Exhibit 99.1
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION 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.
THIS DEBENTURE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE DEBENTURE IN THE EVENT
OF A PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR
CONVERSION OF ANY PORTION OF THIS DEBENTURE, THE OUTSTANDING PRINCIPAL AMOUNT
REPRESENTED BY THIS DEBENTURE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRUED
INTEREST SET FORTH BELOW.
6% CONVERTIBLE DEBENTURE DUE JANUARY 11, 2003
OF
VIRAGEN, INC.
DEBENTURE NO.: 1 ORIGINAL PRINCIPAL AMOUNT: $1,125,000
ORIGINAL ISSUANCE DATE: JANUARY 11, 2002 NEW YORK, NEW YORK
THIS DEBENTURE ("DEBENTURE") is one of a duly authorized issue of
debentures of VIRAGEN, INC., a corporation duly organized and existing under the
laws of the State of Delaware (the "COMPANY"), designated as the Company's 6%
Convertible Debentures Due January 11, 2003 ("MATURITY DATE") in an aggregate
principal amount (when taken together with the original principal amounts of all
other Debentures) which does not exceed Two Million Five Hundred Thousand U.S.
Dollars (U.S. $2,500,000) (the "DEBENTURES").
FOR VALUE RECEIVED, the Company hereby promises to pay to the order of
▇▇▇▇▇▇▇ ASSOCIATES, L.P. or its registered assigns or successors-in-interest
("HOLDER") the principal sum of One Million One Hundred and Twenty-Five Thousand
Dollars (U.S. $1,125,000) together with all accrued but unpaid interest thereon,
if any, on the Maturity Date, to the extent such principal amount and interest
has not been converted into the Company's Common Stock, $0.01 par value per
share (the "COMMON STOCK"), in accordance with the terms hereof. Interest on the
unpaid principal balance hereof shall accrue at the rate of 6% per annum from
the original date of issuance, January 11, 2002 (the "ISSUANCE DATE"), until the
same becomes due and payable on the Maturity Date, or such earlier date upon
acceleration or by conversion or redemption in accordance with the terms hereof
or of the other Transaction Documents. Interest on this Debenture shall accrue
daily commencing on the Issuance Date, shall be compounded semi-annually and
shall be computed on the basis of a 360-day year, 30-day months and actual days
elapsed and shall be payable in accordance with Section 1 hereof.
Notwithstanding anything contained herein, this Debenture shall bear interest on
the due and unpaid Principal Amount from and after the occurrence and during the
continuance of an Event of Default pursuant to Section 4(a), at the rate (the
"DEFAULT RATE") equal to the lower of twenty percent (20%) per annum or the
highest rate permitted by law. Unless otherwise agreed or required by applicable
law, payments will be applied first to any unpaid collection costs, then to
unpaid interest and fees and any remaining amount to principal.
All payments of principal and interest on this Debenture shall be made
in lawful money of the United States of America by wire transfer of immediately
available funds to such account as the Holder may from time to time designate by
written notice in accordance with the provisions of this Debenture or by Company
check. This Debenture may not be prepaid in whole or in part except as otherwise
provided herein or in the Transaction Documents. Whenever any amount expressed
to be due by the terms of this Debenture is due on any day which is not a
Business Day (as defined below), the same shall instead be due on the next
succeeding day which is a Business Day.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Securities Purchase Agreement dated on or about the
Issuance Date pursuant to which the Debentures were originally issued (the
"PURCHASE AGREEMENT"). For purposes hereof the following terms shall have the
meanings ascribed to them below:
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a
day on which commercial banks in the City of New York are authorized or required
by law or executive order to remain closed.
"CHANGE IN CONTROL TRANSACTION" will be deemed to exist if (i) there
occurs any consolidation, merger or other business combination of the Company
with or into any other corporation or other entity or person (whether or not the
Company is the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions in which in any of such events the
voting stockholders of the Company prior to such event cease to own 50% or more
of the voting stock, or corresponding voting equity interests, of the surviving
corporation after such event (including without limitation any "going private"
transaction under Rule 13e-3 promulgated pursuant to the Exchange Act or tender
offer by the Company under Rule 13e-4 promulgated pursuant to the Exchange Act
for 20% or more of the Company's Common Stock), (ii) any person (as defined in
Section 13(d) of the Exchange Act), together with its affiliates and associates
(as such terms are defined in Rule 405 under the Act), beneficially owns or is
deemed to beneficially own (as described in Rule 13d-3 under the Exchange Act
without regard to the 60-day exercise period) in excess of 50% of the Company's
voting power, (iii) there is a replacement of more than one-half of the members
of the Company's Board of Directors which is not approved by those individuals
who are members of the Company's Board of Directors on the date thereof, or (iv)
in one or a series of related transactions, there is a sale or transfer of all
or substantially all of the assets of the Company, determined on a consolidated
basis, or (v) the execution by the Company of an agreement to which the Company
is a party or which it is bound providing for an event set forth in (i), (ii),
(iii) or (iv) above.
"CONVERSION RATIO" means, at any time, a fraction, of which the
numerator is the entire outstanding Principal Amount of this Debenture (or such
portion thereof that is being redeemed or repurchased), and of which the
denominator is the Market Price for the full calendar month immediately
preceding such time.
"CONVERSION PRICE" shall equal $1.29465 (which Conversion Price shall
be subject to adjustment as set forth herein, and the VWAP's used to determine
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the Conversion Price shall be appropriately and equitably adjusted for any stock
splits, stock dividends, recapitalizations and the like).
