6% SECURED CONVERTIBLE DEBENTURE DUE APRIL 5, 2007
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY 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 AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
Original
Issue Date: December 5, 2005
Original
Conversion Price (subject to adjustment herein): $0.82
$1,000,000
6%
SECURED CONVERTIBLE DEBENTURE
DUE
APRIL 5, 2007
THIS
DEBENTURE of Generex Biotechnology Company, a Delaware corporation, having
a
principal place of business at ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ (the “Company”),
is
designated as its 6% Convertible Debenture, due April 5, 2007 (the “Debenture”).
FOR
VALUE
RECEIVED, the Company promises to pay to =
or its
registered assigns (the “Holder”),
the
principal sum of $1,000,000 on April 5, 2007 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 in accordance with the provisions hereof.
This Debenture is subject to the following additional provisions:
Section
1. Definitions.
For the
purposes hereof, in addition to the terms defined elsewhere in this Debenture:
(a) capitalized terms not otherwise defined herein have the meanings given
to
such terms in the Purchase Agreement Amendments, or if not found therein,
the
Purchase Agreement and (b) the following terms shall have the following
meanings:
“Alternate
Consideration”
shall
have the meaning set forth in Section 5(d).
“Base
Conversion Price”
shall
have the meaning set forth in Section 5(b).
“Business
Day”
means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday in the United States or a day on which banking institutions in the
State
of New York are authorized or required by law or other government action
to
close.
“Buy-In”
shall
have the meaning set forth in Section 4(d)(v).
“Change
of Control Transaction”
means
the occurrence after the date hereof of any of (i) an acquisition after the
date
hereof by an individual or legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Company, by
contract or otherwise) of in excess of 33% of the voting securities of the
Company, or (ii) a replacement at one time or within a three year period
of more
than one-half of the members of the Company’s board of directors which is not
approved by a majority of those individuals who are members of the board
of
directors on the date hereof (or by those individuals who are serving as
members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), or (iii) the execution by the Company of an
agreement to which the Company is a party or by which it is bound, providing
for
any of the events set forth above in (i) or (ii).
“Common
Stock”
means
the common stock, par value $0.001 per share, of the Company and stock of
any
other class into which such shares may hereafter have been reclassified or
changed.
“Conversion
Date”
shall
have the meaning set forth in Section 4(a).
“Conversion
Price”
shall
have the meaning set forth in Section 4(b).
“Conversion
Shares”
means
the shares of Common Stock issuable upon conversion of Debentures or as payment
of interest in accordance with the terms.
“Debenture
Register”
shall
have the meaning set forth in Section 2(c).
“Dilutive
Issuance”
shall
have the meaning set forth in Section 5(b).
“Dilutive
Issuance Notice”
shall
have the meaning set forth in Section 5(b).
“Effectiveness
Period”
shall
have the meaning given to such term in the Registration Rights Agreement
and the
Purchase Agreement Amendments.
“Equity
Conditions”
shall
mean, during the period in question, (i)
the
Company shall have duly honored all conversions and redemptions scheduled
to
occur or occurring by virtue of one or more Notice of Conversions, if any,
(ii)
all liquidated damages and other amounts owing in respect of the Debentures
shall have been paid; (iii)
there is an effective Registration Statement pursuant to which the Holder
is
permitted to utilize the prospectus thereunder to resell all of the shares
issuable pursuant to the Transaction Documents (and the Company believes,
in
good faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on the Trading Market
and
all of the shares issuable pursuant to the Transaction Documents are listed
for
trading on a Trading Market (and the Company believes, in good faith, that
trading of the Common Stock on a Trading Market will continue uninterrupted
for
the foreseeable future), (v) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the issuance
of all
of the shares issuable pursuant to the Transaction Documents, (vi) there
is then
existing no Event of Default or event which, with the passage of time or
the
giving of notice, would constitute an Event of Default, (vii) all of the
shares
issued or issuable pursuant to the transaction proposed would not violate
the
limitations set forth in Section 4(c), (viii)
no
public announcement of a pending or proposed Fundamental Transaction, Change
of
Control Transaction or acquisition transaction has occurred that has not
been
consummated, and (ix) the Holder is not then in possession of what could
be
deemed material, non-public information, in the reasonable determination
of the
Holder.
“Event
of Default”
shall
have the meaning set forth in Section 8.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“Fundamental
Transaction”
shall
have the meaning set forth in Section 5(d).
“Interest
Conversion Rate”
means
the
lesser of (a) the Conversion Price and (b) 90%
of
the average of the 20 VWAPs immediately prior to the applicable Interest
Payment
Date.
“Interest
Payment Date”
shall
have the meaning set forth in Section 2(a).
“Late
Fees”
shall
have the meaning set forth in Section 2(d).
