EXHIBIT 99.2
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
ISTA PHARMACEUTICALS, INC.
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
$_______________ September ___, 2002
No. N- ____ Irvine, California
FOR VALUE RECEIVED, ISTA Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), promises to pay to ____________________ ("HOLDER"), or its
registered successors or assigns, the principal sum of __________ Dollars
($_________), or such lesser amount as shall equal the outstanding principal
amount hereof, together with interest from the date of this Note on the unpaid
principal balance at a rate equal to eight percent (8.0%) per annum, computed on
the basis of the actual number of days elapsed and a year of 360 days. All
unpaid principal, together with any then unpaid and accrued interest and other
amounts payable hereunder, shall be due and payable on the earlier of (i)
December 31, 2002, or (ii) when, upon or after the occurrence of an Event of
Default (as defined below), such amounts are declared due and payable by Holder
or made automatically due and payable in accordance with the terms hereof (the
"MATURITY DATE"). This Note is one of the "NOTES" issued pursuant to, and is
entitled to the benefits of, the Note and Warrant Purchase Agreement of even
date herewith (as amended, modified or supplemented, the "NOTE PURCHASE
AGREEMENT") between the Company and the Purchasers (as defined in the Note
Purchase Agreement). Capitalized terms used herein and not otherwise defined
have the meanings given to them in the Note Purchase Agreement.
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT
(AS DEFINED BELOW) AND AN INTELLECTUAL PROPERTY SECURITY AGREEMENT (AS DEFINED
BELOW). ADDITIONAL RIGHTS OF HOLDER ARE SET FORTH IN THE SECURITY AGREEMENT AND
THE INTELLECTUAL PROPERTY SECURITY AGREEMENT.
The following is a statement of the rights of Holder and the conditions
to which this Note is subject, and to which Holder, by the acceptance of this
Note, agrees:
1. DEFINITIONS. As used in this Note, the following capitalized terms
have the following meanings:
"ACQUISITION TRANSACTION" means a transaction or series of related
transactions with any Person(s) involving (a) the sale or other disposition of
all or substantially all of the business or properties of the Company or (b) the
acquisition by any Person, or the issuance by the Company, of securities
constituting, convertible into or exercisable for, either at the time of such
acquisition or issuance or at the anticipated time of conversion or exchange, of
capital stock representing 50% or more of the voting power of the Company,
whether by merger, tender offer, exchange offer, sale of stock or assets,
consolidation, other business combination, recapitalization, reorganization,
liquidation, dissolution or other transaction involving the Company or its stock
or assets.
"AFFILIATE," with respect to any Person, means (a) any director, officer
or employee of such Person, (b) any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such Person, and
(c) any Person beneficially owning or holding 5% or more of any class of voting
securities of such Person or any corporation of which such Person beneficially
owns or holds, in the aggregate, 5% or more of any class of voting securities.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"COMMON STOCK PURCHASE AGREEMENT" has the meaning given in Section 4(g)
of the Note Purchase Agreement.
"COMPANY" includes the corporation initially executing this Note and any
Person which shall succeed to or assume the obligations of Company under this
Note.
"EQUITY SECURITIES" of any Person means (a) all common stock, preferred
stock, participations, shares, partnership interests or other equity interests
in and of such Person (regardless of how designated and whether or not voting or
non-voting) and (b) all warrants, options and other rights to acquire any of the
foregoing.
"EVENT OF DEFAULT" has the meaning given in Section 6 hereof.
"FDA" means the United States Food and Drug Administration or any
successor agency.
"HOLDER" means the Person specified in the introductory paragraph of
this Note or any Person who shall at the time be the registered holder of this
Note.
"INDEBTEDNESS" means the aggregate amount of, without duplication (a)
all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations to pay the
deferred purchase price of property or services (other than trade payables
incurred in the ordinary course of business), (d) all obligations with respect
to capital leases, (e) all obligations created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person, (f) all reimbursement and other payment obligations, contingent or
otherwise, in respect of letters of credit and similar surety instruments; (g)
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all guaranty obligations with respect to the types of Indebtedness listed in
clauses (a) through (f) above; and (h) all Indebtedness of a second Person
secured by any Lien on any property owned by such first Person, whether or not
such Indebtedness has been assumed.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" has the meaning given in
Section 4(f)(v) of the Note Purchase Agreement.
"LIEN" means, with respect to any property, any security interest,
mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such
property or the income therefrom, including, without limitation, the interest of
a vendor or lessor under a conditional sale agreement, capital lease or other
title retention agreement, or any agreement to provide any of the foregoing, and
the filing of any financing statement or similar instrument under the Uniform
Commercial Code or comparable law of any jurisdiction.
