii) as payment of
interest in respect of Debentures, (iii) upon conversions of
shares of preferred stock issued by the Corporation in
accordance with the terms of the Purchase Agreement (the
"Preferred Stock") and (iv) as payment of dividends under the
Preferred Stock (such number of shares, the "Issuable
Maximum"). If on any Conversion Date: (A) the shares of Common
Stock are listed for trading on the Nasdaq or Nasdaq SmallCap
Market, (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
principal amount under the Debentures, together with any
shares of Common Stock previously issued (i) upon conversions
of Debentures, (ii) as payment of interest in respect of
Debentures, (iii) upon conversions of shares of Preferred
Stock and (iv) as payment of dividends under the Preferred
Stock would exceed the Issuable Maximum, and (C) the
Corporation shall not have previously obtained the vote of
shareholders (the "Shareholder Approval"), if any, as may be
required by the applicable rules and regulations of the Nasdaq
(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 Corporation shall issue
to a Holder requesting a conversion a number of shares of
Common Stock equal to the lesser of (x) the number of shares
of Common Stock issuable upon such conversion at the
applicable Conversion Price and (y) such portion of the
Issuable Maximum less all shares of Common Stock previously
issued (i) upon conversions of Debentures, (ii) as payment of
interest in respect of Debentures, (iii) upon conversions of
shares of Preferred Stock and (iv) as payment of dividends
under the Preferred Stock (the "Current Maximum Issuable").
The
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Current Issuable Maximum applicable to the principal amount of
each Debenture at any time shall be determined pro rata by
reference to the principal amount of all Debentures then
outstanding. With respect to the remainder of the principal
amount of Debentures tendered for conversion 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
Corporation 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 (as defined in
Section 6) for the Excess Principal. If the converting Holder
shall have elected the first option pursuant to the
immediately preceding sentence and the Corporation shall have
failed to obtain the Shareholder Approval on or prior to the
60th day after such request, then within three (3) days of
such 60th day, the Corporation shall pay cash to the
converting Holder an amount equal to the Mandatory Redemption
Amount for the Excess Stated Value. If the Corporation fails
to pay the Mandatory Prepayment Amount in full pursuant to
this Section within seven days after the date payable, the
Corporation 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. The Corporation and
the Holder understand and agree that shares of Common Stock
issued to and then held by the Holder as a result of
conversions of Debentures shall not be entitled to cast votes
on any resolution to obtain Shareholder Approval pursuant
hereto.
(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 4.9 of
the Purchase Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of Debentures (subject to the
limitations set forth in Section 4(a)(iii) hereof), (ii) Debentures in
a principal amount equal to the principal amount of Debentures not
converted, and (iii) a bank check in the amount of accrued and unpaid
interest (if the Company has timely elected or is required to pay
accrued interest in cash) and the Floor Prepayment Price (as defined in
Section 4(c)(i)(B)) (if applicable), provided, that the Company shall
not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of the principal amount of Debentures
until one Trading Day after 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
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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 ▇▇▇▇▇▇'s right
to pursue actual damages or declare an Event of Default pursuant to
Section 3 herein for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period
specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holders from
seeking to enforce damages pursuant to any other Section hereof or
under applicable law. Further, if the Company shall not have delivered
any cash due in respect of conversions of Debentures or as payment of
interest thereon by the third Trading Day after the Conversion Date,
the Holder may, by notice to the Company, require the Company to issue
shares of Common Stock pursuant to Section 4(c), except that for such
purpose the Conversion Price applicable thereto shall be the lesser of
the Conversion Price on the Conversion Date and the Conversion Price on
the date of such Holder demand. Any such shares will be subject to the
provisions of this Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i) by the third
Trading Day after the Conversion Date, and if after such third Trading
Day the Holder purchases (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Company shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the market price of the Common
Stock at the time of the sale giving rise to such purchase obligation
and (B) at the option of the Holder, either reissue Debentures in
principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Company timely complied with
its delivery requirements under Section 4(b)(i). For example, if the
Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of Debentures
with respect to which the market price of the 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
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Buy-In for the failure to timely deliver certificates hereunder and the
Company timely pays in full such payment, the Company shall not be
required to pay such Holder liquidated damages under Section 4(b)(ii)
in respect of the certificates resulting in such Buy-In.