“Mandatory
Prepayment Amount”
for any
Debentures shall equal the sum of (i) the greater of: (A) 130% of the principal
amount of Debentures to be prepaid, plus all accrued and unpaid interest
thereon, or (B) the principal amount of Debentures to be prepaid, plus all
other
accrued and unpaid interest hereon, 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 VWAP on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment Amount
is
paid in full, whichever is greater, and (ii) all other amounts, costs, expenses
and liquidated damages due in respect of such Debentures.
“Monthly
Redemption”
shall
mean the redemption of this Debenture pursuant to Section 6(a)
hereof.
“Monthly
Redemption Amount”
shall
mean, as to a Monthly Redemption, $76,923.081 the
original principal amount of this Debenture divided by 13.,
or such
lesser principal amount of this Debenture then outstanding.
“Monthly
Redemption Date”
means
the first Trading Day of every month, commencing on March 1, 2006 and ending
on
the date when there is no principal amount of this Debenture
outstanding.
1
the original principal amount of this Debenture divided by 13.
“New
York Courts”
shall
have the meaning set forth in Section 9(d).
“Notice
of Conversion”
shall
have the meaning set forth in Section 4(a).
“Original
Issue Date”
shall
mean December 5, 2005 regardless of the number of transfers of the Debenture
and
regardless of the number of instruments which may be issued to evidence the
Debenture.
“Person”
means a
corporation, an association, a partnership, organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.
“Purchase
Agreement”
means
the Securities Purchase Agreement, dated as of November 10, 2004, to which
the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
“Purchase
Agreement Amendments”
means,
collectively, Amendment No. 1 to the Securities Purchase Agreement and
Registration Rights Agreement dated June 17, 2005, Amendment No. 2 to the
Securities Purchase Agreement and Registration Rights Agreement dated September
8, 2005, and Amendment No. 3 to the Securities Purchase Agreement and
Registration Rights Agreement dated December 4, 2005, to which, in each case,
the Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with their terms.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the date of the Purchase
Agreement, to which the Company and the original Holder are parties, as amended,
modified or supplemented from time to time in accordance with its
terms.
“Registration
Statement”
means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Conversion
Shares and naming the Holder as a “selling stockholder” thereunder.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Subsidiary”
shall
have the meaning given to such term in the Purchase Agreement.
“Trading
Day”
means a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or
quoted
for trading on the date in question: the Nasdaq Capital Market, the American
Stock Exchange, the New York Stock Exchange or the Nasdaq National
Market.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
“VWAP”
means,
for any date, the price determined by the first of the following clauses
that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date
(or
the nearest preceding date) on the Trading Market on which the Common Stock
is
then listed or quoted as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)
if
the Common Stock is not then listed or quoted on a Trading Market and if
prices
for the Common Stock are then quoted on the OTC Bulletin Board, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not
then
listed or quoted on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair market
value
of a share of Common Stock as determined by an independent appraiser selected
in
good faith by the Holders and reasonably acceptable to the Company.
Section
2. Interest.
a) Payment
of Interest in Cash or Kind.
The
Company shall pay interest to the Holder on the aggregate unconverted and
then
outstanding principal amount of this Debenture at the rate of 6% per annum,
payable quarterly on March 31, June 30, September 30 and December 31, beginning
on the first such date after the Original Issue Date and on each Conversion
Date
(as to that principal amount then being converted) and on the Maturity Date
(except that, if any such date is not a Business Day, then such payment shall
be
due on the next succeeding Business Day) (each such date, an “Interest
Payment Date”),
in
cash or shares of Common Stock in an amount equal to the amount of interest
then
due and owing divided by the Interest Conversion Rate, or a combination thereof;
provided,
however,
payment
in shares of Common Stock may only occur if during the 20 Trading Days
immediately prior to the applicable Interest Payment Date all of the Equity
Conditions have been met and the Company shall have given the Holder notice
in
accordance with the notice requirements set forth below.
b) Company’s
Election to Pay Interest in Kind.
Subject
to the terms and conditions herein, the decision whether to pay interest
hereunder in shares of Common Stock or cash shall be at the discretion of
the
Company. Not less than 20 Trading Days prior to each Interest Payment Date,
the
Company shall provide the Holder with written notice of its election to pay
interest hereunder either in cash or shares of Common Stock (the Company
may
indicate in such notice that the election contained in such notice shall
continue for later periods until revised). Within 20 Trading Days prior to
an
Interest Payment Date, the Company’s election (whether specific to an Interest
Payment Date or continuous) shall be irrevocable as to such Interest Payment
Date. Subject to the aforementioned conditions, failure to timely provide
such
written notice shall be deemed an election by the Company to pay the interest
on
such Interest Payment Date in cash.
c) Interest
Calculations.