"CONVERTIBLE SECURITIES" means any convertible securities, warrants,
options or other rights to subscribe for or to purchase or exchange for, shares
of Common Stock.
"DEBT" shall mean indebtedness of any kind.
"EFFECTIVE DATE" means the date on which a Registration Statement
covering all the Underlying Shares and other Registrable Securities (as defined
in the Registration Rights Agreement) is declared effective by the SEC.
"EFFECTIVE REGISTRATION" shall have the meaning set forth in the
Purchase Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"MARKET PRICE" shall equal the lesser of (i) the Conversion Price and
(ii) 90% of the arithmetic mean of the ten (10) lowest VWAP's during the twenty
(20) Trading Days immediately preceding the date on which such Market Price is
being determined.
"MFN TRANSACTION" shall mean a transaction in which the Company issues
or sells any securities in a capital raising transaction or series of related
transactions (the "MFN OFFERING") which grants to the investor (the "MFN
INVESTOR") the right to receive additional securities based upon future capital
raising transactions of the Company on terms more favorable than those granted
to the MFN Investor in the MFN Offering.
"PER SHARE SELLING PRICE" shall include the amount actually paid by
third parties for each share of Common Stock in a sale or issuance by the
Company. In the event a fee is paid by the Company in connection with such
transaction directly or indirectly to such third party or its affiliates, any
such fee shall be deducted from the selling price pro rata to all shares sold in
the transaction to arrive at the Per Share Selling Price. A sale of shares of
Common Stock shall include the sale or issuance of rights, options, warrants or
convertible, exchangeable or exercisable securities, issued or sold on or
subsequent to the Closing Date, under which the Company is or may become
obligated to issue shares of Common Stock, and in such circumstances the Per
Share Selling Price of the Common Stock covered thereby shall also include the
exercise, exchange or conversion price thereof (in addition to the consideration
received by the Company upon such sale or issuance less the fee amount as
provided above). In case of any such security issued or sold on or subsequent to
the Closing Date in a Variable Rate Transaction or an MFN Transaction, the Per
Share Selling Price shall be deemed to be the lowest conversion or exercise
price at which such securities are converted or exercised or might have been
converted or exercised in the case of a Variable Rate Transaction, or the lowest
adjustment price in the case of an MFN Transaction, over the life of such
securities. If shares are issued for a consideration other than cash, the Per
Share Selling Price shall be the fair value of such consideration as determined
in good faith by independent certified public accountants mutually acceptable to
the Company and the Purchaser. In the event the Company directly or indirectly
effectively reduces the conversion, exercise or exchange price for any
Convertible Securities issued or sold on or subsequent to the Closing Date which
are currently outstanding (other than pursuant to the terms of the transaction
documentation for such securities as in effect on the date hereof), then the Per
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Share Selling Price shall equal such effectively reduced conversion, exercise or
exchange price.
"PRINCIPAL AMOUNT" shall refer to the sum of (i) the original principal
amount of this Debenture, (ii) all accrued but unpaid interest hereunder, and
(iii) any default payments owing under the Transaction Documents but not
previously paid or added to the Principal Amount.
"PRINCIPAL MARKET" shall mean the American Stock Exchange or such other
principal market or exchange on which the Common Stock is then listed for
trading.
"REGISTRATION STATEMENT" shall have the meaning set forth in the
Registration Rights Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"TRADING DAY" shall mean a day on which there is trading on the
American Stock Exchange or such other market or exchange on which the Common
Stock is then principally traded.
"UNDERLYING SHARES" means the shares of Common Stock into which the
Debentures are convertible (including repayment in Common Stock as set forth
herein) in accordance with the terms hereof and the Purchase Agreement.
"VARIABLE RATE TRANSACTION" shall mean a transaction in which the
Company issues or sells, on or subsequent to the Closing Date (a) any debt or
equity securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (x) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the Common Stock at any time
after the initial issuance of such debt or equity securities, or (y) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock (but
excluding standard stock split anti-dilution provisions), or (b) any securities
of the Company pursuant to an "equity line" structure which provides for the
sale, from time to time, of securities of the Company which are registered for
resale pursuant to the Securities Act.
"VWAP" shall mean the daily volume weighted average price of the Common
Stock on the Principal Market as reported by Bloomberg Financial L.P. (based on
a trading day from 9:30 a.m. Eastern Time to 4:00 p.m. Eastern Time) using the
AQR function on the date in question.
The following terms and conditions shall apply to this Debenture:
SECTION 1. PAYMENTS OF PRINCIPAL AND INTEREST.
(a) MONTHLY PAYMENTS. Subject to the terms of this Section 1,
the Company shall repay one-ninth (1/9) of the original principal amount of this
Debenture (to the extent such amount has not been converted pursuant to Section
3(a) below), together with interest accrued to date on such portion of the
original principal amount plus any and all default payments owing under the
Transaction Documents but not previously paid (collectively, "MONTHLY AMOUNT"),
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in accordance with subsection 1(b) below, on the first business day of each
consecutive calendar month (each a "REPAYMENT DATE") beginning on the first such
day which occurs following the 31st day after the Effective Date.