(c) [(i) (A) The conversion price (the
"Conversion Price") in effect on any Conversion Date shall
equal 101% of the average of the ten lowest Per Share Market
Values during the thirty Trading Days immediately preceding
the applicable Conversion Date (which may include Trading Days
prior to the Original Issue Date), provided, however, that
such thirty Trading Day period shall be extended for the
number of Trading Days during such period in which (A) trading
in the Common Stock is suspended by the NASDAQ or a Subsequent
Market on which the Common Stock is then listed, or (B) during
the Effectiveness Period (as defined in the Registration
Rights Agreement) the Underlying Shares Registration Statement
is not effective, or (C) during the Effectiveness Period the
Prospectus included in the Underlying Shares Registration
Statement may not be used by the Holder for the resale of
Underlying Shares.](4)
(c) [(i) (A) The conversion price (the
"Conversion Price") in effect on any Conversion Date occurring
on or prior to the 90th day following the Original Issue Date
shall equal 120% of the Per Share Market Value on the Original
Issue Date (the "Initial Conversion Price"), provided, that
for any Conversion Date occurring after the 90th day following
the Original Issue Date, the Conversion Price shall be the
lesser of (A) the Initial Conversion Price and (B) 101% of the
average of the ten lowest Per Share Market Values during the
thirty Trading Days immediately preceding the applicable
Conversion Date (which may include Trading Days prior to the
Original Issue Date), provided, however, that such thirty
Trading Day period shall be extended for the number of Trading
Days during such period in which (A) trading in the Common
Stock is suspended by the NASDAQ or a Subsequent Market on
which the Common Stock is then listed, or (B) during the
Effectiveness Period (as defined in the Registration Rights
Agreement), the Underlying Shares Registration Statement is
not effective, or (C) during the Effectiveness Period, the
Prospectus included in the Underlying Shares Registration
Statement may not be used by the Holder for the resale of
Underlying Shares.](5)
(B) If on any Conversion Date, the
Conversion Price shall be lower than $7.00 (which number shall
be subject to equitable adjustments for stock splits,
recombinations and similar events) (such Conversion Price, the
"Floor Price" and a Conversion Date on which such condition is
met, a "Record Date"), then the Company will have the right,
exercisable by delivery of a written notice to the Holders
delivered no later than twenty Trading Days prior to the
Record Date (the "Company Notice"), which notice shall remain
in effect until a subsequent such notice is provided by the
Company to the Holders, to elect to
--------------------------------
(4) For Series A Debentures
(5) For Series B Debentures
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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 Record Date, to
the Holder, in an amount equal to the product of (A) the
average of the Per Share Market Values for the five Trading
Days preceding the Conversion Date for such conversion and (B)
the number of shares of Common Stock otherwise issuable at the
actual Conversion Price then in effect less the number of
shares of Common Stock issuable upon such conversion at the
Floor Price (the "Floor Prepayment Price"). Failure by the
Company to timely deliver the Company Notice to the Holder
pursuant to the terms of this Section shall result
conclusively be deemed an election by the Company under
subsection (x) hereunder. Failure by the Company to pay any
portion of the Floor Prepayment Price by the third Trading Day
following the applicable Conversion Date shall result in the
invalidation ab initio of the unpaid portion of such optional
prepayment. In such event, the Company shall, at the option of
the Holder, either, (i) not later than three Trading Days from
receipt of Holder's request for such election, return to the
Holder all of the principal amount of Debentures for which
such Floor Prepayment Price has not been paid in full (the
"Unpaid Prepayment Debentures") or (ii) convert all or any
portion of the Unpaid Prepayment Debentures in which event the
applicable Conversion Price shall be the lower of the
Conversion Price calculated on the date the Floor Prepayment
Price was originally due and the Conversion Price as of the
Holder's written demand for conversion. If the Holder elects
option (ii) above, the Company shall within three Trading Days
of its receipt of such election deliver to the Holder the
shares of Common Stock issuable upon conversion of the Unpaid
Prepayment Debentures subject to such Holder conversion demand
and otherwise perform its obligations hereunder with respect
thereto.