Interest shall be calculated on the basis of a 360-day year and shall accrue
daily commencing on the Original Issue Date until payment in full of the
principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Payment of interest in shares
of
Common Stock shall otherwise occur pursuant to Section 4(d)(ii) and only
for
purposes of the payment of interest in shares, the Interest Payment Date
shall
be deemed the Conversion Date. Interest shall cease to accrue with respect
to
any principal amount converted, provided that the Company in fact delivers
the
Conversion Shares within the time period required by Section 4(d)(ii). Interest
hereunder will be paid to the Person in whose name this Debenture is registered
on the records of the Company regarding registration and transfers of Debentures
(the “Debenture
Register”).
Except as otherwise provided herein, if at any time the Company pays interest
partially in cash and partially in shares of Common Stock, then such payment
shall be distributed ratably among the Holders based upon the principal amount
of Debentures held by each Holder.
d) Late
Fee.
All
overdue accrued and unpaid interest to be paid 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) (“Late
Fees”)
which
will accrue daily, from the date such interest is due hereunder through and
including the date of payment. Notwithstanding anything to the contrary
contained herein, if on any Interest Payment Date the Company has elected
to pay
interest in Common Stock and is not able to pay accrued interest in the form
of
Common Stock because it does not then satisfy the conditions for payment
in the
form of Common Stock set forth above, then, at
the
option of the Holder, the
Company, in lieu of delivering either
shares
of
Common Stock pursuant to this Section 2 or
paying
the regularly scheduled cash interest payment, shall deliver, within three
Trading Days of each applicable Interest Payment Date, an amount in cash
equal
to the product of the number of shares of Common Stock otherwise deliverable
to
the Holder in connection with the payment of interest due on such Interest
Payment Date and the highest VWAP during the period commencing on the Interest
Payment Date and ending on the Trading Day prior to the date such payment
is
made.
e) Prepayment.
Except
as otherwise set forth in this Debenture, the Company may not prepay any
portion
of the principal amount of this Debenture without the prior written consent
of
the Holder.
Section
3. Registration
of Transfers and Exchanges.
a) Different
Denominations.
This
Debenture is exchangeable for an equal aggregate principal amount of Debentures
of different authorized denominations, as requested by the Holder surrendering
the same. No service charge will be made for such registration of transfer
or
exchange.
b) Investment
Representations.
This
Debenture has been issued subject to certain investment representations of
the
original Holder set forth in the Purchase Agreement and may be transferred
or
exchanged only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
c) Reliance
on Debenture Register.
Prior
to due presentment to the Company for transfer of this Debenture, the Company
and any agent of the Company may treat the Person in whose name this Debenture
is duly registered on the Debenture Register as the owner hereof for the
purpose
of receiving payment as herein provided and for all other purposes, whether
or
not this Debenture is overdue, and neither the Company nor any such agent
shall
be affected by notice to the contrary.
Section
4. Conversion.
a) Voluntary
Conversion.
At any
time after the Original Issue Date until this Debenture is no longer
outstanding, this Debenture shall be convertible into shares of Common Stock
at
the option of the Holder, in whole or in part at any time and from time to
time
(subject to the limitations on conversion set forth in Section 4(c)
hereof). The Holder shall effect conversions by delivering to the Company
the
form of Notice of Conversion attached hereto as Annex
A
(a
“Notice
of Conversion”),
specifying therein the principal amount of Debentures to be converted and
the
date on which such conversion is to be effected (a “Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion is provided hereunder. To
effect conversions hereunder, the Holder shall not be required to physically
surrender Debentures to the Company unless the entire principal amount of
this
Debenture plus all accrued and unpaid interest thereon has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the
principal amount converted and the date of such conversions. The Company
shall
deliver any objection to any Notice of Conversion within 2 Business Days
of
receipt of such notice. In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Debenture, acknowledge
and agree that, by reason of the provisions of this paragraph, following
conversion of a portion of this Debenture, the unpaid and unconverted principal
amount of this Debenture may be less than the amount stated on the face
hereof.
b) Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal to $0.82
(subject
to adjustment herein) (the “Conversion
Price”).
c) ▇▇▇▇▇▇’s
Restriction on Conversion.
The
Company shall not effect any conversion of this Debenture, and the Holder
shall
not have the right to convert any portion of this Debenture, pursuant to
Section
4(a) or otherwise, to the extent that after giving effect to such conversion,
the Holder (together with the Holder’s affiliates), as set forth on the
applicable Notice of Conversion, would beneficially own in excess of 4.99%
of
the number of shares of the 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 Debenture 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, nonconverted
portion of this Debenture beneficially owned by the Holder or any of its
affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company
(including,
without limitation, any other Debentures or the 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 Section 4(c),
beneficial ownership shall be calculated in accordance with Section 13(d)
of the
Exchange Act. To the extent that the limitation contained in this section
applies, the determination of whether this Debenture is convertible (in relation
to other securities owned by the Holder) and of which a portion of this
Debenture is convertible shall be in the sole discretion of such Holder.