(b) CASH OR COMMON STOCK. Subject to the terms hereof, the
Company shall have the right to satisfy payment of the Monthly Amount in full on
each Repayment Date either in cash or in shares of Common Stock (but not both)
at the Company's option. The Company shall deliver to all the holders of
Debentures a written irrevocable notice in the form of Exhibit B attached hereto
electing to pay such Monthly Amount in full on such Repayment Date in either
cash or Common Stock ("REPAYMENT ELECTION NOTICE"). Such Repayment Election
Notice shall be delivered at least thirty (30) days prior to the applicable
Repayment Date but no more than sixty (60) days prior to such Repayment Date
(the date of such notice being hereinafter referred to as the "NOTICE DATE"). If
such Repayment Election Notice is not delivered within the prescribed period set
forth in the preceding sentence, then the repayment shall be made in either cash
or shares of Common Stock on the same terms hereunder at the Holder's sole
option. If the Company elects or is required to repay any Monthly Amount in cash
on a Repayment Date, then on such Repayment Date the Company shall pay to the
Holder an amount equal to 105% of such Monthly Amount in satisfaction of such
obligation. If the Company elects or is required to repay any Monthly Amount in
shares of Common Stock, the number of such shares to be issued for such
Repayment Date shall be the number determined by dividing (x) the Monthly
Amount, by (y) the Market Price as of such Repayment Date. Such shares shall be
issued and delivered within three (3) Trading Days following such Repayment Date
and shall be duly authorized, validly issued, fully paid, non-assessable and
free and clear of all encumbrances, restrictions and legends. If any Holder does
not receive the requisite number of shares of Common Stock in the form required
above within such three Trading Day period, the Holder shall have the option of
either (a) requiring the Company to issue and deliver all or a portion of such
shares or (b) canceling such election (whether by the Company or Holder) to pay
the Monthly Amount in Common Stock (in whole or in part), in which case the
Company shall immediately pay in cash the full Monthly Amount due hereunder or
such portion as the Holder specifies is to be paid in cash instead of Common
Stock. Except as otherwise provided in this Section 1, all holders of Debentures
must be treated equally with respect to such payment of the Monthly Amount in
shares of Common Stock.
(c) NO EFFECTIVE REGISTRATION. Notwithstanding anything to the
contrary herein, the Company shall be prohibited from exercising its right to
repay the Monthly Amount in shares of Common Stock (and must deliver cash in
respect thereof) on the applicable Repayment Date if at any time from the Notice
Date until the time at which the Holders receive such shares there fails to
exist Effective Registration or an Event of Default hereunder exists or occurs,
unless otherwise waived in writing by the Holder in whole or in part at the
Holder's option.
(d) OWNERSHIP/ISSUANCE LIMITATIONS. Notwithstanding anything
to the contrary herein, the Company shall be prohibited from exercising its
right to repay the Monthly Amount in shares of Common Stock (and must deliver
cash in respect thereof) on the applicable Repayment Date to the extent, and
only to the extent, that such repayment in shares of Common Stock would result
in the Holder hereof exceeding the limitations contained in Section 3(i) below.
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In such event, then (i) the Company on the Repayment Date shall repay such
portion of the Monthly Amount in shares of Common Stock as may be effected
without exceeding such limitations, (ii) the Repayment Date for the balance of
the Monthly Amount shall be extended until such time as such stock payment can
be made without violating Section 3(i), provided that if such stock payment
cannot be made only because it would violate Section 3(i)(C) below, then at the
Holder's option the Company shall redeem such Monthly Amount portion of this
Debenture at a redemption price equal to 120% of such Monthly Amount. If any
portion of any Monthly Amount remains unpaid as of the Maturity Date hereof,
such amount shall be repaid in cash on the Maturity Date (unless accelerated
hereunder pursuant to Section 4 below).
(e) SHARE PRICE/ISSUANCE LIMITATIONS. Notwithstanding anything
to the contrary herein, the Company shall be prohibited from exercising its
right to repay the Monthly Amount in shares of Common Stock (and must deliver
cash in respect thereof) on the applicable Repayment Date if, as of the Notice
Date, the closing bid price of the Common Stock as reported by Bloomberg, L.P.
on the Principal Market for any of the five previous trading days was less than
$0.75 (as appropriately adjusted for any stock splits, stock dividends,
recapitalizations or similar events). The Purchaser may waive this provision at
any time in its sole discretion.
(f) DEEMED CONVERSIONS. Any repayment of the Monthly Amount in
shares of Common Stock pursuant to the terms hereof shall constitute and be
deemed a conversion of such portion of the applicable Principal Amount of this
Debenture for all purposes under this Debenture and the other Transaction
Documents (except that such conversion shall be at the Market Price and except
as otherwise provided herein).
(g) PREPAYMENT RIGHT. The outstanding principal amount of the
Debentures may be prepaid in whole (but not in part) by the Company upon no less
than thirty (30) Trading Days' written notice (the "PREPAYMENT NOTICE PERIOD")
to the Holders at a redemption price of 115% of the outstanding principal
amount, plus accrued interest plus any other amounts owed by the Company or the
Subsidiary Guarantors under the Transaction Documents and the Subsidiary
Guarantee, provided that (i) Effective Registration exists from the time of such
notice through the date of such prepayment, (ii) no Event of Default has
occurred and is continuing and (iii) each Holder shall have the right during the
Prepayment Notice Period to convert all or part of its outstanding Debentures in
accordance with the procedures and requirements described in Section 3 hereof
but at a price equal to the Market Price for each day of any such conversions.