(ii) [If the Company, at any time while any
Debentures are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares of
Common Stock, (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of the Common Stock
any shares of capital stock of the Company, then the Initial Conversion
Price shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock (excluding treasury shares, if
any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
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(iii) If the Company, at any time while Debentures
are outstanding, shall distribute to all holders of Common Stock (and
not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security other than with
respect to rights granted pursuant to a stockholders rights plan
adopted by the Company, then in each such case the Initial Conversion
Price shall be adjusted by multiplying the Initial Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the Per Share Market Value determined as
of the record date mentioned above, and of which the numerator shall be
such Per Share Market Value on such record date less the then fair
market value at such record date of the portion of such assets or
evidence of indebtedness or rights or warrants 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 or rights or warrants 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.](6)
(iv) In case of any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or property, the
Holders shall have the right thereafter to, at their option, (A)
convert the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder
in respect of this Debenture only into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or share
exchange, and the Holders of the Debentures shall be entitled upon such
event to receive such amount of securities, cash or property as the
shares of the Common Stock of the Company into which the then
outstanding principal amount, together with all accrued but unpaid
interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled or (B)
require the Company to prepay the aggregate of its outstanding
principal amount of Debentures, plus all interest and other amounts due
and payable thereon, at a price determined in accordance with Section
3(b). The entire prepayment price shall be paid in cash. This provision
shall similarly apply to successive reclassifications or share
exchanges.
(v) [All calculations under this Section 4 shall
be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. No adjustments in the Initial Conversion Price shall be
required if such adjustment is less than $0.01, provided, however, that
any adjustments which by reason of this Section are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment.
(vi) Whenever the Initial Conversion Price is
adjusted pursuant to Section 4(c)(ii) or (iii), the Company shall
promptly mail to each Holder a notice setting
--------------------------------
(6) For Series B Debentures.
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forth the Initial Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.](7)
(vii) If (A) the Company shall declare a dividend
(or any other distribution) on the Common Stock; (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the
Common Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights; (D)
the approval of any stockholders of the Company shall be required in
connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in each case, the
Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debentures, and shall cause to be
mailed to the Holders at their last addresses as they shall appear upon
the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange, provided, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. Holders are
entitled to convert Debentures during the 20-day period commencing the
date of such notice to the effective date of the event triggering such
notice.
(viii) In case of the closing of any (1) merger or
consolidation of the Company with or into another Person, or (2) sale
by the Company of more than one-half of the assets of the Company (on a
market value basis) in one or a series of related transactions, a
Holder shall have the right to (A) if permitted under Section 3(b)
hereof, exercise its rights of prepayment under Section 3(b) with
respect to such event, or (B) convert its aggregate principal amount of
Debentures then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale,
and such Holder shall be entitled upon conversion of the Debentures to
receive such amount of securities, cash and property as the shares of
Common Stock into which such aggregate principal amount of Debentures
could have been converted immediately prior to such merger,
consolidation or sales would have been entitled. The terms of any such
merger, sale or consolidation shall include such terms so as to
continue to give the Holders the right to
--------------------------------
(7) For Series B Debentures.
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receive the securities, cash and property set forth in this Section
upon any conversion or redemption following such event. This provision
shall similarly apply to successive such events.
(d) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of the Debentures and
payment of interest on the Debentures, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders, not less than such number of shares of the Common Stock
as shall (subject to any additional requirements of the Company as to
reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 4(b)) upon the
conversion of the outstanding principal amount of the Debentures and payment of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and, if the Underlying Shares Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or
deliveries to be provided by the Holders of the Debentures hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed to
the Company, at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Facsimile No.: (949)
788-6706, 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 ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ (facsimile number (714)
755-8290), attention ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each Holder of the Debentures at the facsimile telephone
number or address of such ▇▇▇▇▇▇ appearing on the books of the
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Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
6:30 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) four days after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (v) upon actual receipt by the party to whom such notice is
required to be given.