To
ensure compliance with this restriction, the Holder will be deemed to represent
to the Company each time it delivers a Notice of Conversion that such Notice
of
Conversion has not violated the restrictions set forth in this paragraph
and the
Company shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section 4(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-Q or Form 10-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
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the
Company
shall within two Trading Days confirm orally and 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
Debenture, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.
| d) |
Mechanics
of Conversion
|
i. Conversion
Shares Issuable Upon Conversion of Principal Amount.
The
number of shares of Common Stock issuable upon a conversion hereunder shall
be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion
Price.
ii. Delivery
of Certificate Upon Conversion.
Not
later than three Trading Days after any Conversion Date, the Company will
deliver to the Holder (A) a certificate or certificates representing the
Conversion Shares which shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the conversion of
Debentures (including, if so timely elected by the Company, shares of Common
Stock representing the payment of accrued interest) and (B) a bank check
in the
amount of accrued and unpaid interest (if the Company is required to pay
accrued
interest in cash). The Company shall, if available and if allowed under
applicable securities laws, use its commercially reasonable 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.
iii. Failure
to Deliver Certificates.
If in
the case of any Notice of Conversion such certificate or certificates are
not
delivered to or as directed by the applicable Holder by the third Trading
Day
after a Conversion Date, the Holder shall be entitled by written notice to
the
Company at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the principal amount of
Debentures tendered for conversion; provided that if as a result of the
limitations set forth in Section 4(c) hereof, such failure by the Company
is for
a portion of the Securities for which a Notice of Conversion has been delivered,
the Holder shall be permitted to rescind solely that portion not so converted.
iv. Obligation
Absolute; Partial Liquidated Damages.
Subject
to the limitations set forth in Section 4(c) hereof, if the Company fails
for
any reason to deliver to the Holder such certificate or certificates pursuant
to
Section 4(d)(ii) 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,
for each $1000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day after 5 Trading Days after such damages
begin
to accrue) for each Trading Day after such third Trading Day until such
certificates are delivered. The Company’s obligations to issue and deliver the
Conversion Shares upon conversion of this Debenture in accordance with the
terms
hereof are absolute and unconditional, irrespective of any action or inaction
by
the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any
action
to enforce the same, or any setoff, counterclaim, recoupment, limitation
or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of
law by
the Holder or any other person, and irrespective of any other circumstance
which
might otherwise limit such obligation of the Company to the Holder in connection
with the issuance of such Conversion Shares; provided,
however,
such
delivery shall not operate as a waiver by the Company of any such action
the
Company may have against the Holder. In the event a Holder of this Debenture
shall elect to convert any or all of the outstanding principal amount hereof,
the Company may not refuse conversion based on any claim that the Holder
or any
one associated or affiliated with the Holder of has been engaged in any
violation of law, agreement or for any other reason, unless, an injunction
from
a court, on notice, restraining and or enjoining conversion of all or part
of
this Debenture shall have been sought and obtained and the Company posts
a
surety bond for the benefit of the Holder in the amount of 150% of the principal
amount of this Debenture outstanding, which is subject to the injunction,
which
bond shall remain in effect until the completion of arbitration/litigation
of
the dispute and the proceeds of which shall be payable to such Holder to
the
extent it obtains judgment. In the absence of an injunction precluding the
same,
the Company shall issue Conversion Shares or, if applicable, cash, upon a
properly noticed conversion. Nothing herein shall limit a Holder’s right to
pursue actual damages or declare an Event of Default pursuant to Section
8
herein for the Company’s failure to deliver Conversion Shares 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.
v. Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion.
In
addition to any other rights available to the Holder, if the Company fails
for
any reason, other than as a result of the limitations set forth in Section
4(c)
hereof, to deliver to the Holder such certificate or certificates pursuant
to
Section 4(d)(ii) by the third Trading Day after the Conversion Date, and
if
after such third Trading Day the Holder is required by its brokerage firm
to
purchase (in an open market transaction or otherwise) Common Stock to deliver
in
satisfaction of a sale by such Holder of the Conversion 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 actual sale price of the Common Stock at the
time of
the sale (including brokerage commissions, if any) giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue Debentures
in
principal amount equal to the principal amount of the attempted conversion
or
deliver to the Holder the number of shares of Common Stock that would have
been
issued had the Company timely complied with its delivery requirements under
Section 4(d)(ii). For example, if the Holder purchases Common Stock having
a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the actual sale price of the
Conversion Shares at the time of the sale (including brokerage commissions,
if
any) giving rise to such purchase obligation was a total of $10,000 under
clause
(A) of the immediately preceding sentence, the Company shall be required
to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder requires
the Company to make payment in respect of a Buy-In for the failure to timely
deliver certificates hereunder and the Company timely pays in full such payment,
the Company shall not be required to pay such Holder liquidated damages under
Section 4(d)(iv) in respect of the certificates resulting in such
Buy-In.
vi. Reservation
of Shares Issuable Upon Conversion.
