EXHIBIT 4(i)
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS
CONVERSION HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
ALLIANCE PHARMACEUTICAL CORP.
FORM OF
6% CONVERTIBLE NOTE DUE 2005
No. R-1 $3,500,000
Alliance Pharmaceutical Corp., a corporation duly organized
and existing under the laws of New York (the "Company") for value received,
hereby promises to pay to _______________, or registered assigns, the principal
sum of _______________Dollars ($_______________) on November 15, 2005 and to pay
interest thereon, from November 15, 2000, or from the most recent interest
payment date to which interest has been paid or duly provided for, semi-annually
on May 15 and November 15 in each year, commencing May 15, 2001, at the rate of
6% per annum, until the principal hereof is due, and at the rate of 20% per
annum on any overdue principal and premium, and to the extent permitted by law,
on any overdue interest. The interest so payable on any interest payment date
will be paid to the person in whose name this Security (or one or more
predecessor Securities) is registered at 5:00 p.m., San Diego, California time
on the regular record date for such interest, which shall be the date two
business days immediately prior to the interest payment date. Payment of the
principal of (and premium, if any, on) this Security shall be made upon the
surrender of this Security to the Company, at its office at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (or such other office within the United States
as shall be notified by the Company to the holder hereof) (the "Designated
Office"), in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, by transfer to a U.S. dollar account maintained by the payee with a bank
in the United States of America. Payment of interest on this Security shall be
made by wire transfer to a U.S. dollar account maintained by the payee with a
bank in the United States of America, provided that if the holder shall not have
furnished wire instructions in writing to the Company no later than the business
day immediately prior to the date on which the Company makes such payment, such
payment may be made by U.S. dollar check mailed to the address of the person
entitled thereto as such address shall appear in the Company security register.
1. REDEMPTION; PAYMENT AT MATURITY.
(a) This Security is subject to redemption, as a whole or in part (in
any amount that is an integral multiple of $1000), upon not less than 30 nor
more than 60 days' notice in the manner provided in Section 6(b), at any time on
or after November 15, 2001 (provided that the conditions set forth below in this
Section 1(a) are satisfied), at the election of the Company, at a redemption
price of 100% of the principal amount thereof, together with accrued interest to
the redemption date, but interest installments whose stated maturity is on or
prior to such redemption date will be payable to the holder of this Security, or
one or more predecessor Securities, of record at the close of business on the
relevant record dates referred to on the face hereof; provided, however, that
the Company's right to redeem this Security is expressly made subject to the
conditions that (and the Company may not deliver a notice of redemption unless)
(i) the Closing Price of the Common Stock exceeds 300% of the Conversion Price
for each
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Trading Day in a period of 20 Consecutive Trading Days commencing not earlier
than November 15, 2001; (ii) the Company's notice of redemption is
accompanied or preceded by payment in cash, in immediately available funds to
a U.S. dollar account specified by the holder, upon inquiry by the Company,
of the Make Whole Amount in respect of the principal amount of this Security
that is to be redeemed; and (iii) the Shares issuable upon conversion of this
Security have been registered under the Securities Act for resale by the
holder, all in accordance with the Registration Rights Agreement between the
Company and the initial holder of this Security. The term "Conversion Price"
on any day shall equal $1,000 divided by the Conversion Rate in effect on
each such day. The term "Make Whole Amount" means the aggregate amount then
remaining pledged and subject to the Collateral Pledge and Security Agreement
dated November 15, 2000 between the Company and _______________, as
collateral agent (the "Pledge Agreement"), including in respect of any
securities pledged thereunder, the actual cash proceeds realized upon
disposition thereof in the open market or otherwise at fair market value.
(b) At the option of the Company, the principal of this
Security may be paid at stated maturity in cash or, subject to fulfillment by
the Company of the conditions set forth in Section 1(c), by delivery of shares
of Common Stock having a fair market value equal to the principal amount hereof
and accrued and unpaid interest hereon, as described in Section 1(c). The
Company agrees to give the holder of this Security notice, in the manner
provided in Section 6(b), of its intention to make payment in shares, not less
than ten Trading Days prior to the date such payment is due.
(c) The Company may elect to make payment in respect of this
Security at maturity by delivery of shares of Common Stock pursuant to Section
1(b) if and only if the following conditions have been satisfied:
(1) The shares of Common Stock delivered as such payment shall
have a fair market value as of the maturity date of not less than the
principal amount of this Security and accrued and unpaid interest
thereon to date of delivery. For purposes of this Section 1(c), the
fair market value of shares of Common Stock shall be equal to the
average of the Closing Prices for the five consecutive Trading Days
ending on and including the third Trading Day immediately preceding the
maturity date;
(2) The shares of Common Stock to be issued in payment of this
Security shall have been registered for resale by the holder upon
issuance pursuant to an effective registration statement under the
Securities Act of 1933, all in accordance with the Registration Rights
Agreement, dated as of November 8, 2000, between the Company and the
Purchasers named therein (the "Registration Rights Agreement");
(3) If any shares of Common Stock to be issued in payment of
this Security require registration with or approval of any governmental
authority under any State law or any other Federal law before such
shares may be validly issued or delivered in payment, such registration
shall have been completed, have become effective and such approval
shall have been obtained, in each case, prior to the maturity date;
(4) The shares of Common Stock deliverable in payment of the
principal hereof shall have been approved for quotation in the Nasdaq
National Market or listed on a national securities exchange immediately
prior to the maturity date;
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(5) All shares of Common Stock deliverable in payment of the
principal hereof shall be issued out of the Company's authorized but
unissued Common Stock and will, upon issue, be duly and validly issued
and fully paid and non-assessable and free of any preemptive rights;
and
(6) The Company shall have delivered to the holder, prior to
the maturity date, an undertaking of the Company in the form attached
as Annex A hereto.
If all of the conditions set forth in this Section 1(c) are
not satisfied in accordance with the terms thereof, the principal hereof and
accrued and unpaid interest thereon shall be paid by the Company only in cash.
(d) If the Company elects payment in shares pursuant to
Section 1 and this Security is surrendered for payment in shares and is not so
paid on the maturity date, the principal amount of this Security (and to the
extent permitted by law, the accrued and unpaid interest thereon) shall, until
paid, bear interest to the extent permitted by applicable law from the maturity
date at the rate of 20.0% per annum, payable in cash, and shall remain
convertible into Common Stock until all amounts due in respect of this Security
shall have been paid or duly provided for.
(e) Any issuance of shares of Common Stock in payment hereof
shall be deemed to have been effected immediately prior to the close of business
on the maturity date and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such payment shall be deemed to have become on the maturity date the holder or
holders of record of the shares represented thereby; PROVIDED, HOWEVER, that if
the stock transfer books of the Company shall be closed on the maturity date
then the person or persons in whose name or names the certificate or
certificates for such shares are to be issued shall be deemed to be the record
holder or holders thereof for all purposes at the opening of business on the
next succeeding day on which such stock transfer books are open. Subject to
Section 2(b), no payment or adjustment shall be made for dividends or
distributions on any Common Stock issued upon payment of this Security declared
prior to the maturity date.
(f) No fractions of shares shall be issued upon payment of
this Security. Instead of any fractional share of Common Stock which would
otherwise be issuable on the payment of this Security, the Company will deliver
to the holder its check for the current market value of such fractional share.
The current market value of a fraction of a share shall be determined by
multiplying the current market price of a full share by the fraction, and
rounding the result to the nearest cent. For purposes of this Section 1(f) the
current market price of a share of Common Stock shall be the Closing Price of
the Common Stock on the Trading Day immediately preceding the maturity date.