"MATERIAL ADVERSE EFFECT" means (a) any circumstance affecting, change
in, or effect on the Company and its Subsidiaries that is, or imminently will
be, materially adverse to the business, properties, assets, liabilities
(absolute, accrued or contingent) operations or results of operation, of the
Company and its Subsidiaries, taking the Company together with its Subsidiaries
as a whole or (b) any material adverse effect on the rights and remedies of
Holder under this Note or the other Transaction Documents; provided, that none
of the following shall be deemed, in themselves, either alone or in combination,
to constitute a Material Adverse Effect, and none of the following shall be
taken into account in determining whether there has been or will be, a Material
Adverse Effect: (i) any change in the market price or trading volume of the
Common Stock after the date of this Note; (ii) any adverse circumstance, change
or effect resulting directly from conditions affecting the industries in which
the Company participates in their entirety, the U.S. economy as a whole, or
foreign economies as a whole in any countries where the Company or any of its
Subsidiaries has material operations or is conducting clinical trials; (iii) any
adverse circumstance, change or effect resulting directly from the announcement
or pendency of the Common Stock Purchase Agreement, the Stockholders' Meeting
(as defined in the Common Stock Purchase Agreement) or the Closing (as defined
in the Common Stock Purchase Agreement) (including any termination or breach of
supplier, distributor, partner or similar relationships); (iv) any failure by
the Company to meet internal, non-public projections or forecasts (other than
the financial results set forth in Section 7.9 of the Common Stock Purchase
Agreement and the Forecast); (v) the Company's actual reasonable investment
banking and legal fees in respect of the Common Stock Purchase Agreement and the
other agreements and transactions contemplated hereby and thereby, to the extent
such fees do not exceed the amounts of investment banking and legal fees set
forth in Section 3.27 of the Company Disclosure Schedule (as defined in the
Common Stock Purchase Agreement); (vi) any adverse circumstance, change or
effect resulting directly from the taking of any action by the Company which the
Common Stock Purchase Agreement requires the Company to take; (vii) any adverse
circumstance, change or effect resulting directly from a failure by the
Investors to provide any funding to the Company in violation of the Note
Purchase Agreement; (viii) any adverse circumstance, change or effect resulting
directly from action by any Regulatory Authority, including the FDA, other than
any adverse circumstance, change or effect resulting directly from the refusal
of the FDA to file the Company's submissions for clinical or safety issues; (ix)
any adverse circumstance, change or effect resulting directly from any failure
by the Company to pay any of its
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obligations to its creditors within 60 days of the date that such obligations
become due and payable; or (x) any delisting of the Common Stock from the Nasdaq
Stock Market.
"NOTE PURCHASE AGREEMENT" has the meaning given in the introductory
paragraph hereof.
"OBLIGATIONS" has the meaning set forth in the Security Agreement.
"PERMITTED LIENS" has the meaning set forth in the Security Agreement.
"PERSON" means an individual, a partnership, a corporation (including a
business trust), a joint stock company, a limited liability company, an
unincorporated association, a joint venture or other entity or a governmental
authority.
"REGULATORY AUTHORITY" means the FDA and any counterpart of the FDA
outside of the United States and other national, supra-national, regional, state
and local regulatory agency, department, bureau, commission, council and other
governmental entity with authority over the clinical testing, manufacture,
storage, distribution, sale and use of drug products.
"SECURITY AGREEMENT" has the meaning given in Section 4(f)(iv) of the
Note Purchase Agreement.
"STOCKHOLDER APPROVAL" has the meaning given to such term in the Common
Stock Purchase Agreement; provided however, that subclauses (iv) and (v) of such
definition shall be excluded from the definition of "Stockholder Approval" for
purposes of Section 8(a) of this Note.
"SUBSIDIARY" means (a) any corporation of which more than 50% of the
issued and outstanding equity securities having ordinary voting power to elect a
majority of the board of directors of such corporation is at the time directly
or indirectly owned or controlled by the Company, (b) any partnership, joint
venture, limited liability company or other association of which the Company is
the general partner or managing member or of which more than 50% of the equity
interest having the power to vote, direct or control the management of such
partnership, joint venture or other association is at the time directly or
indirectly owned and controlled by the Company, (c) any other entity included in
the financial statements of the Company on a consolidated basis.
"TRANSACTION DOCUMENTS" means this Note, each of the other Notes issued
under the Note Purchase Agreement, the Note Purchase Agreement, the Warrants
issued under the Note Purchase Agreement, the Security Agreement, the
Intellectual Property Security Agreement, the Account Control Agreement among
Silicon Valley Bank, the Company and each of the Purchasers, the Account Control
Agreement to be entered into among the Company, the Purchasers, and UBS
PaineWebber Inc. and each other instrument or agreement from time to time
executed by the Company in connection therewith; provided, that in no event
shall the term Transaction Documents include the Common Stock Purchase
Agreement.