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
Debenture, 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 5) 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 Registration Statement is then effective
under
the Securities Act, registered for public sale in accordance with such
Registration Statement.
vii. Fractional
Shares.
Upon a
conversion hereunder the Company shall not be required to issue stock
certificates representing fractions of shares of the Common Stock, but may
if
otherwise permitted, make a cash payment in respect of any final fraction
of a
share based on the VWAP at such time. If the Company elects not, or is unable,
to make such a cash payment, the Holder shall be entitled to receive, in
lieu of
the final fraction of a share, one whole share of Common Stock.
viii. Transfer
Taxes.
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.
Section
5. Certain
Adjustments.
a) Stock
Dividends and Stock Splits.
If the
Company, at any time while the 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 (which, for avoidance of doubt, shall not include
any
shares of Common Stock issued by the Company pursuant to this Debenture,
including as interest thereon), (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 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.
b) Subsequent
Equity Sales.
If the
Company or any Subsidiary thereof, as applicable, at any time while Debentures
are outstanding, shall offer, sell, grant any option to purchase or offer,
sell
or grant any right to reprice its securities, or otherwise dispose of or
issue
(or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock, at an effective price per share less than
the
then Conversion Price (such lower price, the “Base
Conversion Price”
and
such issuances collectively, a “Dilutive
Issuance”),
as
adjusted hereunder (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase
price
adjustments, reset provisions, floating conversion, exercise or exchange
prices
or otherwise, or due to warrants, options or rights per share which is issued
in
connection with such issuance, be entitled to receive shares of Common Stock
at
an effective price per share which is less than the Conversion Price, such
issuance shall be deemed to have occurred for less than the Conversion Price),
then the Conversion Price shall be reduced to equal the Base Conversion Price.
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. The Company shall notify the Holder in writing, no
later
than the Business Day following the issuance of any Common Stock or Common
Stock
Equivalents subject to this section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and
other
pricing terms (such notice the “Dilutive
Issuance Notice”).
For
purposes of clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Conversion Shares based upon the Base Conversion
Price regardless of whether the Holder accurately refers to the Base Conversion
Price in the Notice of Conversion. Notwithstanding
the foregoing, no adjustment will be made hereunder in respect of (i) an
Exempt
Issuance other
than an Exempt Issuance that involves an MFN Transaction or a Variable Rate
Transaction for which the adjustment provisions of Section 5 shall be
applicable, or (ii) issuances of up to, in the aggregate, the first 1,500,000
shares of Common Stock or Common Stock Equivalents (subject to adjustment
for
reverse and forward stock splits, stock dividends, stock combinations and
other
similar transactions of the Common Stock that occur after the date of this
Agreement) to consultants of the Company in any 12 month period pursuant
to any
resolution duly adopted by a majority of the non-employee members of the
Board
of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose.
c) Pro
Rata Distributions.
If the
Company, at any time while Debentures are outstanding, shall distribute to
all
holders of Common Stock (and not to Holders) evidences of its indebtedness
or
assets or rights or warrants to subscribe for or purchase any security, then
in
each such case the Conversion Price shall be determined by multiplying such
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 VWAP determined as of the
record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of the Common Stock as determined by the Board of Directors
in
good faith. In either case the adjustments shall be described in a statement
provided to the Holders of the portion of assets or evidences of indebtedness
so
distributed or such subscription rights applicable to one share of Common
Stock.
Such adjustment shall be made whenever any such distribution is made and
shall
become effective immediately after the record date mentioned above.
d) Fundamental
Transaction.
If, at
any time while this Debenture is outstanding, (A) the Company effects any
merger
or consolidation of the Company with or into another Person, (B) the Company
effects any sale of its assets in one or a series of related transactions,
(C)
any tender offer or exchange offer (whether by the Company or another Person)
is
completed pursuant to which holders of Common Stock are permitted to tender
or
exchange their shares for other securities, cash or property, or (D) the
Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into
or
exchanged for other securities, cash or property (in any such case, a
“Fundamental
Transaction”),
then
upon any subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been issuable
upon
such conversion absent such Fundamental Transaction, the same kind and amount
of
securities, cash or property as it would have been entitled to receive upon
the
occurrence of such Fundamental Transaction if it had been, immediately prior
to
such Fundamental Transaction, the holder of one share of Common Stock (the
“Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based
on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction,
then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder’s right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(c) and insuring that this Debenture (or any such replacement security) will
be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
e) Calculations.
All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not include shares of Common Stock
owned or held by or for the account of the Company, and the description of
any
such shares of Common Stock shall be considered on issue or sale of Common
Stock. For purposes of this Section 5, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the sum of
the
number of shares of Common Stock (excluding treasury shares, if any) issued
and
outstanding.
f) Notice
to Holders.
i. Adjustment
to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to any of this Section
5, the
Company shall promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the Company shall
be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in the
Purchase Agreement), or the lowest possible adjustment price in the case
of an
MFN Transaction (as defined in the Purchase Agreement).
ii. Notice
to Allow Conversion by ▇▇▇▇▇▇.