(g) Any issuance and delivery of certificates for shares of
Common Stock in payment of this Security shall be made without charge to the
holder of this Security for such certificates or for any tax or duty in respect
of the issuance or delivery of such certificates or the securities represented
thereby; PROVIDED, HOWEVER, that the Company shall not be required to pay any
tax or duty which may be payable in respect of any transfer involved in the
issuance or delivery of certificates for shares of Common Stock in a name other
than that of the holder of this Security, and no such issuance or delivery shall
be made unless and until the person requesting such issuance or delivery has
paid to the Company the amount of any such tax or duty or has established, to
the satisfaction of the Company, that such tax or duty has been paid.
(h) Notwithstanding any other provision of this Security, the
Company shall, if the holder so elects, deliver the shares of common stock
issuable pursuant to this Section 1 to any third party designated by the holder.
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2. CONVERSION. (a) The holder of this Security is entitled at
any time on or after November 15, 2001 and before the close of business on
November 15, 2005 (or, in case this Security is called for redemption or the
holder hereof has exercised his right to require the Company to repurchase this
Security or a portion hereof pursuant to Section 3 hereof, then in respect of
this Security or such portion hereof, as the case may be, until and including,
but (unless the Company defaults in making the payment due upon redemption or
repurchase) not after, 5:00 p.m., San Diego, California time, on the redemption
date or the Repurchase Date, as the case may be), to convert this Security (or
any portion of the principal amount hereof that is an integral multiple of
$1,000), into fully paid and nonassessable shares (calculated as to each
conversion to the nearest 1/100 of a share) of Common Stock of the Company at
the rate of 63.6056 shares of Common Stock for each $1,000 principal amount of
Security (or at the then current adjusted rate if an adjustment has been made as
provided below) (the "Conversion Rate" which term, where the context so permits,
shall be deemed to mean the number of shares of Common Stock issuable pursuant
to such Conversion Rate) by surrender of this Security, duly endorsed or
assigned to the Company or in blank to the Company at the Designated Office,
accompanied by written notice to the Company that the holder hereof elects to
convert this Security (or if less than the entire principal amount hereof is to
be converted, specifying the portion hereof to be converted). Notwithstanding
the foregoing, unless the holder of this Security notifies the Company to the
contrary, such holder shall be deemed for all purposes to have converted this
Security, subject only to surrender of this Security against delivery of the
Shares and cash issuable upon such conversion (which surrender may take place
before or after the date of such deemed conversion, without affecting the
validity thereof), (i) immediately prior to the close of business on the
redemption date, if this Security is redeemed pursuant to Section 1(a) hereof,
or (ii) immediately prior to the close of business on November 15, 2005, if the
Closing Price of the Common Stock on the immediately preceding Trading Day
exceeds 115% of the Conversion Price. Upon surrender of this Security for
conversion, the holder will be entitled to payment in cash of the interest
accruing on the principal amount of this Security then being converted and
unpaid to such date of conversion. Subject to Section 2(b) below, no payment or
adjustment is to be made on conversion for dividends on the Common Stock issued
on conversion hereof. No fractions of shares or scrip representing fractions of
shares will be issued on conversion, but instead of any fractional interest, the
Company shall pay a cash adjustment, computed on the basis of the Closing Price
of the Common Stock on the date of conversion, or, at its option, the Company
shall round up to the next higher whole share.
Notwithstanding any other provision of this Security, the
Company shall, if the holder so elects, deliver the shares of Common Stock
issuable upon conversion of this Security to any third party designated by the
holder.
Notwithstanding the foregoing, no holder of this Security that
is subject to the restrictions of Section 4 of the Bank Holding Company Act of
1956, as amended (the "BHCA") (a "BHCA Person") shall have the right to convert
this Security if, after giving effect to such conversion, the BHCA Person and
its affiliates and transferees would own or be deemed to own shares of Common
Stock in excess of either the maximum number of shares of Common Stock which the
BHCA Person is permitted to own under the BHCA and the regulations of the Board
of Governors of the Federal Reserve System thereunder or such lower number as
the relevant BHCA Person may have requested in writing to the Company. Any
Security held by an assignee or transferee of a holder subject to the
restriction on conversion in this paragraph shall continue to be subject to the
same restriction on conversion, unless such Security was assigned or transferred
(i) to the public in an offering registered under the Securities Act, (ii) in a
transaction pursuant to Rule 144 or 144A under the Securities Act in which no
person acquires Securities convertible into more than 2% of the outstanding
Common Stock, (iii) in a single transaction to a third party who acquires a
majority of the Common Stock without regard to the conversion of any Security so
transferred or (iv) in any other manner permitted under the BHCA. The Company
may rely on the representation of the relevant BHCA Person that a transfer has
been made in a manner which permits
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conversion of such Security. The holder of this Security, by acceptance
thereof, shall be deemed to have agreed to the foregoing restriction on
transfers.
(b) The Conversation Rate will be subject to adjustments from
time to time as follows:
(1) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company payable in
shares of Common Stock, the Conversion Rate in effect at the opening of
business on the day following the Determination Date for such dividend
or other distribution shall be increased by dividing such Conversion
Rate by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding at the close of business on such
Determination Date and the denominator shall be the sum of such number
of shares and the total number of shares constituting such dividend or
other distribution, such increase to become effective immediately after
the opening of business on the day following such Determination Date.
For the purposes of this paragraph (1), the number of shares of Common
Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common
Stock. The Company will not pay any dividend or make any distribution
on shares of Common Stock held in the treasury of the Company.
(2) Subject to the last sentence of paragraph (7) of this
Section 2(b), in case the Company shall issue rights, options or
warrants to all holders of its Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than
the current market price per share (determined as provided in paragraph
(8) of this Section 2(b)) of the Common Stock on the Determination Date
for such distribution, the Conversion Rate in effect at the opening of
business on the day following such Determination Date shall be
increased by dividing such Conversion Rate by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at
the close of business on such Determination Date plus the number of
shares of Common Stock which the aggregate of the offering price of the
total number of shares of Common Stock so offered for subscription or
purchase would purchase at such current market price and the
denominator shall be the number of shares of Common Stock outstanding
at the close of business on such Determination Date plus the number of
shares of Common Stock so offered for subscription or purchase, such
increase to become effective immediately after the opening of business
on the day following such Determination Date. For the purposes of this
paragraph (2), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The
Company will not issue any rights, options or warrants in respect of
shares of Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Rate in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately increased, and, conversely, in case outstanding
shares of Common Stock shall each be combined into a smaller number of
shares of Common Stock, the Conversion Rate in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after
the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
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(4) Subject to the last sentence of paragraph (7) of this
Section 2(b), in case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness, shares of any class of capital stock, or other property
(including securities, but excluding (i) any rights, options or
warrants referred to in paragraph (2) of this Section 2(b), (ii) any
dividend or distribution paid exclusively in cash, (iii) any dividend
or distribution referred to in paragraph (1) of this Section 2(b) and
(iv) any merger or consolidation to which Section 2(h) applies), the
Conversion Rate shall be adjusted so that the same shall equal the rate
determined by dividing the Conversion Rate in effect immediately prior
to the close of business on the Determination Date for such
distribution by a fraction of which the numerator shall be the current
market price per share (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date less the
then fair market value (as determined in good faith by the Board of
Directors of the Company) of the portion of the assets, shares or
evidences of indebtedness so distributed applicable to one share of
Common Stock and the denominator shall be such current market price per
share of the Common Stock, such adjustment to become effective
immediately prior to the opening of business on the day following such
Determination Date. If the Board of Directors determines the fair
market value of any distribution for purposes of this paragraph (4) by
reference to the actual or when issued trading market for any
securities constituting such distribution, it must in doing so consider
the prices in such market over the same period used in computing the
current market price per share pursuant to paragraph (8) of this
Section 2(b).