Section 5. Optional Prepayment.
(a) During the time that any portion of this Debenture
remains outstanding, the Company shall have the right, exercisable on any
Trading Day in which the Conversion Price shall be less than $6.00 (which number
shall be subject to equitable adjustments for stock splits, recombinations and
similar events), in accordance with the terms hereof and upon three Trading
Days' prior written notice to the Holders to be prepaid (an "Optional Prepayment
Notice"), to prepay all or any portion of the outstanding principal amount of
the Debentures which has not previously been repaid or for which Conversion
Notices have not previously been delivered. The prepayment price applicable to
prepayments under this Section 5(a) shall equal the Optional Prepayment Price
(as defined in Section 6) and shall be paid in cash. Any such prepayment shall
be free of any claim of subordination. The Holders shall have the right to
tender, and the Company shall honor, Conversion Notices delivered on or prior to
the expiration of the fifteenth Trading Day after receipt by the Holders of an
Optional Prepayment Notice for such Debentures (the fifteenth Trading Day after
receipt by the Holders of an Optional Prepayment Notice is referred to herein as
the "Optional Prepayment Date").
(b) The Company shall not be entitled to deliver an
Optional Prepayment Notice to the Holder (and, if after delivery thereof and
prior to the Optional Prepayment Date, any of the following conditions shall
cease to be met, such notice, at the option of the Holders, shall be deemed no
longer effective) if: (i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to satisfy
the Company's conversion obligations of the aggregate principal amount of
Debentures then outstanding, or (ii) there is neither an effective Underlying
Shares Registration Statement under which the Holders can resell all of the
issued Underlying Shares and all of the Underlying Shares as are issuable upon
conversion in full of the principal amount of Debentures subject to an Optional
Prepayment Notice nor may all of such issued and issuable Underlying Shares be
sold by the Holders subject to such prepayment without volume restrictions
pursuant to Rule 144 promulgated under the Securities Act, as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the Holders and
such transfer agent, or (iii) the Common Stock is not then listed for trading on
the NASDAQ or on a Subsequent Market.
(c) If any portion of the Optional Prepayment Price shall
not be paid by the Company by the Optional Prepayment Date, the Optional
Prepayment Price shall bear interest at the rate of 18% per annum (or such
lesser maximum amount that is permitted to be paid by
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applicable law) to accrue daily from the date such interest is due hereunder
through and including the date of payment (which amount shall be paid as
liquidated damages and not as a penalty). In addition, if any portion of the
Optional Prepayment Price remains unpaid through the expiration of the Optional
Prepayment Date, the Holder subject to such prepayment may elect by written
notice to the Company to either (x) demand conversion in accordance with the
formula and the time period therefor set forth in Section 4 of any portion of
the principal amount of Debentures for which the Optional Prepayment Price, plus
accrued interest thereon, has not been paid in full (the "Unpaid Prepayment
Principal Amount"), in which event the applicable Conversion Price shall be the
lower of the Conversion Price calculated on the Optional Prepayment Date and the
Conversion Price as of the Holder's written demand for conversion, or (y)
invalidate ab initio such optional prepayment, notwithstanding anything herein
contained to the contrary. If the Holder elects option (x) above, the Company
shall, within three Trading Days after such election is deemed delivered
hereunder, deliver to the Holder the shares of Common Stock issuable upon
conversion of the Unpaid Prepayment Principal Amount subject to such conversion
demand and otherwise perform its obligations hereunder with respect thereto. If
the Holder elects option (y) above, the Company shall promptly, and in any event
not later than three Trading Days from receipt of notice of such election,
return to the Holder new Debentures for the full Unpaid Prepayment Principal
Amount and shall no longer have any prepayment rights under this Debenture. If,
upon an election under option (x) above, the Company fails to deliver
certificates representing the shares of Common Stock issuable upon conversion of
the Unpaid Prepayment Principal Amount within the time period set forth in this
Section, the Company shall pay to the Holder in cash, as liquidated damages and
not as a penalty, $5,000 per day until the Company delivers such certificates to
the Holder.