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.
Section
6.
Monthly
Redemptions.
a) Monthly
Redemption.
On each
Monthly Redemption Date, the Company shall redeem the Monthly Redemption
Amount
plus accrued but unpaid interest, the sum of all liquidated damages and any
other amounts then owing to the Holder in respect of this Debenture. The
Monthly
Redemption Amount due on each Monthly Redemption Date shall, except as provided
in this Section, be paid in cash. As to any Monthly Redemption and upon 20
Trading Days’ prior written irrevocable notice, in lieu of a cash redemption
payment the Company may elect to pay 100% of a Monthly Redemption in Conversion
Shares based on a conversion price equal to the lesser of (i) 90% of the
average
of the 20 VWAPs immediately prior to the applicable Monthly Redemption Date
(subject to adjustment for any stock dividend, stock split, stock combination
or
other similar event affecting the Common Stock during such 20 Trading Day
period), and (ii) the Conversion Price. The Holders may convert, pursuant
to
Section 4(a), any principal amount of this Debenture subject to a Monthly
Redemption at any time prior to the date that the Monthly Redemption Amount
and
all amounts owing thereon are due and paid in full. Unless otherwise directed
by
the Holder in the applicable Notice of Conversion, any portion of this Debenture
converted during any 20 day period until the date the Monthly Redemption
Amount
is paid shall be first applied to the principal amount of Debenture subject
to
the Monthly Redemption and such Holder’s cash payment of the Monthly Redemption
Amount on such Monthly Redemption Date shall be reduced accordingly. The
Company
covenants and agrees that it will honor all Notice of Conversions tendered
up
until such amounts are paid in full.
b) Redemption
Procedure.
The
payment of cash and/or issuance of Common Stock, as the case may be, pursuant
to
a Monthly Redemption shall be made on the Monthly Redemption Date. If any
portion of the cash payment for a Monthly Redemption shall not be paid by
the
Company by the respective due date, interest shall accrue thereon at the
rate of
18% per annum (or the maximum rate permitted by applicable law, whichever
is
less) until the payment of the Monthly Redemption Amount plus all amounts
owing
thereon is paid in full. Alternatively, if any portion of the Monthly Redemption
Amount remains unpaid after such date, the Holders subject to such redemption
may elect, by written notice to the Company given at any time thereafter,
to invalidate ab initio such redemption, notwithstanding anything
herein
contained to the contrary. Notwithstanding anything to the contrary in this
Section 6, the Company’s determination to redeem in cash or shares of Common
Stock shall be applied ratably among the Holders of Debentures based upon
the
principal amount of Debentures initially purchased by each Holder, adjusted
upward ratably in the event all of the principal amount of any Holder are
no
longer outstanding.
The
Holder may elect to convert the outstanding principal amount of this Debenture
pursuant to Section 4 prior to actual payment in cash for any redemption
under
this Section 6 by fax delivery of a Notice of Conversion to the
Company.
Section
7. Negative
Covenants.
So long
as any portion of this Debenture is outstanding, the Company will not and
will
not permit any of its Subsidiaries to directly or indirectly:
a) enter
into, create, incur, assume or suffer to exist any indebtedness or liens
of any
kind, on or with respect to any of its property or assets (including, without
limitation, in respect to any of the Secured Proceeds as that terms is defined
in the Custodial Agreement) now owned or hereafter acquired or any interest
therein or any income or profits therefrom that is
senior
to, or pari passu
with, in
any respect, the Company’s obligations under the Debentures;
b) amend
its
certificate of incorporation, bylaws or to the charter documents so as to
adversely affect any rights of the Holder;
c) other
than redemption payments with respect to the Company's Special Voting Rights
Preferred Stock not to exceed $5,000 in the aggregate and repurchases of
the
Company's Series A Convertible Preferred Stock to the extent that the cash
payments in respect of any such repurchases does not exceed, in the aggregate,
$50,000, repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a
de
minimis
number
of shares of its Common Stock or other equity or debt securities other than
as
to the Conversion Shares to the extent permitted or required under the
Transaction Documents or as otherwise permitted by the Transaction Documents;
or
d) enter
into any agreement with respect to any of the foregoing.