(5) In case the Company shall, by dividend or otherwise, make
a Cash Distribution, then, and in each such case, immediately after the
close of business on the Determination Date for such Cash Distribution,
the Conversion Rate shall be adjusted so that the same shall equal the
rate determined by dividing the Conversion Rate in effect immediately
prior to the close of business on such Determination Date by a fraction
(a) the numerator of which shall be equal to the current market price
per share (determined as provided in paragraph (8) of this Section
2(b)) of the Common Stock on such Determination Date less an amount
equal to the quotient of (1) the amount of such Cash Distribution
divided by (2) the number of shares of Common Stock outstanding on such
Determination Date and (b) the denominator of which shall be equal to
the current market price per share (determined as provided in paragraph
(8) of this Section 2(b)) of the Common Stock on such Determination
Date.
(6) In case the Company or any Subsidiary shall make an Excess
Purchase Payment, then, and in each such case, immediately prior to the
opening of business on the day after the tender offer in respect of
which such Excess Purchase Payment is to be made expires, the
Conversion Rate shall be adjusted so that the same shall equal the rate
determined by dividing the Conversion Rate in effect immediately prior
to the close of business on the Determination Date for such tender
offer by a fraction (a) the numerator of which shall be equal to the
current market price per share (determined as provided in paragraph (8)
of this Section 2(b)) of the Common Stock on such Determination Date
less an amount equal to the quotient of (A) the Excess Purchase Payment
divided by (B) the number of shares of Common Stock outstanding
(including any tendered shares) as of the Determination Date less the
number of all shares validly tendered and not withdrawn as of the
Determination Date and (b) the denominator of which shall be equal to
the current market price per share (determined as provided in paragraph
(8) of this Section 2(b)) of the Common Stock as of such Determination
Date.
(7) The partial reclassification of Common Stock into
securities other than Common Stock (other than any reclassification
upon a consolidation or merger to which Section 2(h) applies) shall be
deemed to involve (a) a distribution of such securities other than
Common Stock
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to all holders of Common Stock (and the effective date of such
reclassification shall be deemed to be the Determination Date),
and (b) a subdivision or combination, as the case may be, of the number
of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification
shall be deemed to be "the day upon which such subdivision becomes
effective" or "the day upon which such combination becomes effective",
as the case may be, and "the day upon which such subdivision or
combination becomes effective" within the meaning of paragraph (3) of
this Section 2(b)). Rights or warrants issued by the Company to all
holders of its Common Stock entitling the holders thereof to subscribe
for or purchase shares of Common Stock, which rights or warrants (i)
are deemed to be transferred with such shares of Common Stock, (ii) are
not exercisable and (iii) are also issued in respect of future
issuances of Common Stock, in each case in clauses (i) through (iii)
until the occurrence of a specified event or events ("Trigger Event"),
shall for purposes of this Section 2(b) not be deemed issued until the
occurrence of the earliest Trigger Event.
(8) For the purpose of any computation under paragraphs (2),
(4), (5) or (6) of this Section 2(b) the current market price per share
of Common Stock on any date shall be calculated by the Company and be
deemed to be the average of the daily Closing Prices for the five
consecutive Trading Days commencing seven Trading Days before the
earlier of (i) the day in question and (ii) the day before the "ex"
date with respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, the term "ex date", when
used with respect to any issuance or distribution, means the first date
on which the Common Stock trades regular way in the applicable
securities market or on the applicable securities exchange without the
right to receive such issuance or distribution.
(9) No adjustment in the Conversion Rate shall be required
unless such adjustment (plus any adjustments not previously made by
reason of this paragraph (9)) would require an increase or decrease of
at least one-half of one percent in such rate; PROVIDED, HOWEVER, that
any adjustments which by reason of this paragraph (9) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 2 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
(10) The Company may make such increases in the Conversion
Rate, for the remaining term of the Securities or any shorter term, in
addition to those required by paragraphs (1), (2), (3), (4), (5) and
(6) of this Section 2(b) as it considers to be advisable in order to
avoid or diminish any income tax to any holders of shares of Common
Stock resulting from any dividend or distribution of stock or issuance
of rights or warrants to purchase or subscribe for stock or from any
event treated as such for income tax purposes.
(c) Whenever the Conversion Rate is adjusted as provided in
Section 2(b), the Company shall compute the adjusted Conversion Rate in
accordance with Section 2(b) and shall prepare a certificate signed by the chief
financial officer of the Company setting forth the adjusted Conversion Rate and
showing in reasonable detail the facts upon which such adjustment is based, and
shall promptly deliver such certificate to the holder of this Security.
(d) In case:
(1) the Company shall declare a dividend or other distribution
on its Common Stock payable (i) otherwise than exclusively in cash or
(ii) exclusively in cash in an amount that would require any adjustment
pursuant to Section 2(b); or
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(2) the Company shall authorize the granting to the holders of
its Common Stock of rights, options or warrants to subscribe for or
purchase any shares of capital stock of any class or of any other
rights; or
(3) of any reclassification of the Common Stock of the
Company, or of any consolidation, merger or share exchange to which the
Company is a party and for which approval of any shareholders of the
Company is required, or of the conveyance, sale, transfer or lease of
all or substantially all of the assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(5) the Company or any Subsidiary shall commence a tender
offer for all or a portion of the Company's outstanding shares of
Common Stock (or shall amend any such tender offer);
then the Company shall cause to be delivered to the holder of this Security, at
least 20 days (or 10 days in any case specified in clause (1) or (2) above)
prior to the applicable record, expiration 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, rights, options 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, distribution, rights, options or
warrants are to be determined, (y) the date on which the right to make tenders
under such tender offer expires or (z) the date on which such reclassification,
consolidation, merger, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up is expected to become effective, 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, conveyance,
transfer, sale, lease, dissolution, liquidation or winding up. Neither the
failure to give such notice nor any defect therein shall affect the legality or
validity of the proceedings described in clauses (1) through (5) of this Section
2(d).
(e) The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock,
for the purpose of effecting the conversion of the Security, the full number of
shares of Common Stock then issuable upon the conversion of this Security.
(f) Except as provided in the next sentence, the Company will
pay any and all taxes and duties that may be payable in respect of the issue or
delivery of shares of Common Stock on conversion of the Security. The Company
shall not, however, be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that of the holder of this Security, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Company the amount of any such tax or duty, or has
established to the satisfaction of the Company that such tax or duty has been
paid.
(g) The Company agrees that all shares of Common Stock which
may be delivered upon conversion of the Security, upon such delivery, will have
been duly authorized and validly issued and will be fully paid and nonassessable
(and shall be issued out of the Company's authorized but unissued Common Stock)
and, except as provided in Section 2(f), the Company will pay all taxes, liens
and charges with respect to the issue thereof.