Section 6. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York or the State of California are authorized or required by law or other
government action to close.
"Change of Control Transaction" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger or consolidation of the Company
with or into another entity that is not wholly-owned by the Company upon the
completion of which the stockholders of the Company, immediately before such
merger or consolidation, own or control less than 2/3 of the voting securities
of the surviving entity, or sale of 50% or more of the assets of the Company in
one or a series of related transactions, or (iv) the execution by the Company of
an agreement to which the Company is a party or by which it is bound, providing
for any of the events set forth above in (i), (ii) or (iii).
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"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.001 par value per share, of
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Interest Effectiveness Date" means the earlier to occur of (x) the
Effectiveness Date (as defined in the Registration Rights Agreement) and (y) the
date that an Underlying Shares Registration Statement is declared effective by
the Commission.
"Mandatory Prepayment Amount" for any Debentures shall equal the sum of
(i) the greater of (A) 120% of the principal amount of Debentures to be prepaid,
plus all accrued and unpaid interest thereon, and (B) the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon, divided
by the Conversion Price on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is
paid in full, whichever is less, multiplied by the Per Share Market Value on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
such Debentures.
"Optional Prepayment Price" shall equal the sum of (i) 106% of the
principal amount of Debentures to be prepaid, plus all accrued and unpaid
interest thereon, and (ii) all other amounts, expenses, costs and liquidated
damages due in respect of such Debentures.
"Original Issue Date" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of Common Stock on such date on the NASDAQ or on such
Subsequent Market on which the shares of Common Stock are then listed or quoted,
or if there is no such price on such date, then the closing bid price on the
NASDAQ or on such Subsequent Market on the date nearest preceding such date, or
(b) if the shares of Common Stock are not then listed or quoted on the NASDAQ or
a Subsequent Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the shares of
Common Stock are not then reported by the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority in interest of the principal amount of Debentures then
outstanding.
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"Person" means a corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of September 21, 2000, to which the Company, NeoGene Technologies, Inc. and the
original Holders 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 September 21, 2000, to which the Company and the original
Holders are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means (a) a day on which the shares of Common Stock are
traded on the NASDAQ or on such Subsequent Market on which the shares of Common
Stock are then listed or quoted, or (b) if the shares of Common Stock are not
listed on the NASDAQ or a Subsequent Market, a day on which the shares of Common
Stock are traded in the over-the-counter market, as reported by the OTC Bulletin
Board, or (c) if the shares of Common Stock are not quoted on the OTC Bulletin
Board, a day on which the shares of Common Stock are quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the shares of
Common Stock are not listed or quoted as set forth in (a), (b) and (c) hereof,
then Trading Day shall mean any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other government action to close.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of Debentures or as payment of interest in accordance with the terms
hereof.
"Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
Section 7. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation of
the Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as there are
Debentures outstanding, the Company shall not and shall cause its 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 the Company's 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 that is not conditioned upon
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the receipt of an affirmative vote pursuant to this Section. The Company may
only voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 9. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. This Debenture is subordinate to all bank debt of the
Company outstanding as of the Original Issue Date and set forth in Schedule
2.1(n) to the Purchase Agreement or at any time thereafter.
Section 11. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
Section 12. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Debenture. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Debenture on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Debenture. Any waiver must be in writing.
Section 13. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. If it
shall be found that any interest or other amount deemed interest due hereunder
shall violate applicable laws governing usury, the applicable rate of interest
due hereunder shall automatically be lowered to equal the maximum permitted rate
of interest.
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Section 14. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
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IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.
NEOTHERAPEUTICS, INC.
By:
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Name:
--------------------------------
Title:
--------------------------------
Attest:
By:
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Name:
--------------------------------
Title:
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into
shares of common stock, $.001 par value per share (the "Common Stock"), of
NeoTherapeutics, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
Date to Effect Conversion
--------------------------
Number of shares of Preferred Stock to be Converted
--------------------------
Number of shares of Common Stock to be Issued
--------------------------
Applicable Conversion Price
--------------------------
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Signature
Name
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Address
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