Section
8. 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 (A) the principal amount of any Debenture, or (B)
interest (including Late Fees) on, or liquidated damages in respect of, any
Debenture, in each case free of any claim of subordination, as and when the
same
shall become due and payable (whether on a Conversion Date or the Maturity
Date
or by acceleration or otherwise) which default, solely in the case of an
interest payment or other default under clause (B) above, is not cured, within
3
Trading Days;
ii. the
Company shall fail to observe or perform any other covenant or agreement
contained in this Debenture or any of the other Transaction Documents (other
than a breach by the Company of its obligations to deliver shares of Common
Stock to the Holder upon conversion which breach is addressed in clause (xii)
below) which failure is not cured, if possible to cure, within the earlier
to
occur
of
(A)
5
Trading
Days after notice of such default sent by the Holder or by any other
Holder
and
(B)10 Trading Days after the Company shall become or should have become aware
of
such failure;
iii. a
default
or event of default (subject to any grace or cure period provided for in
the
applicable agreement, document or instrument) shall occur under (A) any of
the
Transaction Documents other than the Debentures, or (B) any other material
agreement, lease, document or instrument to which the Company or any Subsidiary
is bound;
iv. any
representation or warranty made herein,
in any
other Transaction Documents, in any written statement pursuant hereto or
thereto, or in any other report, financial statement or certificate made
or
delivered to the Holder or any other holder of Debentures shall
be
untrue or incorrect in any material respect as of the date when made or deemed
made;
v. (i)
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 or any Subsidiary 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 (ii) 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 (iii) the Company or any Subsidiary thereof is
adjudicated by a court of competent jurisdiction insolvent or bankrupt; or
any
order of relief or other order approving any such case or proceeding is entered;
or (iv) 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 (v) the Company
or any Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) 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 (vii) 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 (viii) 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 (ix) any corporate or other action is taken by the
Company or any Subsidiary thereof for the purpose of effecting any of the
foregoing;
vi. the
Company or any Subsidiary 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 $150,000, whether such indebtedness now exists or shall hereafter
be
created and such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;
vii. the
Common Stock shall not be eligible for quotation on or quoted for trading
on a
Trading Market and shall not again be eligible for and quoted or listed for
trading thereon within five Trading Days;
viii. the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction, shall agree to sell or dispose of all or in excess of 33% of
its
assets in one or more transactions (whether or not such sale would constitute
a
Change of Control Transaction) or shall redeem or repurchase more than a
de
minimis number of its outstanding shares of Common Stock or other equity
securities of the Company (other than redemption
payments with respect to the Company's Special Voting Rights Preferred Stock
not
to exceed $5,000 in the aggregate during
the term of this Debenture);
ix. a
Registration Statement shall not have been declared effective by the Commission
on or prior to the 180th calendar
day after the Closing Date;
x. if,
during the Effectiveness Period (as defined in the Registration Rights
Agreement), the effectiveness of the 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 Registration Statement,
in either case, for more than 30 consecutive Trading Days or 60 non-consecutive
Trading Days during any 12 month period; provided,
however,
that in
the event that the Company
is negotiating a merger, consolidation, acquisition or sale of all or
substantially all of its assets or a similar transaction and in the written
opinion of counsel to the Company, the Registration Statement, would be required
to be amended to include information concerning such transactions or the
parties
thereto that is not available or may not be publicly disclosed at the time,
the
Company shall be permitted an additional 10 consecutive Trading during any
12
month period relating to such an event;
xi. an
Event
(as defined in the Registration Rights Agreement) shall not have been cured
to
the satisfaction of the Holder prior to the expiration of thirty days from
the
Event Date (as defined in the Registration Rights Agreement) relating thereto
(other than an Event resulting from a failure of an Registration Statement
to be
declared effective by the Commission on or prior to the Effectiveness Date
(as
defined in the Registration Rights Agreement), which shall be covered by
Section
8(a)(ix);
xii. the
Company shall fail for any reason, other than as a result of the limitations
set
forth in Section 4(c) hereof, to deliver certificates to a Holder prior to
the
fifth Trading Day after a Conversion Date pursuant to and in accordance with
Section 4(d) 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;
xiii. the
Company shall fail for any reason to pay in full the amount of cash due pursuant
to a Buy-In within 5 Trading Days after notice therefor is delivered hereunder
or shall fail to pay all amounts owed on account of an Event of Default within
five days of the date due;
xiv. any
Person shall breach the agreements delivered to the initial Holders pursuant
to
Section 2.2(a)(iv) of the Purchase Agreement.
b) Remedies
Upon Event of Default.
If any
Event of Default occurs, the full principal amount of this Debenture, together
with interest and other amounts owing in respect thereof, to the date of
acceleration shall become, at the Holder’s election, immediately due and payable
in cash. The aggregate amount payable upon an Event of Default shall be equal
to
the Mandatory Prepayment Amount. Commencing 5 days after the occurrence of
any
Event of Default that results in the eventual acceleration of this Debenture,
the interest rate on this Debenture shall accrue at the rate of 18% per annum,
or such lower maximum amount of interest permitted to be charged under
applicable law. All Debentures for which the full Mandatory Prepayment Amount
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 and the Holder
shall have all rights as a Debenture holder until such time, if any, as the
full
payment under this Section shall have been received by it. No such rescission
or
annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.
Section
9. Miscellaneous.
a) Notices.