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(h) In case of any consolidation of the Company with any
other person, any merger of the Company into another person or of another
person into the Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock of the Company) or any conveyance, sale, transfer or lease of
all or substantially all of the properties and assets of the Company, the
person formed by such consolidation or resulting from such merger or which
acquires such properties and assets, as the case may be, shall execute and
deliver to the holder of this Security a supplemental agreement providing
that such holder have the right thereafter, during the period this Security
shall be convertible as specified in Section 2(a), to convert this Security
only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance, sale, transfer or
lease (including any Common Stock retainable) by a holder of the number of
shares of Common Stock of the Company into which this Security might have
been converted immediately prior to such consolidation, merger, conveyance,
sale, transfer or lease, assuming such holder of Common Stock of the Company
(i) is not a person with which the Company consolidated, into which the
Company merged or which merged into the Company or to which such conveyance,
sale, transfer or lease was made, as the case may be (a "Constituent
Person"), or an Affiliate of a Constituent Person and (ii) failed to exercise
his rights of election, if any, as to the kind or amount of securities, cash
and other property receivable upon such consolidation, merger, conveyance,
sale, transfer or lease (PROVIDED that if the kind or amount of securities,
cash and other property receivable upon such consolidation, merger,
conveyance, sale, transfer, or lease is not the same for each share of Common
Stock of the Company held immediately prior to such consolidation, merger,
conveyance, sale, transfer or lease by others than a Constituent Person or an
Affiliate thereof and in respect of which such rights of election shall not
have been exercised ("Non-electing Share"), then for the purpose of this
Section 2(h) the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance, sale, transfer or
lease by the holders of each Non-electing Share shall be deemed to be the
kind and amount so receivable per share by a plurality of the Non-electing
Shares). Such supplemental agreement shall provide for adjustments which, for
events subsequent to the effective date of such supplemental agreement, shall
be as nearly equivalent as may be practicable to the adjustments provided for
in this Section 2. The above provisions of this Section 2(h) shall similarly
apply to successive consolidations, mergers, conveyances, sales, transfers or
leases. In this paragraph, "securities of the kind receivable" upon such
consolidation, merger, conveyance, transfer, sale or lease by a holder of
Common Stock means securities that, among other things, are registered and
transferable under the Securities Act, and listed and approved for quotation
in all securities markets, in each case to the same extent as such securities
so receivable by a holder of Common Stock.
(i) The Company (i) will effect all registrations with, and
obtain all approvals by, all governmental authorities that may be necessary
under any United States Federal or state law (including the Securities Act of
1933, the Securities Exchange Act of 1934 and state securities and Blue Sky
laws) for the shares of Common Stock issuable upon conversion of this
Security to be lawfully issued and delivered as provided herein, and
thereafter publicly traded (if permissible under such Securities Act) and
qualified or listed as contemplated by clause (ii) (it being understood that
the Company shall not be required to register the Common Stock issuable on
conversion hereof under the Securities Act, except pursuant to the
Registration Rights Agreement between the Company and the initial holder of
this Security); and (ii) will list the shares of Common Stock required to be
issued and delivered upon conversion of Securities, prior to such issuance or
delivery, on each national securities exchange on which outstanding Common
Stock is listed or quoted at the time of such delivery, or if the Common
Stock is not then listed on any securities exchange, to qualify the Common
Stock for quotation on the Nasdaq National Market or such other inter-dealer
quotation system, if any, on which the Common Stock is then quoted.
(j) For purposes hereof:
9
"Affiliate" of any specified person means any other person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control", when used with respect to any specified person, means
the power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Cash Distribution" means the distribution by the Company
to all holders of its Common Stock of cash, other than any cash that is
distributed upon a merger or consolidation to which Section 2(h) applies or
as part of a distribution referred to in paragraph (4) of Section 2(b).
"Closing Price" means, with respect to the Common Stock of
the Company, for any day, the reported last sale price per share on the
Nasdaq National Market, or, if the Common Stock is not admitted to trading on
the Nasdaq National Market, on the principal national securities exchange or
inter-dealer quotation system on which the Common Stock is listed or admitted
to trading, or if not admitted to trading on the Nasdaq National Market, or
listed or admitted to trading on any national securities exchange or
inter-dealer quotation system, the closing bid price per share in the
over-the-counter market as furnished by any New York Stock Exchange member
firm selected from time to time by the Company for that purpose.
"Common Stock" means the Common Stock, par value $0.01 per
share, of the Company authorized at the date of this instrument as originally
executed. Subject to the provisions of Section 2(h), shares issuable on
conversion or repurchase of this Security, or in payment of this Security at
maturity, shall include only shares of Common Stock or shares of any class or
classes of common stock resulting from any reclassification or
reclassifications thereof; PROVIDED, HOWEVER, that if at any time there shall
be more than one such resulting class, the shares so issuable on conversion
of this Security shall include shares of all such classes, and the shares of
each such class then so issuable shall be substantially in the proportion
which the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"Determination Date" means, in the case of a dividend or
other distribution, including the issuance of rights, options or warrants, to
all shareholders, the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution and, in the case of a
tender offer, the last time that tenders could have been made pursuant to
such tender offer.
"Excess Purchase Payment" means the product of (A) the
excess, if any, of (i) the amount of cash plus the fair market value (as
determined in good faith by the Company's Board of Directors) of any non-cash
consideration required to be paid with respect to one share of Common Stock
acquired or to be acquired in a tender offer made by the Company or any
subsidiary of the Company for all or any portion of the Common Stock over
(ii) the current market price per share as of the last time that tenders
could have been made pursuant to such tender offer and (B) the number of
shares validly tendered and not withdrawn as of the Determination Date in
respect of such tender offer.
"Trading Day" means (i) if the Common Stock is admitted to
trading on the Nasdaq National Market or any other system of automated
dissemination of quotations of securities prices, a day on which trades may
be effected through such system; (ii) if the Common Stock is listed or
admitted for trading on the New York Stock Exchange or any other national
securities exchange, a day on which such exchange is open for business; or
(iii) if the Common Stock is not admitted to trading on the Nasdaq National
Market or listed or admitted for trading on any national securities exchange
or any other system of automated dissemination of quotation of securities
prices, a day on which the Common Stock is traded
10
regular way in the over-the-counter market and for which a closing bid and a
closing asked price for the Common Stock are available.
3. RIGHT TO REQUIRE REPURCHASE. (a) In the event that a
Change in Control (as hereinafter defined) shall occur, then the holder of
this Security shall have the right, at such holder's option, to require the
Company to repurchase, and upon the exercise of such right the Company shall
repurchase, this Security, or any portion of the principal amount hereof that
is equal to $1,000 or any integral multiple thereof, on the date (the
"Repurchase Date") that is 15 Trading Days after the date on which the
Company gives notice of such Change of Control to the holder of this
Security, at a purchase price equal to the Repurchase Price. At the option of
the Company, the Repurchase Price may be paid in cash or, subject to the
fulfillment by the Company of the conditions set forth in Section 3(b), by
delivery of shares of Common Stock having a fair market value equal to the
Repurchase Price as described in Section 3(b). The Company agrees to give the
holder of this Security notice, in the manner provided in Section 6(b), of
any Change in Control, promptly and in any event within two Trading Days of
the occurrence thereof.
(b) The Company may elect to pay the Repurchase Price by
delivery of shares of Common Stock pursuant to Section 3(a), if and only if
the following conditions have been satisfied:
(1) The shares of Common Stock deliverable in payment of
the Repurchase Price shall have a fair market value as of the Repurchase Date
of not less than the Repurchase Price. For purposes of this Section 3(b), the
fair market value of shares of Common Stock shall be equal to the average of
the Closing Prices for the five consecutive Trading Days ending on and
including the third Trading Day immediately preceding the Repurchase Date;
(2) The shares of Common Stock to be issued upon repurchase
of this Security shall have been registered for resale by the holder upon
issuance pursuant to an effective registration statement under the Securities
Act of 1933, all in accordance with the Registration Rights Agreement;
(3) If any shares of Common Stock to be issued upon
repurchase of this Security require registration with or approval of any
governmental authority under any State law or any other Federal law before
such shares may be validly issued or delivered upon repurchase, such
registration shall have been completed, have become effective and such
approval shall have been obtained, in each case, prior to the Repurchase Date;
(4) The shares of Common Stock deliverable in payment of
the Repurchase Price shall have been approved for quotation in the Nasdaq
National Market or listed on a national securities exchange immediately prior
to the Repurchase Date;
(5) All shares of Common Stock deliverable in payment of
the Repurchase Price shall be issued out of the Company's authorized but
unissued Common Stock and will, upon issue, be duly and validly issued and
fully paid and non-assessable and free of any preemptive rights; and
(6) The Company shall have delivered to the holder, prior
to the Repurchase Date, an undertaking of the Company in the form attached as
Annex A hereto.