If the Holders elect to convert only a portion of the Debentures, the Company
shall have the right to prepay the remaining portion if all of the other
conditions in this Section 1(g) are satisfied.
SECTION 2. SENIORITY. The obligations of the Company hereunder shall
rank senior to all other unsecured Debt of the Company, whether now or
hereinafter existing.
SECTION 3. CONVERSION.
(a) CONVERSION RIGHT. Subject to the terms hereof and
restrictions and limitations contained herein, the Holder shall have the right,
at such Holder's option, at any time and from time to time to convert the
outstanding Principal Amount under this Debenture in whole or in part by
delivering to the Company a fully executed notice of conversion in the form of
conversion notice attached hereto as EXHIBIT A (the "CONVERSION NOTICE"), which
may be transmitted by facsimile. Notwithstanding anything to the contrary
herein, this Debenture and the outstanding Principal Amount hereunder shall not
be convertible into Common Stock to the extent that such conversion would result
in the Holder hereof exceeding the limitations contained in, or otherwise
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violating the provisions of, Section 3(i) below. In the event of any conversions
of the outstanding Principal Amount under this Debenture in part pursuant to
this Section 3(a), such conversions shall be deemed to constitute conversions of
outstanding Principal Amount applying to Monthly Amounts for the Repayment Dates
in chronological order. For example, if the original principal amount under this
Debenture were $2,500,000 and the Holder converted $277,777.78 of such original
principal amount prior to the first Repayment Date, then (1) the principal
amount of the Monthly Amount due on the first Repayment Date would equal $0, (2)
the principal amount of the Monthly Amount due on the second Repayment Date
would equal $277,777.78, and (3) the principal amount of the Monthly Amount due
on each of the remaining Repayment Dates would be $277,777.78.
(b) COMMON STOCK ISSUANCE UPON CONVERSION.
(i) CONVERSION DATE PROCEDURES. Upon conversion of
this Debenture pursuant to Section 3(a) above, the outstanding Principal Amount
hereunder shall be converted into such number of fully paid, validly issued and
non-assessable shares of Common Stock, free of any liens, claims and
encumbrances, as is determined by dividing the outstanding Principal Amount
being converted by the then applicable Conversion Price, PROVIDED, HOWEVER, that
for any such conversions with a Conversion Date (as defined below) after
delivery of a Repayment Election Notice electing repayment in Common Stock but
before the applicable Repayment Date, a portion of such outstanding Principal
Amount being converted, up to an amount equal to the Monthly Amount, shall be
divided by the then applicable Market Price instead of the Conversion Price to
determine the number of Underlying Shares issuable. The date of any Conversion
Notice hereunder and any Repayment Date shall be referred to herein as the
"CONVERSION DATE". If a conversion under this Debenture cannot be effected in
full for any reason, or if the Holder is converting less than all of the
outstanding Principal Amount hereunder pursuant to a Conversion Notice, the
Company shall promptly deliver to the Holder (but no later than five Trading
Days after the Conversion Date) a Debenture for such outstanding Principal
Amount as has not been converted if this Debenture has been surrendered to the
Company for partial conversion. The Holder shall not be required to physically
surrender this Debenture to the Company upon any conversion or payment for the
Monthly Amount hereunder unless the full outstanding Principal ▇▇▇▇▇▇
represented by this Debenture is being converted or repaid. The Holder and the
Company shall maintain records showing the outstanding Principal Amount so
converted and repaid and the dates of such conversions or repayments or shall
use such other method, reasonably satisfactory to the Holder and the Company, so
as not to require physical surrender of this Debenture upon each such conversion
or repayment.
(ii) STOCK CERTIFICATES OR DWAC. The Company will
deliver to the Holder not later than three (3) Trading Days after the Conversion
Date, a certificate or certificates which shall be free of restrictive legends
and trading restrictions, representing the number of shares of Common Stock
being acquired upon the conversion of this Debenture. In lieu of delivering
physical certificates representing the shares of Common Stock issuable upon
conversion of this Debenture, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the Holder, the Company shall use
commercially reasonable efforts to cause its transfer agent to electronically
transmit such shares issuable upon conversion to the Holder (or its designee),
by crediting the account of the Holder's (or such designee's) prime broker with
DTC through its Deposit Withdrawal Agent Commission system (provided that the
same time periods herein as for stock certificates shall apply). If in the case
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of any conversion hereunder, such certificate or certificates are not delivered
to or as directed by the Holder by the third Trading Day after the 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
this Debenture tendered for conversion. If the Company fails to deliver to the
Holder such certificate or certificates (or shares through DTC) pursuant to this
Section 3(b) (free of any restrictions on transfer) in accordance herewith,
prior to the fifth Trading Day after the Conversion Date, the Company shall pay
to the Holder, in cash, an amount equal to 2% of the Principal Amount per month.
(c) CONVERSION PRICE ADJUSTMENTS.
(i) STOCK DIVIDENDS, SPLITS AND COMBINATIONS. If the
Company or any of its subsidiaries, at any time while the Debentures are
outstanding (A) shall pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including instruments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (B) subdivide outstanding Common Stock into a larger number of shares, or
(C) combine outstanding Common Stock into a smaller number of shares, then each
Affected Conversion Price (as defined below) shall be multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
before such event and the denominator of which shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section 3(c)(i) 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 or combination.