2. INTEREST. Accrued interest on this Note shall be due and payable on
the Maturity Date.
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3. PREPAYMENT. Except as set forth in Section 4 below, the Company may
not prepay this Note in whole or in part without the prior written consent of
the Majority Purchasers.
4. TRANSACTION FEE. The Company shall not enter into a definitive
agreement with respect to, or recommend to the Company's stockholders, or
consummate any Acquisition Transaction unless either: (i) the Company has
obtained the prior written consent of Holder; or (ii) the Company has agreed to
pay the Transaction Fee (as defined below) and delivered to Holder, as further
evidence of such agreement and obligation, a notice of its election to pay the
Transaction Fee in accordance with the terms hereof rather than seek Holder's
consent (a "NOTICE OF ELECTION", which Notice of Election shall be in the form
of Exhibit A to this Note); provided that, no consent of Holder, or Notice of
Election to Holder, or payment of a Transaction Fee to Holder shall be required
in respect of the entry into a definitive agreement with respect to, or
recommendation to the Company's stockholders, or consummation of any Acquisition
Transaction with, Holder or any of its Affiliates (as defined in the Common
Stock Purchase Agreement). The transaction fee ("TRANSACTION FEE") shall be an
amount equal to 50% of the original principal amount of this Note and shall be
payable in cash on the earlier of: (A) the date of any prepayment of this Note
in accordance with this Section 4; (B) the date of the consummation of the
Acquisition Transaction; and (C) the Maturity Date. The Company hereby
acknowledges that the Transaction Fee shall be considered a fee for permitting
the Company to enter into a definitive agreement with respect to, or make a
recommendation to its stockholders with respect to, or to consummate such
Acquisition Transaction without the prior consent of the Holder and that such
fee is reasonable in the circumstances. The Transaction Fee shall constitute an
Obligation.
In the event that the Company enters into a definitive agreement with
respect to, or recommends to the Company's stockholders any Acquisition
Transaction: (1) the Company shall have the right, at any time after the
Stockholder Meeting (as defined in the Common Stock Purchase Agreement) and upon
three Business Days prior written notice to Holder, to prepay this Note in full
together with all accrued interest and other amounts payable hereunder
(including the Transaction Fee, if any); and (2) the Holder shall have the
right, upon 3 Business Days prior written notice to the Company, at any time to
require the prepayment of the outstanding principal of this Note together with
interest and all other amounts payable under the Transaction Documents
(including the Transaction Fee, if any).
5. CERTAIN COVENANTS. While any amount is outstanding under this Note,
without the prior written consent of the Majority Purchasers:
(a) Conduct of Business. The Company and each of its material
Subsidiaries shall conduct its business in the ordinary course and shall use its
commercially reasonable efforts to preserve its business organization intact, to
keep available the services of its current officers and employees and to
maintain its existing relationships with suppliers, creditors, business partners
and others having material business dealings with them.
(b) Liens. Neither the Company nor its Subsidiaries shall create,
incur, assume or permit to exist any Lien on or with respect to any of its
assets or property of any character, whether now owned or hereafter acquired,
except for Permitted Liens.
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(c) Asset Dispositions. The Company shall not sell, lease, transfer,
license or otherwise dispose of (collectively, a "TRANSFER") any of its assets
or property, whether now owned or hereafter acquired, except (i) non-exclusive
licenses or the granting of non-exclusive distribution rights in respect of
intellectual property or products of the Company entered into in the ordinary
course of business, (ii) Transfers consisting of the sale of inventory in the
ordinary course of business, and (iii) Transfers consisting of sales or other
dispositions of worn-out or obsolete equipment in the ordinary course of
business.
(d) Mergers, Acquisitions, Etc. Neither Company nor any of its
Subsidiaries shall consolidate with or merge into any other Person or permit any
other Person to merge into it, or acquire all or substantially all of the assets
or capital stock of any other Person.
(e) Dividends, Redemptions, Etc. The Company shall not (i) pay any
dividends or make any distributions on its Equity Securities; (ii) except in
respect of the purchase of shares or options of employees upon termination of
their employment with the Company in accordance with stock options, stock
issuance or other stock purchase plans, or employment contracts of the Company,
purchase, redeem, retire, defease or otherwise acquire for value any of its
Equity Securities; (iii) return any capital to any holder of its Equity
Securities; (iv) make any distribution of assets, Equity Securities, obligations
or securities to any holder of its Equity Securities; or (v) set apart any sum
for any of the foregoing purposes.