Notwithstanding any other provision of this Security, the
Company shall, if the holder so elects, deliver the shares of Common Stock
issuable pursuant to this Section 3 to any third party designated by the
holder.
11
If all of the conditions set forth in this Section 3(b) are
not satisfied in accordance with the terms thereof, the Repurchase Price
shall be paid by the Company only in cash.
(c) To exercise a repurchase right, the holder shall
deliver to the Company on or before the 10th day prior to the Repurchase
Date, together with this Security, written notice of the holder's exercise of
such right, which notice shall set forth the name of the holder, the
principal amount of this Security to be repurchased (and, if this Security is
to be repurchased in part, the portion of the principal amount thereof to be
repurchased and the name of the person in which the portion thereof to remain
outstanding after such repurchase is to be registered) and a statement that
an election to exercise the repurchase right is being made thereby, and, in
the event that the Repurchase Price shall be paid in shares of Common Stock,
the name or names (with addresses) in which the certificate or certificates
for shares of Common Stock shall be issued. Such written notice shall be
irrevocable, except that the right of the holder to convert this Security (or
the portion hereof with respect to which the repurchase right is being
exercised) shall continue until the close of business on the Repurchase Date
(or if the Company elects to pay the Repurchase Price by delivery of shares
of Common Stock, until the close of business on the Trading Day immediately
preceding the first delivery of Common Stock in respect thereof).
(d) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall pay or cause to be paid
to the holder the Repurchase Price in cash or shares of Common Stock, as
provided above, on or prior to the Repurchase Date.
(e) If this Security (or portion thereof) is surrendered
for repurchase and is not so paid on the Repurchase Date, the principal
amount of this Security (or such portion hereof, as the case may be) shall,
until paid, bear interest to the extent permitted by applicable law from the
Repurchase Date at the rate of 20.0% per annum, payable in cash, and shall
remain convertible into Common Stock until the principal of this Security (or
portion thereof, as the case may be) shall have been paid or duly provided
for.
(f) If this Security is to be repurchased only in part, it
shall be surrendered to the Company at the Designated Office (with, if the
Company so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company duly executed by, the holder hereof or
his attorney duly authorized in writing), and the Company shall execute and
make available for delivery to the holder without service charge, a new
Security or Securities, containing identical terms and conditions, each in an
authorized denomination in aggregate principal amount equal to and in
exchange for the unrepurchased portion of the principal of the Security so
surrendered.
(g) Any issuance of shares of Common Stock in respect of
the Repurchase Price shall be deemed to have been effected immediately prior
to the close of business on the Repurchase Date and the person or persons in
whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such repurchase shall be deemed to have become
on the Repurchase Date the holder or holders of record of the shares
represented thereby; PROVIDED, HOWEVER, that any surrender for repurchase on
a date when the stock transfer books of the Company shall be closed shall
constitute the person or persons in whose name or names the certificate or
certificates for such shares are to be issued as the record holder or holders
thereof for all purposes at the opening of business on the next succeeding
day on which such stock transfer books are open. Subject to Section 2(b), no
payment or adjustment shall be made for dividends or distributions on any
Common Stock issued upon repurchase of this Security declared prior to the
Repurchase Date.
(h) No fractions of shares shall be issued upon repurchase
of this Security. Instead of any fractional share of Common Stock which would
otherwise be issuable on the repurchase of this Security,
12
the Company will deliver to the holder its check for the current market value
of such fractional share. The current market value of a fraction of a share
shall be determined by multiplying the current market price of a full share
by the fraction, and rounding the result to the nearest cent.
(i) Any issuance and delivery of certificates for shares of
Common Stock on repurchase of this Security shall be made without charge to
the holder of this Security for such certificates or for any tax or duty in
respect of the issuance or delivery of such certificates or the securities
represented thereby; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax or duty which may be payable in respect of any
transfer involved in the issuance or delivery of certificates for shares of
Common Stock in a name other than that of the holder of this Security, and no
such issuance or delivery shall be made unless and until the person
requesting such issuance or delivery has paid to the Company the amount of
any such tax or duty or has established, to the satisfaction of the Company,
that such tax or duty has been paid.
(j) For purposes of this Section 3:
(1) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934;
(2) a "Change in Control" shall be deemed to have occurred
at the time, after the original issuance of this Security, of:
(i) the acquisition by any person of beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital stock of
the Company entitling such person to exercise more than 50% of the
total voting power of all shares of capital stock of the Company
entitled to vote generally in the elections of directors (any shares of
voting stock of which such person is the beneficial owner that are not
then outstanding being deemed outstanding for purposes of calculating
such percentage) other than any such acquisition by the Company or any
employee benefit plan of the Company; or
(ii) any consolidation or merger of the Company with or into,
any other person, any merger of another person with or into the
Company, or any conveyance, transfer, sale, lease or other disposition
of all or substantially all of the assets of the Company to another
person (other than (a) any such transaction (x) which does not result
in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock and (y) pursuant to which holders of
Common Stock immediately prior to such transaction have the entitlement
to exercise, directly or indirectly, 50% or more of the total voting
power of all shares of capital stock entitled to vote generally in the
election of directors of the continuing or surviving person immediately
after such transaction and (b) any merger which is effected solely to
change the jurisdiction of incorporation of the Company and results in
a reclassification, conversion or exchange of outstanding shares of
Common Stock into solely shares of common stock);
(3) the "current market price" of a share of Common Stock
shall be the Closing Price of the Common Stock on the Trading Day immediately
preceding the Repurchase Date.
(4) "Repurchase Price" means the sum of
(I) (a) in connection with any Change of Control involving a
Stock Merger, 105% of the principal amount of this Security to be
repurchased pursuant to this Section 3, and (b) in connection with any
other Change of Control, the greater of (x)120% of the principal amount
of
13
this Security to be repurchased pursuant to this Section and (y) the
amount determined pursuant to the following formula:
R = ( P x CR x M)
---
1000
plus an amount as set forth in the following table:
If Repurchased During the 12 Months Ended November: Applicable Amount
--------------------------------------------------- -----------------
2001 $508,547
2002 406,838
2003 305,128
2004 203,419
2005 101,710
where R = the Repurchase Price;
P = the principal amount of this Security to be repurchased;
CR = the Conversion Rate in respect of this Security; and
M = the current market price of the Common Stock; plus
(II) accrued and unpaid interest on this Security to the date
of payment, plus
(III) a premium equal to the dollar amount set forth in the
following table:
If Repurchased During the 12 Months Ended November: Applicable Amount
--------------------------------------------------- -----------------
2001 $750,000
2002 600,000
2003 450,000
2004 300,000
2005 150,000
(5) "Stock Merger" means any merger or consolidation of the
Company with or into another entity in which holders of Common Stock
immediately prior to such transaction receive, in respect of such
Common Stock, consideration not less than 80% of which by value
consists of common equity securities listed on a U.S. national
securities exchange or traded on the NASDAQ National Market System.