As used herein, the Affected Conversion Prices (each an
"AFFECTED CONVERSION PRICE") shall refer to: (i) the Conversion Price; (ii) each
reported daily closing price of the Common Stock on the Principal Market
occurring on any Trading Day included in the period used for determining the
Market Price, the Conversion Price, and applicability of the restriction in
Section 1(f), as the case may be, which Trading Day occurred before the record
date in the case of events referred to in clause (A) of this subparagraph
3(c)(i) and before the effective date in the case of the events referred to in
clauses (B) and (C) of this subparagraph 3(c)(i).
(ii) DISTRIBUTIONS. If the Company or any of its
subsidiaries, at any time while the Debentures are outstanding, shall distribute
to all holders of Common Stock evidences of its indebtedness or assets or cash
or rights or warrants to subscribe for or purchase any security of the Company
or any of its subsidiaries (excluding those referred to in Section 3(c)(i)
above), then concurrently with such distributions to holders of Common Stock,
the Company shall distribute to holders of the Debentures the amount of such
indebtedness, assets, cash or rights or warrants which the holders of Debentures
would have received had all their Debentures been converted into Common Stock at
the then applicable Market Price immediately prior to the record date for such
distribution.
(iii) COMMON STOCK ISSUANCES. In the event that the
Company or any of its subsidiaries on or subsequent to the Closing Date (A)
issues or sells any securities which are convertible into or exercisable or
exchangeable for Common Stock (other than Debentures or Warrants issued under
the Purchase Agreement), or any warrants or other rights to subscribe for or to
purchase or any options for the purchase of its Common Stock or (B) directly or
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indirectly effectively reduces the conversion, exercise or exchange price for
any Convertible Securities which are currently outstanding (other than pursuant
to terms existing on the date hereof), at or to an effective Per Share Selling
Price which is less than the Conversion Price in effect immediately prior to
such issue or sale or record date, as applicable, then the Conversion Price
shall be reduced effective concurrently with such issue or sale to equal such
lower Per Share Selling Price.
In the event that the Company or any of its Subsidiaries on or
subsequent to the Closing Date issues or sells any Common Stock (other than as
required under the Purchase Agreement or pursuant to exercise of Convertible
Securities) at an effective Per Share Selling Price which is less than the
Conversion Price in effect immediately prior to such issue or sale or record
date, as applicable, then the Conversion Price shall be reduced effective
concurrently with such issuance or sale to an amount determined by multiplying
the Conversion Price then in effect by a fraction, (x) the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale, plus (2) the number of shares of
Common Stock which the aggregate consideration received by the Company for such
additional shares would purchase at such Conversion Price, and (y) the
denominator of which shall be the number of shares of Common Stock of the
Company outstanding immediately after such issuance or sale. For the purposes of
the foregoing adjustment, in the case of any Convertible Securities, the maximum
number of shares of Common Stock issuable upon exercise, exchange or conversion
of such Convertible Securities shall be deemed to be outstanding, provided that
no further adjustment shall be made upon the actual issuance of Common Stock
upon exercise, exchange or conversion of such Convertible Securities.
In the event a fee is paid by the Company in connection with a
transaction described in this clause (iii), the portion of such fee in excess of
5% of the purchase price in such transactions shall be deducted from the selling
price pro rata to all shares sold in the transaction to arrive at the Per Share
Selling Price.
For purposes of this Section 3(c)(iii), if an event occurs
that triggers more than one of the above adjustment provisions, then only one
adjustment shall be made and the calculation method which yields the greatest
downward adjustment in the Conversion Price shall be used.
(iv) ROUNDING OF ADJUSTMENTS. All calculations under
this Section 3 or Section 1 shall be made to the nearest cent or the nearest
1/100th of a share, as the case may be.
(v) NOTICE OF ADJUSTMENTS. Whenever any Affected
Conversion Price is adjusted pursuant to Section 3(c)(ii) or (iii) above, the
Company shall promptly deliver to each holder of the Debentures, a notice
setting forth the Affected Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment, provided that
any failure to so provide such notice shall not affect the automatic adjustment
hereunder.
(vi) CHANGE IN CONTROL TRANSACTIONS. In case of any
Change in Control Transaction, the Holder shall have the right thereafter to, at
its option, (A) convert this Debenture, in whole or in part, at the then
applicable Market Price into the shares of stock and other securities, cash
and/or property receivable upon or deemed to be held by holders of Common Stock
following such Change in Control Transaction, and the Holder shall be entitled
upon such event to receive such amount of securities, cash or property as the
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shares of the Common Stock of the Company into which this Debenture could have
been converted immediately prior to such Change in Control Transaction would
have been entitled if such conversion were permitted, subject to such further
applicable adjustments set forth in this Section 3 or (B) require the Company or
its successor to redeem this Debenture, in whole or in part, at a redemption
price equal to the greater of (i) the outstanding Principal Amount being
redeemed and (ii) the product of (x) the arithmetic mean of the Market Price for
the five (5) Trading Days immediately preceding the Holder's election to have
its Debentures redeemed and (y) the Conversion Ratio. The terms of any such
Change in Control Transaction shall include such terms so as to continue to give
to the Holders the right to receive the amount of securities, cash and/or
property upon any conversion or redemption following such Change in Control
Transaction to which a holder of the number of shares of Common Stock
deliverable upon such conversion would have been entitled in such Change in
Control Transaction, and interest payable hereunder shall be in cash or such new
securities and/or property, at the Holder's option. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(vii) NOTICE OF CERTAIN EVENTS. If:
A. the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
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;
or
D. the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company,
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 of exchange whereby
the Common Stock is converted into
other securities, cash or property; or
E. the Company shall authorize the
voluntary or involuntary dissolution,
liquidation or winding up of the
affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Debenture, and shall cause to be mailed to the
Holder at its last address as it shall appear upon the books of the Company, on
or prior to the date notice to the Company's stockholders generally is given, a
10
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 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 Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange.