(f) Indebtedness Payments. Neither the Company nor any of its
Subsidiaries shall (i) prepay, redeem, purchase, defease or otherwise satisfy in
any manner prior to the scheduled repayment thereof any indebtedness for
borrowed money (other than amounts due under this Note or the other Notes issued
under the Note Purchase Agreement) or lease obligations, (ii) amend, modify or
otherwise change the terms of any indebtedness for borrowed money (other than
the Obligations) or lease obligations so as to accelerate the scheduled
repayment thereof or (iii) repay any notes to officers, directors or
shareholders (except in respect of the Obligations).
(g) Financial Information. On the fifth Business Day of each month,
the Company shall provide to the Holder a report as to the Company's actual
consolidated financial results for the prior month with respect to (i) the
aggregate balance of cash and cash equivalents of the Company and its
Subsidiaries as of the end of such prior month and the projected aggregate
balance of cash and cash equivalents of the Company and its Subsidiaries at the
end of such period and (ii) the actual expenses of the Company and its
Subsidiaries for such period versus the projected expenses of the Company and
its Subsidiaries for such period. The projected cash balance and the projected
expenses shall be determined by reference to the forecasts provided by the
Company to the Holder (the "FORECAST", a copy of which is attached hereto as
Exhibit B). The Company shall give the Holder prompt written notice of any known
material deviation from the Forecast. The Company shall not permit (i) its
actual expenses for any month to exceed the projected expenses for such period
(as set forth in the Forecast) by $100,000 or more or (ii) its actual balance of
cash and cash equivalents at the end of any month to be less than the projected
balance of cash and cash equivalents (as set forth in the Forecast) by more than
$100,000. Expenses and cash and cash equivalents shall be determined in
accordance with GAAP consistently applied.
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(h) Notices. The Company shall notify the Holder promptly after the
Company has knowledge of or becomes aware of (i) the occurrence of any Event of
Default, (ii) any action, suit, or proceeding before any arbitrator, court or
governmental department, commission, board, bureau, agency or other
instrumentality, domestic or foreign, pending, or the Company's knowledge,
threatened against the Company or any of its Subsidiaries that could reasonably
be expected to have a Material Adverse Effect, and (iii) the occurrence of any
other condition or event which has resulted or could reasonably be expected to
result in a Material Adverse Effect.
(i) Information. The Company shall provide to the Holder such other
information respecting the operations, properties, business or condition
(financial or otherwise) of the Company and its Subsidiaries as the Holder may
from time to time reasonably request.
(j) Indebtedness. The Company will not, and will not permit its
Subsidiaries to, create, incur, assume or otherwise become liable for or suffer
to exist any Indebtedness or equipment lease obligations other than: (i)
Indebtedness in respect of the Notes; (ii) Indebtedness or equipment lease
obligations existing on the date hereof; (iii) Indebtedness consisting of
guarantees resulting from the endorsement of negotiable instruments for
collection by the Company or any of its Subsidiaries in the ordinary course of
business; (iv) Indebtedness or equipment lease obligations incurred for the
purpose of financing the acquisition of equipment; provided that the principal
amount thereof does not exceed the purchase price of such equipment; (v)
Indebtedness incurred in connection with financing of the premiums for the
Company's directors and officers insurance policy and premiums for the Company's
products liability insurance in an aggregate amount not to exceed $900,000;
provided that any Liens granted to secure such Indebtedness must constitute a
Permitted Lien pursuant to clause (i) of the definition of Permitted Lien; and
(vi) unsecured Indebtedness of the Company to its Subsidiary Visionex Pte. Ltd.,
a Singapore corporation ("VISIONEX"), in the principal amount of $4,000,000,
plus interest thereon; provided that the Company shall within 30 days of the
date hereof cause Visionex to enter into a subordination agreement in form and
substance reasonably satisfactory to the Majority Purchasers.
(k) Investments. The Company shall not make loans to, purchase the
securities of or make capital contributions to any Person or Subsidiary, or
otherwise extend credit to any Person or Subsidiary (other than extensions of
trade credit arising from the sale of good or services in the ordinary course of
business and loans, capital contributions or the acquisition of stock of
Subsidiaries not to exceed $50,000 in the aggregate).
(l) Affiliate Transactions. The Company shall not, and will not
permit its Subsidiaries to, enter into any transaction, including the purchase,
sale, exchange of property or the rendering of any services, with any Affiliate
or enter into, assume or suffer to exist any employment or consulting contract
with any Affiliate, except (i) the Common Stock Purchase Agreement and the
transactions contemplated thereby, (ii) the Transaction Documents and the
transactions contemplated thereby, (iii) any employment or consulting contract
existing on the date hereof or (iv) a transaction or contract in the ordinary
course of the Company's or its Subsidiary's business and which is upon fair and
reasonable terms not less favorable to the Company or such Subsidiary than it
would obtain in a comparable arm's length transaction with a person not an
Affiliate.