4. EVENTS OF DEFAULT. (a) "Event of Default", wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be 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):
14
(1) default in the payment of any interest upon this Security
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default by the Company in the performance of its
obligations in respect of any conversion of this Security (or any
portion hereof) in accordance with Section 2; or
(3) failure by the Company to give any notice of a Change of
Control required to be delivered in accordance with Section 3(a); or
(4) default in the performance, or breach, of any material
covenant or warranty of the Company herein (other than a covenant or
warranty a default in the performance or breach of which is
specifically dealt with elsewhere in this Section 4(a)) and continuance
of such default or breach for a period of 30 days after there has been
given, by registered or certified mail, to the Company by the holder of
this Security a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(5) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company, or under
any agreement, 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, with a principal amount
then outstanding in excess of $1,000,000, whether such indebtedness now
exists or shall hereafter be created, which default shall constitute a
failure to pay the principal of such indebtedness (in whole or in any
part greater than $1,000,000) when due and payable or shall have
resulted in such indebtedness (in whole or in any part greater than
$1,000,000) becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable, without
such indebtedness having been discharged, or such acceleration having
been rescinded or annulled, within a period of 20 days after there
shall have been given, by registered or certified mail, to the Company
by the holder of this Security a written notice specifying such default
and requiring the Company to cause such indebtedness to be discharged
or cause such acceleration to be rescinded or annulled and stating that
such notice is a "Notice of Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under any applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60 consecutive
days; or
(7) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by
it to the entry of a decree or order for relief in respect of the
Company in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case
or proceeding against it, or the filing by it of a petition or answer
or consent seeking reorganization or similar relief under any
15
applicable Federal or State law, or the consent by it to the filing of
such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate
action by the Company in furtherance of any such action.
(b) If an Event of Default (other than an Event of Default
specified in Section 4(a)(6) or 4(a)(7)) occurs and is continuing, then in every
such case the holder of this Security may declare the principal hereof to be due
and payable immediately, by a notice in writing to the Company, and upon any
such declaration such principal and all accrued interest thereon shall become
immediately due and payable. If an Event of Default specified in Section 4(a)(6)
or 4(a)(7) occurs and is continuing, the principal of, and accrued interest on,
this Security shall IPSO FACTO become immediately due and payable without any
declaration or other act of the holders.
(c) The Company will give the holder of this Security notice,
within five days of the occurrence thereof, of any Event of Default or any event
that, with the giving of notice or passage of time or both, would become an
Event of Default. Such notice shall be given in the manner provided in Section
6(b).
5. CONSOLIDATION, MERGER, ETC. (a) The Company shall not
consolidate with or merge into any other person or, directly or indirectly,
convey, transfer, sell or lease all or substantially all of its properties and
assets to any person, and the Company shall not permit any person to consolidate
with or merge into the Company or, directly or indirectly, convey, transfer,
sell or lease all or substantially all of its properties and assets to the
Company, unless:
(1) in case the Company shall consolidate with or merge into
another person or convey, transfer, sell or lease all or substantially
all of its properties and assets to any person, the person formed by
such consolidation or into which the Company is merged or the person
which acquires by conveyance, transfer or sale, or which leases, all or
substantially all the properties and assets of the Company shall be a
corporation, limited liability company, partnership or trust, shall be
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall
expressly assume, by an agreement supplemental hereto, executed and
delivered to the holder of this Security in form satisfactory to the
holder, the due and punctual payment of the principal of (and premium,
if any) and any interest on this Security and the performance or
observance of every covenant of this Security on the part of the
Company to be performed or observed, including the conversion rights
provided herein (which shall thereafter relate to common stock of such
successor, on a basis reasonably designed to preserve the economic
value to the holder of this Security of such conversion rights);
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company or
a subsidiary of the Company as a result of such transaction as having
been incurred by the Company or such subsidiary of the Company at the
time of such transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing; and
(3) the Company has delivered to the holder of this Security
an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, conveyance, transfer, sale or lease and, if
a supplemental agreement is required in connection with such
transaction, such
16
supplemental agreement, comply with this Section and that all
conditions precedent herein provided for relating to such
transaction have been complied with.
(b) Upon any consolidation of the Company with, or merger of
the Company into, any other person or any conveyance, transfer, sale or lease of
all or substantially all of the properties and assets of the Company in
accordance with Section 5(a), the successor person formed by such consolidation
or into which the Company is merged or to which such conveyance, transfer, sale
or lease is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Security with the same effect
as if such successor person had been named as the Company herein, and
thereafter, except in the case of a lease, the predecessor person shall be
relieved of all obligations and covenants under this Security.
6. OTHER. (a) No provision of this Security shall alter or
impair the obligation of the Company, which is absolute and unconditional,
to pay the principal of, premium, if any, and interest, if any, on this Security
at the times, places and rate, and in the coin or currency, herein prescribed or
to convert this Security as herein provided.
(b) The Company will give prompt written notice to the holder
of Security of any change in the location of the Designated Office. Any notice
to the Company or to the holder of this Security shall be given in the manner
set forth in the Convertible Note Purchase Agreement, dated as of November 8,
2000, among the Company and the Purchasers named therein (the "Purchase
Agreement"), provided that the holder of this Security, if not a party to the
Purchase Agreement, may specify alternative notice instructions to the Company.
(c) The transfer of this Security is registrable on the
Security Register of the Company upon surrender of this Security for
registration of transfer at the Designated Office, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed by, the holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees. Such Securities are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof. No
service charge shall be made for any such registration of transfer, but the
Company may require payment of a sum sufficient to recover any tax or other
governmental charge payable in connection therewith. Prior to due presentation
of this Security for registration of transfer, the Company and any agent of the
Company may treat the person in whose name this Security is registered as the
owner thereof for all purposes, whether or not this Security be overdue, and
neither the Company nor any such agent shall be affected by notice to the
contrary.
(d) THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, UNITED STATES OF
AMERICA.
7. SUBORDINATION OF SECURITIES. (a) The Company covenants and
agrees, and each holder of a Security, by his acceptance thereof, likewise
covenants and agrees, that, to the extent and in the manner hereinafter set
forth in this Section 7, the payment of the principal of (and premium, if any)
and interest on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness. "Senior Indebtedness" shall mean any indebtedness,
liabilities and other obligations of the Company (whether as primary obligor or
as guarantor) to any person (each a "Senior Lender"), now existing or incurred
hereafter, with respect to a Twenty Five Million dollar ($25,000,000) basket of
senior corporate debt from a traditional lender, and debt incurred as a result
of a transaction with a corporate Strategic Partner; provided, that the
Unsubordinated Portion of this Security shall be treated as Senior Indebtedness
for purposes of Section 7(c), and the holder of this
17
Security will share equally and ratably, to the extent of such Unsubordinated
Portion, with the holders of all other Senior Indebtedness, in any payments
or distributions under Section 7(c). "Strategic Partner" means any
established biotechnology or pharmaceutical company, with a minimum market
capitalization of one billion dollars, with whom the Company executes a
written agreement providing that the Company and such entity will be
"partnered" in the development or distribution of one or more of the
Company's chemical compounds. The "Unsubordinated Portion" of this Security
at any time shall be an amount equal to the value from time to time of the
collateral held subject to the Pledge Account created under the Pledge
Agreement (the "Pledge Account"). The "Subordinated Portion" of this Security
shall be an amount equal to the difference between the principal amount plus
accrued interest and the Unsubordinated Portion.
(b) (1) No payment or distribution of cash or property (other
than Common Stock of the Company or other securities of the Company
that are subordinated to Senior Indebtedness to at least the same
extent as the Securities) of the Company will be made on account of
principal of or interest on the Securities, or to defease or acquire
any of the Securities, or on account of the conversion provisions of
the Securities and no action shall be taken (judicial or otherwise) to
collect any such payment or distribution (i) upon the maturity of any
Senior Indebtedness by lapse of time, acceleration or otherwise, unless
and until all Senior Indebtedness shall first be paid in full in cash,
or such payment duly made in a manner satisfactory to the holders of
such Senior Indebtedness or (ii) in the event that the Company defaults
in the payment of any principal of, premium, if any, or interest on or
any other amounts payable on or due in connection with any Senior
Indebtedness when it becomes due and payable, whether at maturity or at
a date fixed for prepayment or by declaration or otherwise, unless and
until such default has been waived in writing by the holders of the
Senior Indebtedness; provided, that nothing in this Section 7 shall
prevent or preclude the Company from making any scheduled payment on
this Security out of amounts held in the Pledge Account. Payments on
the Securities (other than payments made from the Pledge Account) may
and shall be resumed in the case of a payment default only upon the
date on which such default is waived in writing by the holders of the
Senior Indebtedness or their agent.