(d) RESERVATION AND ISSUANCE OF UNDERLYING SECURITIES. The
Company covenants that it will at all times reserve and keep available out of
its authorized and unissued Common Stock solely for the purpose of issuance upon
conversion of this Debenture (including repayments in stock), free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of the Debentures, not less than such number of shares of
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 under this Section 3 but without regard to
any ownership limitations contained herein) upon the conversion of this
Debenture hereunder in Common Stock (including repayments in stock). The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly authorized, validly issued, fully paid, nonassessable and freely
tradeable.
(e) NO FRACTIONS. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the closing price of a share
of Common Stock 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) CHARGES, TAXES AND EXPENSES. Issuance of certificates for
shares of Common Stock upon the conversion of this Debenture (including
repayment in stock) shall be made without charge to the holder hereof for any
issue or transfer tax or other incidental expense in respect of the issuance of
such certificate, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or in such name
or names as may be directed by the Holder; PROVIDED, HOWEVER, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the Holder, this Debenture when surrendered for conversion shall be
accompanied by an assignment form; and PROVIDED FURTHER, that the Company shall
not be required to pay any tax or taxes which may be payable in respect of any
such transfer.
(g) CANCELLATION. After all of the Principal Amount (including
accrued but unpaid interest and default payments at any time owed on this
Debenture) have been paid in full or converted into Common Stock, this Debenture
shall automatically be deemed canceled and the Holder shall promptly surrender
the Debenture to the Company at the Company's principal executive offices.
(h) NOTICES PROCEDURES. Any and all notices or other
communications or deliveries to be provided by the Holder hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by confirmed facsimile, or by a nationally recognized overnight
courier service to the Company at the facsimile telephone number or address of
the principal place of business of the Company as set forth in the Purchase
Agreement. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
11
by facsimile, or by a nationally recognized overnight courier service addressed
to the Holder at the facsimile telephone number or address of the Holder
appearing on the books of the Company, or if no such facsimile telephone number
or address appears, at the principal place of business of the Holder. Any notice
or other communication or deliveries hereunder shall be deemed delivered (i)
upon receipt, when delivered personally, (ii) when sent by facsimile, upon
receipt if received on a Business Day prior to 5:00 p.m. (Eastern Time), or on
the first Business Day following such receipt if received on a Business Day
after 5:00 p.m. (Eastern Time) or (iii) upon receipt, when deposited with a
nationally recognized overnight courier service.
(i) CONVERSION LIMITATIONS.
(A) 9.9% LIMITATION. Notwithstanding
anything to the contrary contained herein, the number of
shares of Common Stock that may be acquired by the Holder upon
conversion pursuant to the terms hereof shall not exceed a
number that, when added to the total number of shares of
Common Stock deemed beneficially owned by such Holder (other
than by virtue of the ownership of securities or rights to
acquire securities (including the Debentures) that have
limitations on the Holder's right to convert, exercise or
purchase similar to the limitation set forth herein), together
with all shares of Common Stock deemed beneficially owned at
such time (other than by virtue of the ownership of securities
or rights to acquire securities that have limitations on the
right to convert, exercise or purchase similar to the
limitation set forth herein) by the holder's "affiliates" at
such time (as defined in Rule 144 of the Act) ("AGGREGATION
PARTIES") that would be aggregated for purposes of determining
whether a group under Section 13(d) of the Securities Exchange
Act of 1934 as amended, exists, would exceed 9.9% of the total
issued and outstanding shares of the Common Stock (the
"RESTRICTED OWNERSHIP PERCENTAGE"). Each holder shall have the
right (w) at any time and from time to time to reduce its
Restricted Ownership Percentage immediately upon notice to the
Company and (x) (subject to waiver) at any time and from time
to time, to increase its Restricted Ownership Percentage
immediately in the event of the announcement as pending or
planned, of a Change in Control Transaction.
(B) LIMITATION COVENANTS. The Holder
covenants at all times on each day (each such day being
referred to as a "COVENANT DAY") as follows: During the
balance of such Covenant Day and the succeeding sixty-one (61)
days (the balance of such Covenant Day and the succeeding 61
days being referred to as the "COVENANT PERIOD") such Holder
will not acquire shares of Common Stock pursuant to any right
(including conversion of Debentures) existing at the
commencement of the Covenant Period to the extent the number
of shares so acquired by such Holder and its Aggregation
Parties (ignoring all dispositions) would exceed:
(x) the Restricted Ownership Percentage of the
total number of shares of Common Stock
outstanding at the commencement of the
Covenant Period, MINUS
(y) the number of shares of Common Stock
actually owned by such Holder and its
12
Aggregation Parties at the commencement of
the Covenant Period.
A new and independent covenant will be deemed to be given by the Holder
as of each moment of each Covenant Day. No covenant will terminate,
diminish or modify any other covenant. The Holder agrees to comply with
each such covenant. This Section 3(i)(B) controls in the case of any
conflict with any other provision of the Purchase Agreement or any
agreement entered into in connection therewith.