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6. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "EVENT OF DEFAULT" under this Note:
(a) Failure to Pay. The Company shall fail to pay (i) when due any
principal or interest payment on the due date hereunder or (ii) any other
payment required under the terms of this Note or any other Transaction Document
on the date due and such other payment shall not have been made within five (5)
days of the Company's receipt of Holder's written demand to the Company for such
other payment; or
(b) Breaches of Certain Covenants. The Company shall fail to observe
or perform (i) any covenant, obligation, condition or agreement contained in
Section 5(c), (d), (e), (f), (g), (j), (k) or (l) of this Note or (ii) any
covenant, obligation, condition or agreement contained in Section 5(b) or 5(h)
and such failure in the case of Sections 5(b) or 5(h) shall continue for five
Business Days or (iii) any covenant, obligation, condition or agreement
contained in Section 6(p) of the Note Purchase Agreement; or
(c) Breaches of Other Covenants. The Company shall fail to observe or
perform any covenant, obligation, condition or agreement contained in this Note
or the other Transaction Documents (other than those specified in Sections 6(a)
and 6(b)) and such failure shall continue for thirty (30) days after the earlier
of (i) the date upon which the Company knows or reasonably should have know of
such failure or (ii) the date upon which written notice thereof is given to the
Company by the Holder or any holder of any other Note; or
(d) Representations and Warranties. Any representation, warranty,
certificate, or other statement (financial or otherwise) made or furnished by or
on behalf of the Company to Holder in writing in connection with this Note or
any of the other Transaction Documents, or as an inducement to Holder to enter
into this Note and the other Transaction Documents, shall be false, incorrect,
incomplete or misleading in any material respect when made or furnished; or
(e) Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
(i) apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of its or any of its creditors, (iii)
be dissolved or liquidated or suspend its operations or fail to pay its payroll
when due, (iv) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of
its property by any official in an involuntary case or other proceeding
commenced against it, or (v) take any action for the purpose of effecting any of
the foregoing; or
(f) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for
the appointment of a receiver, trustee, liquidator or custodian of Company or of
all or a substantial part of the property thereof, or an involuntary case or
other proceedings seeking liquidation, reorganization or other relief with
respect to Company or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced and an order for
relief
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entered or such proceeding shall not be dismissed or discharged within
forty-five (45) days of commencement; or
(g) Judgments. A final judgment or order for the payment of money in
excess of $250,000 (exclusive of amounts covered by insurance issued by an
insurer not an Affiliate of Company; provided that no credit for such insurance
shall be given to the extent that coverage or any claim in respect thereof has
been denied or disputed) shall be rendered against the Company and the same
shall remain undischarged for a period of forty-five (45) days during which
execution shall not be effectively stayed, or any judgment, writ, assessment,
warrant of attachment, or execution or similar process shall be issued or levied
against a substantial part of the property of the Company and such judgment,
writ, or similar process shall not be released, stayed, vacated or otherwise
dismissed within forty-five (45) days after issue or levy; or
(h) Transaction Documents. Any Transaction Document or any material
term thereof shall cease to be, or be asserted by the Company not to be, a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms or if the Liens of Holder in any of the assets of Company shall
cease to be or shall not be valid, first priority perfected Liens or Company
shall assert that such Liens are not valid, first priority (other than to the
extent of Permitted Liens having priority by operation of law or agreement
entered into by Holder after the date hereof) and perfected Liens; or
(i) Common Stock Purchase Agreement. The Common Stock Purchase
Agreement shall cease to be, or be asserted by the Company not to be, a legal,
valid and binding obligation of the Company enforceable in accordance with its
terms.
(j) Other Indebtedness. The occurrence and continuation of an "event
of default" or other event or circumstance under any agreement evidencing any
Indebtedness or lease obligations in an aggregate principal amount of $250,000
or more, which results in the acceleration of, or entitles the holder of such
Indebtedness or lease obligations to accelerate, the maturity thereof.
(k) Material Adverse Effect. A Material Adverse Effect shall occur.
7. RIGHTS OF HOLDER UPON DEFAULT. Upon the occurrence or existence of
any Event of Default (other than an Event of Default, referred to in Sections
6(e) and 6(f)) and at any time thereafter during the continuance of such Event
of Default, Holder may, by written notice to the Company, declare all
outstanding Obligations to be immediately due and payable without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein or in the other Transaction
Documents to the contrary notwithstanding. Upon the occurrence or existence of
any Event of Default described in Sections 6(e) and 6(f), immediately and
without notice, all outstanding Obligations shall automatically become
immediately due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the other Transaction Documents to the contrary notwithstanding. In
addition to the foregoing remedies, upon the occurrence or existence of any
Event of Default, Holder may exercise any other right power or
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remedy granted to it by the Transaction Documents or otherwise permitted to it
by law, either by suit in equity or by action at law, or both.