(2) If any default other than a default contemplated by
Section 7(b)(1)(ii) above shall have occurred and be continuing that
would permit the holders of the Senior Indebtedness to accelerate the
maturity of Senior Indebtedness, upon written notice (a "Payment
Blockage Notice") of the default given to the Company and the holders
of Securities by the holders of, or an agent, trustee or other
representative for, such Senior Indebtedness, then, unless and until
such default has been waived in writing, no payment or distribution of
cash or property (other than Common Stock of the Company or other
securities of the Company that are subordinated to Senior Indebtedness
to at least the same extent as the Securities) shall be made by the
Company with respect to the principal of or interest on the Securities
or on account of conversion of the Securities or to acquire or
repurchase any of the Securities for cash or property other than Common
Stock of the Company, and no action shall be taken (judicial or
otherwise) to collect any such payment or distribution; provided, that
nothing in this Section 7 shall prevent or preclude the Company from
making any scheduled payment on this Security out of amounts held in
the Pledge Account. If such Senior Indebtedness is not declared due and
payable within 180 days after written notice of the event of default is
given, promptly after the end of the 180-day period the Company will
pay all sums due in respect of the Securities and not paid during the
180-day period. During any 360-day consecutive period, only one such
period during which payment with respect to the Securities may not be
made as the result of a Payment Blockage Notice may commence and the
duration of such period may not exceed 180 days. No nonpayment default
that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the holders of Security shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default
shall have been waived for a period of not less than 90 days.
18
(3) If any payment or distribution of assets of the Company is
received by any holder of Securities in respect of the Securities at a
time when that payment or distribution should not have been made
because of paragraph (1) or (2) of this Section 7(b), and provided that
prior to the Company's disbursement of such distribution or payment,
the holders of Securities shall have received a written notice from the
Company or from an agent or representative for one or more holders of
Senior Indebtedness, such payment or distribution will be received and
held and will be paid over to the holders of Senior Indebtedness (pro
rata as to each of such holders on the basis of the respective amounts
of Senior Indebtedness held by them) until all such Senior Indebtedness
has been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior
Indebtedness.
(c) Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company (whether
in bankruptcy, insolvency, receivership or similar proceedings relating to the
Company or its property or upon an assignment for the benefit of creditors or
any marshalling of the Company's assets or liabilities or otherwise):
(1) the holders of all Senior Indebtedness will first be
entitled to receive payment in full of the principal of and interest
due on Senior Indebtedness (including interest accruing after the
commencement of a bankruptcy or insolvency) at the rate specified in
the applicable Senior Indebtedness documents and including, without
limitation, in respect of premiums, indemnities or otherwise, before
the holders of Securities are entitled to receive any payment or
distribution on account of the Subordinated Portion of, or the interest
on, the Securities; provided, that the Unsubordinated Portion of this
Security shall be treated as Senior Indebtedness for purposes of
Section 7(c), and the holder of this Security will share equally and
ratably, to the extent of such Unsubordinated Portion, with the holders
of all other Senior Indebtedness, in any payments or distributions
under Section 7(c);
(2) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (except
that holders of Securities may receive securities that are subordinated
at least to the same extent as the Securities to Senior Indebtedness
and any securities issued in exchange for Senior Indebtedness), to
which holders of Securities would be entitled except for the provisions
of this Section 7(c) in respect of the Subordinated Portion of this
Security will be paid by the liquidating trustee or agent or other
persons legally empowered to make such a payment or distribution
directly to the holders of Senior Indebtedness (pro rata to such
holders on the basis of the respective amounts of Senior Indebtedness
held by such holders) or their representatives to the extent necessary
to make or provide for payment in full in cash of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness or
provision for that payment or distribution; provided, that the
Unsubordinated Portion of this Security shall be treated as Senior
Indebtedness for purposes of Section 7(c), and the holder of this
Security will share equally and ratably, to the extent of such
Unsubordinated Portion, with the holders of all other Senior
Indebtedness, in any payments or distributions under Section 7(c); and
(3) if, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether
in cash, property or securities (except that holders of Securities may
receive securities that are subordinated at least to the same extent as
the Securities to Senior Indebtedness and any securities issued in
exchange for Senior Indebtedness) is received by the holders of
Securities on account of the Subordinated Portion of, or the interest
on, the Securities before all Senior Indebtedness is paid in full, such
payment or distribution will be
19
received and held in trust for and will be forthwith paid over to
the holders of the Senior Indebtedness remaining unpaid or
unprovided for or their representatives for application (in the
case of cash) to, or as collateral (in the case of non-cash
property or securities) for the payment of such Senior Indebtedness
until all such Senior Indebtedness has been paid in full, after
giving effect to any concurrent payment or distribution or
provision therefor to the holders of such Senior Indebtedness;
provided, that the Unsubordinated Portion of this Security shall be
treated as Senior Indebtedness for purposes of Section 7(c), and
the holder of this Security will share equally and ratably, to the
extent of such Unsubordinated Portion, with the holders of all
other Senior Indebtedness, in any payments or distributions under
Section 7(c).
The Company will give prompt written notice to the holders of
Securities of any dissolution, winding up, liquidation or reorganization of it
or any assignment for the benefit of its creditors.
(d) Subject to the payment in full of all Senior Indebtedness,
the holders of Securities shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until all
amounts owing on the Securities shall be paid in full; and, for the purposes of
such subrogation:
(1) no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the holders
of Securities would be entitled except for the provisions of this
Section 7 and no payment pursuant to the provisions of this Section 7
to the holders of Senior Indebtedness by the holders of Securities
shall, as between the Company, its creditors (other than holders of
Senior Indebtedness) and the holders of Securities, be deemed to be a
payment by the Company to or on account of the Senior Indebtedness; and
(2) no payment or distributions of cash, property or
securities to or for the benefit of the holders of Securities pursuant
to the subrogation provision of this Section 7, which would otherwise
have been paid to the holders of Senior Indebtedness, shall be deemed
to be a payment by the Company to or for the account of the Securities.
(e) The provisions of this Section 7 are and are intended
solely for the purpose of defining the relative rights of the holders of
Securities on the one hand and the holders of Senior Indebtedness on the other
hand. Nothing contained in this Section 7 or elsewhere in this Security is
intended to or shall (x) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the holders of the Securities, the obligation
of the Company, which is absolute and unconditional to pay to the holders of the
Securities the principal of (premium, if any) and interest on the Securities as
and when the same shall become due and payable in accordance with their terms;
or (y) affect the relative rights against the Company of the holders of the
Securities and creditors of the Company other than the holders of Senior
Indebtedness; or (z) prevent the holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this Security,
subject to the rights, if any, under this Section 7 of the holders of Senior
Indebtedness to receive cash, property and securities otherwise payable or
deliverable to the holder upon the exercise of any such remedy.
(f) In the event of any dissolution, winding up, liquidation
or reorganization of the Company (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon any assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of the Company, with respect to the filing of a claim for
the unpaid balance of any holders of Securities in the form required in those
proceedings, if the holder does not file a proper claim or proof of debt in the
form required in such proceeding at least thirty (30) days before the expiration
of the time to
20
file such claim or claims, then the holders of Senior Indebtedness
and their agents, trustees, or other representatives are hereby
authorized to have the right to file, and are hereby authorized to
file, an appropriate claim for and on behalf of each such holder.