Any and
all notices or other communications or deliveries to be provided by the Holders
hereunder, including, without limitation, any Notice of Conversion, shall
be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at the address set forth
above, facsimile number ▇▇▇-▇▇▇-▇▇▇▇,
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President, or
such
other address or facsimile number as the Company may specify for such purposes
by notice to the Holders delivered in accordance with this Section. Any and
all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, sent
by a
nationally recognized overnight courier service addressed to each Holder
at the
facsimile telephone number or address of such ▇▇▇▇▇▇ appearing on the books
of
the Company, or if no such facsimile telephone number or address appears,
at the
principal place of business of the Holder. Any notice or other communication
or
deliveries hereunder shall be deemed given and effective on the earliest
of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior
to
5:00 p.m. (New York City time), (ii) the date after the date of transmission,
if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:00 p.m. (New York
City
time) on any date and earlier than 11:59 p.m. (New York City time) on such
date,
(iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt
by
the party to whom such notice is required to be given.
b) Absolute
Obligation.
Except
as expressly provided herein, no provision of this Debenture shall alter
or
impair the obligation of the Company, which is absolute and unconditional,
to
pay the principal of, interest and liquidated damages (if any) on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct debt obligation of the Company and,
pursuant to the Cusotdial Agreement dated the date hereof by and between
the
Company and the Purchasers (as defined therein), is secured by a first priority
security interest in certain Secured Proceeds (as defined in the Custodial
Agreement) for the benefit of the Holder. This Debenture ranks pari passu
with all
other Debentures now or hereafter issued under the terms set forth
herein.
c) Lost
or Mutilated Debenture.
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.
d) Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Debenture shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”).
Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of
the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action
or
proceeding, any claim that it is not personally subject to the jurisdiction
of
any such court, or such New York Courts are improper or inconvenient venue
for
such proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in
effect for notices to it under this Debenture and agrees that such service
shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives,
to
the fullest extent permitted by applicable law, any and all right to trial
by
jury in any legal proceeding arising out of or relating to this Debenture
or the
transactions contemplated hereby. If either party shall commence an action
or
proceeding to enforce any provisions of this Debenture, then the prevailing
party in such action or proceeding shall be reimbursed by the other party
for
its attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or
proceeding.
e) Waiver.
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.
f) Severability.
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 violates applicable laws governing usury,
the applicable rate of interest due hereunder shall automatically be lowered
to
equal the maximum permitted rate of interest. The Company covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage
of,
any stay, extension or usury law or other law which would prohibit or forgive
the Company from paying all or any portion of the principal of or interest
on
this Debenture as contemplated herein, wherever enacted, now or at any time
hereafter in force, or which may affect the covenants or the performance
of this
Debenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants
that
it will not, by resort to any such law, hinder, delay or impeded the execution
of any power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.
g) Next
Business Day.
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.
h) Headings.
The
headings contained herein are for convenience only, do not constitute a part
of
this Debenture and shall not be deemed to limit or affect any of the provisions
hereof.
IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
by a
duly authorized officer as of the date first above indicated.
| GENEREX BIOTECHNOLOGY CORPORTION | ||
| |
|
|
| By: | ||
|
|
||
| Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ | ||
|
Title:
Executive Vice-President, General
Counsel
|
||
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the 6% Convertible
Debenture of Generex Biotechnology Company, a Delaware corporation (the
“Company”),
due
on April 5, 2007, into shares of common stock, par value $0.001 per share
(the
“Common
Stock”),
of
the Company according to the conditions hereof, as of the date written below.
If
shares are to be issued in the name of a person other than the undersigned,
the
undersigned will pay all transfer taxes payable with respect thereto and
is
delivering herewith such certificates and opinions as reasonably requested
by
the Company in accordance therewith. No fee will be charged to the holder
for
any conversion, except for such transfer taxes, if any.
By
the
delivery of this Notice of Conversion the undersigned represents and warrants
to
the Company that its ownership of the Common Stock does not exceed the amounts
determined in accordance with Section 13(d) of the Exchange Act, specified
under
Section 4 of this Debenture.
The
undersigned agrees to comply with the prospectus delivery requirements under
the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion
calculations:
Date
to
Effect Conversion:
Principal
Amount of Debentures to be Converted:
Payment
of Interest in Common Stock __ yes __ no
If
yes,
$_____ of Interest Accrued on Account of Conversion at Issue.
Is
conversion to be applied against next Monthly Redemption Payment and if so,
what
portion? (note failure to answer deemed entire portion to be applied)
$_________
Number
of
shares of Common Stock to be issued:
Signature:
Name:
Address:
Schedule
1
CONVERSION
SCHEDULE
The
6%
Convertible Debentures due on January 27, 2007, in the aggregate principal
amount of $____________ issued by Generex Biotechnology Company. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
|
Date
of Conversion
(or
for first entry, Original Issue Date)
|
Amount
of Conversion
|
Aggregate
Principal Amount Remaining Subsequent to Conversion
(or
original Principal Amount)
|
Company
Attest
|
|
|
|||