The Company's obligation to issue shares of Common Stock which would
exceed such limits referred to in this Section 3(i) shall be suspended
to the extent necessary until such time, if any, as shares of Common
Stock may be issued in compliance with such restrictions.
(C) OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding
anything contained herein to the contrary, the number of shares of Common Stock
issuable by the Company and acquirable by the Holders of Debentures, together
the number of shares issued under the Warrants and the Option, shall not exceed
19.9% of the number of shares of Common Stock outstanding on the Closing Date,
subject to appropriate adjustment for stock splits, stock dividends, or other
similar recapitalizations affecting the Common Stock (the "MAXIMUM COMMON STOCK
ISSUANCE"), unless the issuance of shares hereunder in excess of the Maximum
Common Stock Issuance shall first be approved by the Company's shareholders in
accordance with applicable law and the By-laws and Articles of Incorporation of
the Company. If at any point in time and from time to time (each a "TRIGGER
DATE") the number of Common Shares issued pursuant to conversion of the
Debentures and exercise of the Warrants and the Option, together with the number
of Common Shares that would then be issuable by the Company in the event of
conversion of all the Debentures and exercise of all the Warrants and the entire
Option then outstanding, would exceed the Maximum Common Stock Issuance but for
this Section 3(i)(C), then the Company shall, at the Company's election, either
(A) promptly call a shareholders meeting to obtain shareholder approval for the
issuance of Common Shares hereunder in excess of the Maximum Common Stock
Issuance, which such shareholder approval shall be obtained within 60 days of
the Trigger Date, or (B) purchase from the holders of Debentures, Warrants and
the Option on a pro rata basis such Principal Amount of Debentures, number of
Warrants and the portion of the Option which cannot be converted or exercised
due to such Maximum Common Stock Issuance limitation ("SHORTFALL") at a
redemption price equal to the "Mandatory Repurchase Price" (as defined in the
Registration Rights Agreement), which redemption price shall be paid within
three (3) Trading Days after a Trigger Date if this clause (B) is elected. The
Company shall make such election with two (2) days following the Trigger Date by
giving written notice to all holders of Debentures, Warrants and the Option. If
the Company fails to timely make such election, or elects clause (A) but then
fails to obtain such shareholder approval within 60 days following the Trigger
Date, then the Company shall purchase the Shortfall at the Mandatory Repurchase
Price within three (3) Trading Days following any such failure.
SECTION 4. DEFAULTS AND REMEDIES.
13
(a) EVENTS OF DEFAULT. An "EVENT OF DEFAULT" is: (i) a default
in payment of the Principal Amount or accrued but unpaid interest thereon of any
of the Debentures on or after the date such payment is due (to the extent such
principal and/or amount has not been converted into Common Stock in accordance
with the terms hereof), which default continues for five business days after
written notice of such non-payment has been received by the Company; (ii) a
default in the timely issuance of Underlying Shares upon and in accordance with
the terms hereof, which default continues for five business days after the
Company has received written notice informing the Company that it has failed to
issue shares or deliver stock certificates within the fifth day following the
Conversion Date; (iii) failure by the Company for thirty (30) days after written
notice has been received by the Company to comply with any other material
provision of any of the Debentures, the Purchase Agreement, the Registration
Rights Agreement or the Warrants (including without limitation the failure to
redeem Debentures upon the Holder's request following a Change in Control
Transaction pursuant to Section 3(c)(vi), (iv) a material breach by the Company
of its representations or warranties in the Purchase Agreement, the Registration
Rights Agreement or the Warrants; (v) any default or material misrepresentation
under the Subsidiary Guarantee; (vi) any default after any cure period under, or
acceleration prior to maturity of, any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or any of its subsidiaries for in
excess of $250,000 or for money borrowed the repayment of which is guaranteed by
the Company or any of its Subsidiaries for in excess of $250,000, whether such
indebtedness or guarantee now exists or shall be created hereafter; or (vii) if
the Company or any of its Subsidiaries is subject to any Bankruptcy Event (as
defined in the Purchase Agreement).
(b) REMEDIES. If an Event of Default occurs and is continuing
with respect to any of the Debentures, the Holder may declare all of the then
outstanding Principal Amount of this Debenture and all other Debentures held by
the Holder, including any interest due thereon, to be due and payable
immediately, except that in the case of an Event of Default arising from events
described in clauses (vi) and (vii) of Section 4(a), this Debenture shall become
due and payable without further action or notice. In the event of an
acceleration, the amount due and owing to the Holder shall be the greater of (1)
125% of the outstanding Principal Amount of the Debentures held by the Holder
(plus all accrued and unpaid interest, if any) and (2) the product of (A) the
highest closing price for the five (5) Trading days immediately preceding the
Holder's acceleration and (B) the Conversion Ratio. In either case the Company
shall pay interest on such amount in cash at the Default Rate to the Holder if
such amount is not paid within seven days of Holder's request. The remedies
under this Debenture shall be cumulative.
SECTION 5. SUBSIDIARY GUARANTY. The Company's obligations under this
Debenture are guaranteed by all of the Subsidiaries of the Company, pursuant to
the Subsidiary Guarantee dated as of the date hereof.
SECTION 6. GENERAL.