(g) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Security, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the holders of the Securities, without
incurring responsibility to the holders of the Securities and without impairing
or releasing the subordination provided in this Section 7 or the obligations
hereunder of the holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other person.
(h) The Company shall give prompt written notice to the
holders of Securities, in the manner provided in Section 6(b), of any fact known
to the Company which would prohibit the making of any payment to or by the
holders of Securities in respect of the Securities. Notwithstanding the
provisions of this Section 7 or any other provision of this Security, the
holders of Securities shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment to the holders in
respect of the Securities, unless and until the holders of Securities shall have
received written notice thereof from the Company or a holder of Senior
Indebtedness; and, prior to the receipt of any such written notice, the holders
of Securities shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the holders of Securities shall not have
received the notice provided for in this Section 7(h) at least two business days
prior to the date upon which by the terms hereof any money may become payable
for any purpose (including, without limitation, the payment of the principal of,
and premium, if any, or interest on any Security), then, anything herein
contained to the contrary notwithstanding, the holders of Securities shall have
full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within two business days
prior to such date.
The holders of Securities shall be entitled to rely on the
delivery to them of a written notice by a person representing himself to be a
holder of Senior Indebtedness (or a representative thereof) to establish that
such notice has been given by a holder of Senior Indebtedness (or representative
thereof). In the event that the holders of Securities determine in good faith
that further evidence is required with respect to the right of any person as a
holder of Senior Indebtedness (or a representative thereof) to participate in
any payment or distribution pursuant to this Section 7, the holders of
Securities may request such person to furnish evidence to the reasonable
satisfaction of the holders of Securities as to the amount of Senior
Indebtedness held by such person, the extent to which such person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such person under this Section 7, and if such evidence is not
furnished, the holders of Securities may defer any payment to such person
pending judicial determination as to the right of such person to receive such
payment.
21
(i) Upon the payment or distribution of assets of the Company
referred to in this Section 7, the holders of Securities shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of the
creditors, agent or other person making such payment or distribution, delivered
to the holders of Securities, for the purpose of ascertaining the persons
entitled to participate in such payment or distribution, the holders of the
Senior Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Section 7.
(j) Neither the holders of Securities nor the Company shall
enter into any modification of the Securities which is in any way adverse to the
holders of the Senior Indebtedness.
(k) The Company will furnish to the holders of Senior
Indebtedness at the time Senior Indebtedness is initially incurred, when there
is a change in the holders thereof, or at any time upon request therefor, a true
and correct copy of the then most current register setting forth the names and
addresses of the holders of Securities as of such date.
(l) The holder of this Security by its acceptance hereof
agrees to execute and deliver to any Senior Lender such subordination agreement
in respect of the Subordinated Portion of this Security, subject to the terms of
this Section 7, as may be reasonably requested by such Senior Lender, which may
deviate in certain minor respects from the subordination provisions contained
herein but which is commercially reasonable and customary, and to execute,
acknowledge, deliver, file, notarize and register all such further agreements,
instruments, certificates, documents and assurances, and perform such acts as
such Senior Lender shall deem necessary or appropriate to effectuate the
purposes of the subordination provisions contained herein.
(m) The Company hereby agrees that: (i) the right of a holder
of this Security to receive payment of the Unsubordinated Portion of this
Security shall not be subject to any subordination pursuant to this Section 7;
(ii) nothing in this Section 7 shall impair in any way the right of the holder
of this Security as a secured creditor of the Company under the Pledge
Agreement; and (iii) in the event of any inconsistency between the provisions of
the Pledge Agreement and this Section 7 (including any agreements, instruments,
certificates, documents and assurances contemplated in Section 7(l)), the Pledge
Agreement will prevail.
22
IN WITNESS WHEREOF, the Company has caused this Security to be
duly executed under its corporate seal.
Dated: November 15, 2000
ALLIANCE PHARMACEUTICAL CORP.
By:
------------------------------
Name:
Title:
Attest:
------------------------
Name:
Title:
23
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 3(a) of this Security, the undersigned hereby
elects to have all or a portion of this Security repurchased by the Company.
2. The undersigned hereby directs the Company to pay [choose one] (a)
it or (b) Name: __________________; address: __________________; Social Security
or Other Taxpayer Identification Number, if any: ____________, an amount in cash
or, at the Company's election, Common Stock valued as set forth in the Security,
equal to the Repurchase Price, as provided herein.
Dated:
-----------------------
-----------------------
Signature
Number of shares of Common Stock
owned by the holder and its affiliates:
-----------------
Principal amount to be repurchased
(an integral multiple of $1,000):
-----------------
Remaining principal amount following such repurchase
(not less than $1,000):
-------------------
NOTICE: The signature to the foregoing Election must correspond to the name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
CONVERSION NOTICE
The undersigned holder of this Security hereby irrevocably exercises
the option to convert this Security, or any portion of the principal amount
hereof (which is an integral multiple of $1,000) below designated, into shares
of Common Stock in accordance with the terms of this Security, and directs that
such shares, together with a check in payment for any fractional share and any
Security representing any unconverted principal amount hereof, be delivered to
and be registered in the name of the undersigned unless a different name has
been indicated below. If shares of Common Stock or Securities are to be
registered in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Dated:
------------------------
---------------------------
Signature
24
If shares or Securities are to be registered in the name of a person other than
the holder, please print such person's name and address:
-------------------------
Name
-------------------------
Address
-------------------------
Social Security or other Taxpayer
Identification Number, if any
If only a portion of the Securities is to be converted, please indicate:
1. Principal amount to be converted:
$___________
2. Principal amount and denomination of Security
representing unconverted principal amount to
be issued:
Amount: $________
Denominations: $________
(any integral multiple of $1,000)
25
ANNEX A
To: [name and address of holder]
Alliance Pharmaceutical Corp. (the "Company") is issuing this undertaking
pursuant to Section [1(c)] [3(b)] of its 6% Convertible Note Due 2005 ("Notes").
The Company is delivering herewith _____________ shares of its Common Stock in
payment of the [principal amount and accrued and unpaid interest
thereon][Repurchase Price] in respect of $___________ principal amount of Notes
[, which Repurchase Price equals $___________]. In consideration of your
purchase of its Notes and acceptance of such shares, the Company undertakes to
pay to you, promptly on demand, an amount in cash equal to the positive
difference between such [principal amount and accrued and unpaid interest
thereon][Repurchase Price] and the aggregate proceeds realized by you upon
resale of such shares of Common Stock in the open market during the sixty days
following the [maturity date of the Notes][the Repurchase Date] (and you hereby
undertake to use commercially reasonable efforts to effect such resale), and if
such difference is a negative difference, the undersigned holder undertakes to
pay to the Company, promptly on demand, an amount in cash equal to such negative
difference. The calculation of such difference will be set forth in reasonable
detail in a certificate delivered by you to the Company. Such payment should be
made promptly upon demand following the delivery of the certificate contemplated
by the preceding sentence, against surrender of any shares of Common Stock
previously delivered to you pursuant to Section [1(c)][3(b)] and then remaining
unsold. The Company acknowledges that the manner of such resale shall be in your
absolute discretion, subject to your undertaking above, and that your
determination of the amount of such proceeds should be controlling, absent
manifest error, without affecting your undertaking above..
ALLIANCE PHARMACEUTICAL CORP.
By:
------------------------------
Name:
Title:
Agreed and accepted:
[NAME OF ▇▇▇▇▇▇]
By:
--------------------------
Name:
Title:
26