8. CONVERSION.
(a) Stockholder Approval; Maximum Number of Shares.
(i) Prior to the earlier of November 18, 2002 and the date
Stockholder Approval is obtained, the principal amount of, and accrued interest
on, this Note shall be convertible into Holder's Pro Rata Portion of that number
of shares of Common Stock that when taken together with (A) the number of shares
of Common Stock theretofore acquired or then issuable upon conversion of the
Notes and (B) the number of shares of Common Stock theretofore acquired or then
issuable upon conversion of the Warrants, does not exceed 19.9% of the total
shares of Common Stock issued and outstanding on the date hereof.
(ii) If the Company does not obtain Stockholder Approval by
November 18, 2002, this Note shall be convertible, subject to obtaining any
necessary approval of the National Association of Securities Dealers, Inc., into
up to the Holder's Pro Rata Portion of the maximum number of shares of Common
Stock obtained or obtainable without violating the rules and regulations adopted
by the National Association of Securities Dealers, Inc. concerning Nasdaq listed
companies through any combination of: (i) the conversion of the Notes; (ii) the
exercise of the Warrants; (iii) the sale and purchase of Common Stock pursuant
to the Common Stock Purchase Agreement; and (iv) the issuance and exercise of
SPA Warrants.
(iii) Notwithstanding anything to the contrary herein, upon
obtaining Stockholder Approval, the entire principal amount of, and interest on,
this Note shall be convertible into shares of Common Stock without limitation on
the maximum number of shares into which this Note is convertible.
(iv) For purposes of this Section 8, "PRO RATA PORTION" means the
ratio of (A) the number of shares of Common Stock issued or issuable to Holder
pursuant to Section 2.1 of the Common Stock Purchase Agreement and pursuant to
full conversion of this Note and full exercise of Holder's Warrant and SPA
Warrants, to (B) the total number of shares of Common Stock issued or issuable
to all Investors (as defined in the Common Stock Purchase Agreement) pursuant to
Section 2.1 of the Common Stock Purchase Agreement and pursuant to full
conversion of all Notes and full exercise of all Warrants and SPA Warrants.
(b) Voluntary Conversion. Subject to the limitations upon the number
of shares into which this Note may from time to time be convertible set forth in
Section 8(a), Holder has the right, at its option, at any time and from time to
time, to convert, in whole or in part, the principal amount of, and the accrued
interest on, this Note into fully paid and nonassessable shares of common stock,
par value $0.001 per share, of the Company ("COMMON STOCK") at the Conversion
Price at the time in effect. The number of shares of Common Stock into which
this Note may be converted shall be determined by dividing (i) the principal
amount of and accrued interest on this Note to be
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converted by (ii) the Conversion Price. The "CONVERSION PRICE" shall initially
be $0.38, and is subject to adjustment as provided in this Section 8.
(c) Conversion Procedure. Before Holder shall be entitled to convert
this Note into shares of Common Stock, it shall surrender this Note, duly
endorsed, to the Company (subject to Section 6(e) of the Note Purchase Agreement
in the case of loss, theft, destruction or mutilation of the Note) along with a
written notice of the election to convert the same pursuant to this Section 8
and the name or names in which the certificate or certificates for the shares of
Common Stock are to be issued. The Company shall, as soon as practicable
thereafter, issue and deliver to such Holder at such principal office a
certificate or certificates for the number of shares to which Holder shall be
entitled upon such conversion (bearing such legends as are required by the Note
Purchase Agreement and applicable state and federal securities laws in the
opinion of counsel to the Company), together with any other securities and
property to which Holder is entitled upon such conversion under the terms of
this Note, including a check payable to Holder for any cash amounts payable as
described in Section 8(d), and if the Note is converted only in part, together
with a replacement Note in a principal amount equal to the unconverted portion
of the Note but otherwise in like tenor and dated the date of the original Note.
The Company shall keep in its register of Notes a record of the number of shares
into which any Note has been converted and the remaining principal balance (if
any) on the Note. Any conversion of this Note shall be deemed to have been made
simultaneously with the closing of the transactions contemplated by the Common
Stock Purchase Agreement if conversion is conditioned upon such closing or, if
otherwise converted, immediately prior to the close of business on the date of
the surrender of this Note, and on and after such date the Persons entitled to
receive the shares issuable upon such conversion shall be treated for all
purposes as the record Holder of such shares and a purchaser of such shares
under the Note Purchase Agreement and shall be bound by the terms of the Note
Purchase Agreement.
(d) Fractional Shares; Interest; Effect of Conversion. No fractional
shares shall be issued upon conversion of this Note. In lieu of the Company
issuing any fractional shares to Holder upon the conversion of this Note, the
Company shall pay to Holder an amount equal to the product obtained by
multiplying the Conversion Price by the fraction of a share not issued pursuant
to the previous sentence. Upon conversion of this Note in full and the payment
of the amounts specified in this Section 8(d), the Company shall be forever
released from all its obligations and liabilities under this Note.
(e) Adjustments for Stock Splits and Subdivisions. In the event the
Company should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock other securities or rights convertible into, or entitling
the holder thereof to receive directly or indirectly, additional shares of
Common Stock hereinafter referred to as "COMMON STOCK EQUIVALENTS") without
payment of any consideration by such holder for the additional shares of Common
Stock or the Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such dividend distribution, split or subdivision if no
record date is fixed), the Conversion Price of this Note shall be appropriately
decreased so that the number of shares of
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Common Stock issuable upon conversion of this Note shall be increased in
proportion to such increase of outstanding shares.
(f) Adjustments for Reverse Stock Splits. In the event the Company
should at any time or from time to time after the date of issuance hereof fix a
record date for the effectuation of a combination (whether by reverse stock
split or reverse subdivision or otherwise) of the outstanding shares of Common
Stock, then, following the record date of such combination, the Conversion Price
for this Note shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion hereof shall be decreased in proportion to
such decrease in outstanding shares.
(g) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of
this Note such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of the Note; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of the entire outstanding principal amount of this
Note, without limitation of such other remedies as shall be available to the
holder of this Note, the Company will use its best efforts to take such
corporate action as may, in the opinion of counsel, be necessary to increase its
authorized but unissued shares of its Common Stock to such number of shares as
shall be sufficient for such purposes.
9. SUCCESSORS AND ASSIGNS. The rights and obligations of the Company and
Holder of this Note shall be binding upon and benefit the successors, assigns,
heirs, administrators and transferees of the parties.
10. WAIVER AND AMENDMENT. Any provision of this Note and the other Notes
may be amended or modified, and the observance of any term of this Note and the
other Notes may be waived (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Company and the Majority Purchasers; provided that no amendment or waiver shall
be made or given in respect of the definition of Acquisition Transaction or
Section 4 without the prior written consent of Holder. Any amendment or waiver
effected by the Majority Purchasers in accordance with this Section 10 shall be
binding upon the Company, the Holder and the holders of all the other Notes. Any
such amendment or waiver shall be effective only for the particular instance and
for the specific purpose for which given.
11. TRANSFER OF THIS NOTE. Holder shall be entitled to transfer this
Note in any manner permitted by applicable law and to the registration of such
transfer by the Company in the name of such transferee or transferees specified
by Holder. With respect to any offer, sale or other disposition of this Note or
securities into which such Note may be converted, Holder will give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of Holder's counsel, to the effect that such
offer, sale or other distribution may be effected without registration or
qualification (under any federal or state law then in effect). Upon receiving
such written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify Holder that Holder may sell or
otherwise dispose of this Note or such securities, all in accordance with the
terms of the notice delivered to the Company. If a
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determination has been made pursuant to this Section 11 that the opinion of
counsel for Holder is not reasonably satisfactory to the Company, the Company
shall so notify Holder promptly after such determination has been made. Each
Note thus transferred and each certificate representing the securities thus
transferred shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act of 1933,
as amended (the "SECURITIES ACT"), unless in the opinion of counsel for Company
such legend is not required in order to ensure compliance with the Securities
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions. Subject to the foregoing, transfers of this
Note shall be registered upon registration books maintained for such purpose by
or on behalf of the Company as provided in the Note Purchase Agreement. Prior to
presentation of this Note for registration of transfer, the Company shall treat
the registered holder hereof as the owner and holder of this Note for the
purpose of receiving all payments of principal and interest hereon and for all
other purposes whatsoever, whether or not this Note shall be overdue and the
Company shall not be affected by notice to the contrary.
12. ASSIGNMENT BY COMPANY. Neither this Note nor any of the rights,
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by the Company without the prior written consent
of Holder.
13. NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery at the
respective addresses of the parties as set forth in the Note Purchase Agreement
or on the register maintained by the Company. Any party hereto may by notice so
given change its address for future notice hereunder. Notice shall conclusively
be deemed to have been given when received.
14. PAYMENT. All payments made hereunder shall be made in lawful tender
of the United States of America, to the Holder, at such place and to such
account as the Holder shall designate in a written notice to the Company. All
payments shall be made hereunder unconditionally and without deduction, setoff,
counterclaim or defense. Payments on this Note shall be applied first to
reasonable fees, costs and expenses payable in respect hereof, second to accrued
interest and thereafter to the outstanding principal balance hereof.
15. PRESENTMENT; DEMAND. The Company hereby waives any right to
presentment, demand or protest or notice of dishonor and protest of this Note
and any other notice, and any set-off against sums due and payable under this
Note that the Company may have or claim to have against the Holder.
16. DEFAULT RATE. During any period in which an Event of Default has
occurred and is continuing, the Company shall pay interest on the unpaid
principal balance hereof at a rate per annum equal to the rate otherwise
applicable hereunder plus two percent (2.0%).
17. USURY. It is the express intent of the Company and the Holder that
the payment of all or any portion of the Obligations be exempt from the
application of any applicable usury or similar laws under any state or federal
jurisdiction. The Company hereby irrevocably waives, to the fullest
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extent permitted by law, any objection or defense which the Company may now or
hereafter have to the payment when due of the Obligations arising out of or
relating to a claim of usury or similar laws and the Company agrees that it will
not bring, commence, maintain, prosecute or voluntarily aid in any action at
law, proceeding in equity or other legal proceeding against the Holder based on
a claim that the Company's payment obligations under this Note violate the usury
or similar laws of any state or federal jurisdiction. Without prejudice to the
foregoing, in the event any interest is paid on this Note which is deemed to be
in excess of the then legal maximum rate, then that portion of the interest
payment shall be deemed a payment of principal and applied against the principal
of this Note.
18. EXPENSES; WAIVERS. The Company shall pay on demand all fees and
expenses, including reasonable attorneys' fees and expenses, incurred by the
Holder in the enforcement or attempted enforcement of any of the obligations of
the Company under this Note or in preserving any of the Holder's rights and
remedies (including, without limitation, all such fees and expenses incurred in
connection with any "workout" or restructuring affecting this Note or the
obligations hereunder or any bankruptcy or similar proceeding involving the
Company).
19. NO WAIVER. No failure on the part of the Holder to exercise, and no
delay in exercising, any right, remedy, power or privilege hereunder or under
any other Transaction Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, remedy, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights and remedies under this Note and
the other Transaction Documents are cumulative and not exclusive of any rights,
remedies, powers and privileges that may otherwise be available to the Holder.
20. SEVERABILITY. Whenever possible, each provision of this Note shall
be interpreted in such manner as to be valid, legal, and enforceable under all
applicable laws and regulations. If, however, any provision of this Note shall
be invalid, illegal, or unenforceable under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason it
is not deemed so modified, it shall be invalid, illegal, or unenforceable only
to the extent of such invalidity, illegality, or limitation on enforceability
without affecting the remaining provisions of this Note, or the validity,
legality, or enforceability of such provision in any other jurisdiction.
21. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflicts of law provisions of the State of California, or of any other state.
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IN WITNESS WHEREOF, the Company has caused this Note to be issued as of
the date first written above.
ISTA PHARMACEUTICALS, INC.
By:
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Name:
Title:
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EXHIBIT A
NOTICE OF ACQUISITION TRANSACTION
[Holder] [Date]
[Address]
Re: Senior Secured Convertible Promissory Note dated September __, 2002
Ladies and Gentleman
We refer to that certain Senior Secured Convertible Promissory Note
dated September __, 2002 issued by ISTA Pharmaceuticals, Inc. (the "COMPANY")
and currently registered in your name (as amended, the "NOTE"). This letter is a
Notice of Election as describe in the Note and, in accordance with the terms of
Section 4 of the Note, we hereby give you notice of the election by the Company
to enter into a definitive agreement with respect to, or recommend to the
Company's stockholders, or consummate an Acquisition Transaction (as defined in
the Note) without the requirement for your prior written consent.
The Company hereby acknowledges its obligation, and agrees, to pay to
you the Transaction Fee (as defined in the Note). The Transaction Fee is an
amount equal to $____________ and shall be paid on the earlier to occur of: (A)
the date of any prepayment of the Note; (B) the date of the consummation of the
Acquisition Transaction; and (C) the Maturity Date.
This Notice evidences the obligation of the Company to pay the
Transaction Fee upon the terms of the Note and the right of the Company to enter
into a definitive agreement with respect to, or recommend to the Company's
stockholders, or consummate an Acquisition Transaction without your prior
written consent.
Very truly yours,
ISTA PHARMACEUTICALS, INC.
-------------------------------
Name:
Title:
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EXHIBIT B
FORECAST
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