(a) PAYMENT OF EXPENSES. The Company agrees to pay all
reasonable charges and expenses, including attorneys' fees and expenses, which
may be incurred by the Holder in successfully enforcing this Debenture and/or
collecting any amount due under this Debenture.
14
(b) SAVINGS CLAUSE. In case any provision of this Debenture is
held by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby. In no event shall the amount of
interest paid hereunder exceed the maximum rate of interest on the unpaid
principal balance hereof allowable by applicable law. If any sum is collected in
excess of the applicable maximum rate, the excess collected shall be applied to
reduce the principal debt. If the interest actually collected hereunder is still
in excess of the applicable maximum rate, the interest rate shall be reduced so
as not to exceed the maximum allowable under law.
(c) AMENDMENT. Neither this Debenture nor any term hereof may
be amended, waived, discharged or terminated other than by a written instrument
signed by the Company and holders of 75% of the Principal Amount of all
Debentures.
(d) ASSIGNMENT, ETC. The Holder may assign or transfer this
Debenture to any transferee only with the prior written consent of the Company,
which may not be unreasonably withheld or delayed, provided that (i) the Holder
may assign or transfer this Debenture to any of such ▇▇▇▇▇▇'s affiliates without
the consent of the Company and (ii) upon any Event of Default, the Holder may
assign or transfer this Debenture without the consent of the Company. The Holder
shall notify the Company of any such assignment or transfer promptly. This
Debenture shall be binding upon the Company and its successors and shall inure
to the benefit of the Holder and its successors and permitted assigns.
(e) NO WAIVER. No failure on the part of the Holder to
exercise, and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by the
Holder of any right, remedy or power hereunder preclude any other or future
exercise of any other right, remedy or power. Each and every right, remedy or
power hereby granted to the Holder or allowed it by law or other agreement shall
be cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
(f) GOVERNING LAW; JURISDICTION.
(i) GOVERNING LAW. THIS DEBENTURE WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE
THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.
(ii) JURISDICTION. The Company irrevocably submits to
the exclusive jurisdiction of any State or Federal Court sitting in the State of
New York, County of New York, over any suit, action, or proceeding arising out
of or relating to this Debenture. The Company irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action, or proceeding brought in such a
court and any claim that suit, action, or proceeding has been brought in an
inconvenient forum.
15
The Company agrees that the service of
process upon it mailed by certified or registered mail (and service so made
shall be deemed complete three days after the same has been posted as aforesaid)
or by personal service shall be deemed in every respect effective service of
process upon it in any such suit or proceeding. Nothing herein shall affect
Holder's right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
(iii) NO JURY TRIAL. The COMPANY hereBY knowingly and
voluntarily waives any and all rights it may have to a trial by jury with
respect to any litigation based on, or arising out of, under, or in connection
with, this Debenture.
(g) REPLACEMENT DEBENTURES. This Debenture may be exchanged by
▇▇▇▇▇▇ at any time and from time to time for a Debenture or Debentures with
different denominations representing an equal aggregate outstanding Principal
▇▇▇▇▇▇, as reasonably requested by ▇▇▇▇▇▇, upon surrendering the same. No
service charge will be made for such registration or exchange. In the event that
▇▇▇▇▇▇ notifies the Company that this Debenture has been lost, stolen or
destroyed, a replacement Debenture identical in all respects to the original
Debenture (except for registration number and Principal Amount, if different
than that shown on the original Debenture), shall be issued to the Holder,
provided that the Holder executes and delivers to the Company an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with the Debenture.
[SIGNATURE PAGE FOLLOWS]
16
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed on January 11, 2002.
VIRAGEN, INC.
By:
---------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
Chief Financial Officer
ATTEST:
------
Sign:
--------------------------------------
Print Name:
17
EXHIBIT A
FORM OF CONVERSION NOTICE
(To be Executed by the Holder
in order to Convert a Debenture)
The undersigned hereby elects to convert the aggregate outstanding Principal
▇▇▇▇▇▇ (as defined in the Debenture) indicated below of this Debenture into
shares of Common Stock, $0.01 par value per share (the "Common Stock"), of
VIRAGEN, 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 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. The
undersigned represents as of the date hereof that, after giving effect to the
conversion of this Debenture pursuant to this Conversion Notice, the undersigned
will not exceed the "Restricted Ownership Percentage" contained in Section
3(i)(A) of this Debenture and will remain in compliance with Section 3(i)(B) of
this Debenture.
Conversion information:
------------------------------------------------------
Date to Effect Conversion
------------------------------------------------------
Aggregate Principal Amount of Debenture Being Converted
------------------------------------------------------
Number of shares of Common Stock to be Issued
------------------------------------------------------
Applicable Conversion Price
------------------------------------------------------
Signature
------------------------------------------------------
Name
------------------------------------------------------
Address
EXHIBIT B
FORM OF REPAYMENT ELECTION NOTICE
To: [HOLDER AT HOLDER'S ADDRESS]
Pursuant to Section 1(b) of Debenture No. ______ of VIRAGEN, INC.
issued on January 11, 2002, we hereby notify you that we are irrevocably
electing to repay the outstanding Monthly Amount (as defined in the Debenture)
due on the Repayment Date (as defined in the Debenture) which occurs on ______,
20__ (CHECK ONE):
_____ In full in cash on such Repayment Date.
_____ In full in shares of the Company's Common Stock within three
(3) Trading Days following such Repayment Date.
VIRAGEN, INC.
By:
--------------------------------------
Name:
Title: