Exhibit 10.4
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED
BY THE SECURITIES.
No. $
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HEMISPHERX BIOPHARMA, INC.
SERIES C 7% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JUNE 30, 2007
THIS DEBENTURE (this "Debenture") is one of a duly authorized
issue of replacement Debentures of HEMISPHERX BIOPHARMA, INC., a corporation
duly organized and existing under the laws of the State of Delaware (the
"Company"), now designated as its 7% Senior Secured Convertible Debentures Due
June 30, 2007. The Debenture is one of a series of debentures that amend and
replace a series of 6% Senior Convertible Debentures due January 31, 2006,
originally in an aggregate principal amount of up to Two Million U.S. Dollars
(U.S. $2,000,000) (the "Debentures"). The Debenture and the Series A and Series
B 7% Senior Secured Convertible Debentures Due June 30, 2007 are pari passu and
the designation of series is for identification purposes only.
FOR VALUE RECEIVED, the Company promises to pay to , the holder hereof, or its
registered assigns (the "Holder"),the principal sum of Dollars($____) when due,
whether on June 30, 2007 (subject to extension as provided herein, the "Maturity
Date") or on any Installment Date with respect to the Installment Amount due on
such Installment Date (each, as defined herein), and to pay interest ("Interest
Payments") on the Outstanding Principal Amount at the rate of 7% per annum which
shall be cumulative, accrue, but not compound, daily from the date of issuance
of this Debenture and be due and payable in arrears on the first day of each
Quarterly Period commencing with the Quarterly Period immediately following the
date of issuance of this Debenture (each, an "Interest Payment Date"). If the
Maturity Date is not a Business Day, then the Maturity Date shall be deemed to
be the Business Day immediately following such date. If an Interest Payment Date
is not a Business Day, then the Interest Payment shall be due and payable on the
Business Day immediately following such Interest Payment Date. Subject to the
limitations in Sections 11 and 26, interest shall be payable by the issuance of
shares of Common Stock ("Interest Shares") to the Holder or, at the option of
the Company, in cash (the "Cash Interest Payment"); provided, however, that the
Company may not make Cash Interest Payments and interest payments shall be
payable in Interest Shares unless the Company provides written notice to each
holder of Debentures at least five Business Days prior to the applicable
Interest Payment Date that such Interest Payments shall be made in cash.
Interest Shares shall be paid in a number of fully paid and nonassessable shares
(rounded up or down to the nearest whole share) of Common Stock equal to the
quotient of (1) the amount of the Interest Payment due on the applicable
Interest Payment Date divided by (2) ninety-five percent (95%) of the arithmetic
average of the Closing Sale Price of the Common Stock on the five consecutive
Business Days ending on and including the third Business Day immediately
preceding the applicable Interest Payment Date (the "Interest Share Conversion
Rate"); provided, further; that in no event may the Company issue more than an
aggregate of 40,000 shares of Common Stock (as equitably adjusted for any stock
dividend, stock split or other similar transaction), pro rata among all holders
of Debentures, in respect of any single Interest Payment (it being understood
that the balance of each such Interest Payment shall be paid in the form of a
Cash Interest Payment). Notwithstanding the foregoing, the Company shall be
required to make a Cash Interest Payment on any Interest Payment Date if (a) any
event constituting an Event of Default or an event that with the passage of time
and without being cured would constitute an Event of Default, has occurred and
is continuing on the Interest Payment Date or any date which is within 10
Business Days prior to the Interest Payment Date, unless otherwise consented to
in writing by the holder of the Debenture entitled to receive such Interest
Payment or (b) from and after the time that any Registration Statement (as
defined in the Registration Rights Agreement, the "Registration Statement") is
required to be effective, such Registration Statement is not then effective and
available for the resale of all of the Registrable Securities (as defined in the
Registration Rights Agreement) on the Interest Payment Date or each date which
is within 10 Business Days prior to the Interest Payment Date. Any accrued and
unpaid interest which is not paid within five (5) Business Days of the Interest
Payment Date on which such payment of interest was due shall bear interest at
the rate of 14.0% per annum from such Interest Payment Date until the same is
paid in full (or, if less, the maximum interest rate then permitted by
applicable law) (the "Default Interest").
Interest Payments and payments of principal will be paid only to the person in
whose name this Debenture (or one or more predecessor Debentures) is registered
on the records of the Company regarding registration and transfers of the
Debentures (the "Debenture Register").
This Debenture is subject to the following additional provisions:
1. Exchange. The Debentures are exchangeable for an equal aggregate principal
amount of Debentures of different denominations, as requested by the Holder
surrendering the same. No service charge will be charged to the Holder for such
registration transfer or exchange.
2. Transfers. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act of
1933, as amended (the "Act"), and applicable state securities laws. Prior to due
presentment for transfer of this Debenture, the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
all other purposes, whether or not this Debenture is overdue, and the Company
shall not be affected by notice to the contrary.
3. Definitions. For purposes of this Debenture, the location of defined terms in
this Debenture is set forth on the Index of Terms attached hereto and the
following terms shall have the following meanings:
"Account Control Agreement" shall have the meaning ascribed thereto in the
Securities Purchase Agreement.
"Agent" shall mean Portside Growth & Opportunity Fund, in its capacity as
collateral agent for the holders of Debentures, and any successor in such
capacity.
"Approved Stock Plan shall mean any employee benefit plan, stock incentive plan
or other similar plan or arrangement which has been approved by the Board of
Directors of the Company or any authorized committee thereof, pursuant to which
the Company's securities may be issued to any employee, officer, consultant or
director for services provided to the Company.
"ASE" shall mean The American Stock Exchange.
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"Bloomberg" shall mean Bloomberg Financial Markets or any other similar
financial reporting service as may be selected from time to time by the Company
and the holders of not less than 60% of the then Outstanding Principal Amount of
Debentures issued on the Original Issuance Date.
"Business Day" shall mean any day other than Saturday, Sunday or any other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
"Cash Collateral Account" shall mean the account maintained by the Company at
the Cash Collateral Account Bank, in the name of Portside Growth & Opportunity
Fund ("Portside") and subject to the control of Portside pursuant to the Account
Control Agreement, together with any successor account designated by Portside.
The Cash Collateral Account referred to herein is the same account being used
for all debentures of the Company, including replacement debentures, originally
issued to Portside and Leonardo L.P. (collectively "PL Debentures").
"Cash Collateral Account Bank" shall mean the financial institution designated
as the Cash Collateral Account Bank under the Account Control Agreement.
"Cash Transaction" shall mean any Organic Change with a third party on an arm's
length basis pursuant to which the holders of the Common Stock are to receive
consideration consisting solely of cash.
"Closing Sale Price" shall mean, for any security as of any date, the last
closing trade price for such security on the Principal Market as reported by
Bloomberg, or if the Principal Market begins to operate on an extended hours
basis, and does not designate the closing trade price, then the last trade price
at 4:00 p.m., New York City Time, as reported by Bloomberg, or if the foregoing
do not apply, the last closing trade price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the last closing ask price of such security as reported
by Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the highest bid price and the lowest ask price of any
market makers for such security as reported in the "pink sheets" by the Pink
Sheets LLC. If the Closing Sale Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Sale Price of such security
on such date shall be the fair market value as mutually determined by the
Company and the holders of no less than 60% of the Outstanding Principal Amount
of the Debentures issued on the Original Issuance Date then outstanding. If the
Company and the holders of the Debentures are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved pursuant
to Section 4(e)(iii) below. All such determinations shall be appropriately
adjusted for any stock dividend, stock split or other similar transaction during
such period.
"Collateral" shall mean all of the property and assets, other than Intellectual
Property, and all interests therein and proceeds thereof now owned or hereafter
acquired by the Company, any of its Subsidiaries and any other Person upon which
a Lien is granted or purported to be granted by such Person as security for all
or any part of the obligations of the Company under the Debentures.
"Common Stock" shall mean the Common Stock, par value $0.001 per share, of the
Company.
"Common Stock Deemed Outstanding" shall mean, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 6(a)(i) and
6(a)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any shares of Common Stock
owned or held by or for the account of the Company or issuable upon conversion
of the Debentures or exercise of the Warrants.
"Conversion Failure" shall mean that for any reason the Holder has not received
all of the shares of Common Stock to which the Holder is entitled prior to the
tenth (10th) Business Day after the Share Delivery Date with respect to a
conversion of this Debenture.
"Conversion Price" shall mean (A) as of any Conversion Date or other date of
determination (other than with respect to an Installment Amount on an
Installment Date pursuant to a Company Conversion (as defined in Section 24
(a)), the Fixed Conversion Price, and (B) with respect to any Installment Amount
on an Installment Date pursuant to a Company Conversion, at the option of the
Holder, either the Fixed Conversion Price or the Company Conversion Price (as
defined in Section 24(d)), each in effect as of such date and subject to
adjustment as provided herein.
"Convertible Securities" shall mean any stock or securities (other than Options)
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock.
"Default Conversion Price" shall mean the lower of (a) the Conversion Price then
in effect and (b) 95% of the lowest Closing Sale Price during the three (3)
trading days ending on and including the Conversion Date or other date of
determination.
"Fixed Conversion Price" shall mean as of any Conversion Date or other date of
determination $2.08, subject to adjustment as provided in Section 6,
Anti-dilution Adjustments to Conversion Price.
"Intellectual Property" means all trademarks, trade names, trade dress, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, technology licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights.
"Interferon Acquisition" shall mean the acquisition of certain assets and
technology of Interferon Sciences, Inc. ("Interferon") pursuant to asset
purchase agreements, dated as of March 11, 2003, between the Company and
Interferon, a true and complete copy of which has been delivered by the Company
to each initial holder of Debentures in accordance with the Securities Purchase
Agreement.
"Letters of Credit" shall mean the irrevocable standby letters of credit in the
aggregate stated amount of $1,000,000 issued by banks acceptable to the Agent
and naming the Agent as beneficiary, and any letters of credit issued in
substitution or replacement thereof, in accordance with the Securities Purchase
Agreement.
"Mortgage" shall mean each mortgage, deed of trust or deed to secure debt, made
by the Company in favor of the Agent and recorded against each real property
location acquired by the Company from Interferon pursuant to the Interferon
Acquisition.
"NASDAQ" shall mean The Nasdaq National Market, The Nasdaq Small Cap Market or
the ASE.
"NYSE" shall mean The New York Stock Exchange, Inc.
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"Options" shall mean any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Original Issuance Date" shall mean July 13, 2004, the first date on which any
Debentures have been issued pursuant to the Securities Purchase Agreement.
"Outstanding Principal Amount" shall mean the principal sum outstanding from
time to time under this Debenture.
"Person" shall mean an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"Principal Market" shall mean the ASE, or if the Common Stock is not traded on
the ASE, then the principal securities exchange or trading market for the Common
Stock.
"Quarterly Period" shall mean each of the following periods: the period
beginning on and including January 1 and ending on and including March 31; the
period beginning on and including April 1 and ending on and including June 30,
the period beginning on and including July 1 and ending on and including
September 30; and the period beginning on and including October 1 and ending on
and including December 31.
"Registration Rights Agreement" shall mean that certain registration rights
agreement between the Company and the initial holders of the Debentures relating
to the filing of a registration statement covering the resale of the shares of
Common Stock issuable upon conversion of the Debentures and exercise of the
Warrants, as such agreement may be amended from time to time as provided in such
agreement.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Purchase Agreement" shall mean that certain securities purchase
agreement between the Company and the initial holders of the Debentures, as such
agreement may be amended from time to time as provided in such agreement.
"Security Agreement" shall mean that certain third amended and restated security
agreement made by the Company in favor of the Agent for the benefit of all
holders of the Debentures, as such agreement may be amended from time to time as
provided in such agreement.
"Strategic Financing" shall mean the issuance of Common Stock or Options in
connection with any acquisition by the Company, by whatever means, of any
business, assets or technologies, or to any strategic investor, vendor,
customer, lease or similar arrangement, the primary purpose of which is not to
raise equity capital; provided that the aggregate number of shares of Common
Stock which the Company may issue pursuant to this definition shall not exceed
(i) 25% of the total outstanding equity on the Original Issuance Date in
connection with any one or more related issuances to strategic investors,
vendors, customers, lessors or similar parties or (ii) 40% of the total
outstanding equity on the Original Issuance Date in connection with all
issuances to strategic investors, vendors, customers, lessors or similar parties
(in each case, subject to adjustment for stock splits, stock dividends, stock
combinations and similar transactions).
"Subsidiary" shall mean, as to any Person, any entity in which such Person,
directly or indirectly, owns 30% or more of the capital stock or other equity or
similar interests or owns capital stock or holds an equity or similar interest
which ownership entitles such Person to elect 30% or more of the board of
directors or similar governing body of such entity.
"Transaction Documents" shall have the meaning ascribed thereto in the
Securities Purchase Agreement.
"Warrants" shall mean the warrants to purchase shares of Common Stock issued by
the Company pursuant to the Securities Purchase Agreement.
"Weighted Average Price" shall mean, for any security as of any date, the dollar
volume-weighted average price per share for such security on the Principal
Market during the period beginning at 9:30 a.m., New York City Time, and ending
at 4:00 p.m., New York City Time, as reported by Bloomberg through its "Volume
at Price" function or, if the foregoing does not apply, the dollar
volume-weighted average price per share of such security in the over-the-counter
market on the electronic bulletin board for such security during the period
beginning at 9:30 a.m., New York City Time, and ending at 4:00 p.m., New York
City Time, as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by the Pink
Sheets LLC. If the Weighted Average Price cannot be calculated for such security
on such date on any of the foregoing bases, the Weighted Average Price of such
security on such date shall be the fair market value as mutually determined by
the Company and the holders of no less than 60% of the Outstanding Principal
Amount of the Debentures issued on the Original Issuance Date then outstanding.
If the Company and the holders of the Debentures are unable to agree upon the
fair market value of the Common Stock, then such dispute shall be resolved
pursuant to Section 4(e)(iii) with the term "Weighted Average Price" being
substituted for the term "Closing Sale Price." All such determinations shall be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
4.Conversion. The Holder of this Debenture shall have the following
conversion rights:
a) Holder's Right to Convert. Subject to Sections 11 and 26, at any time or
times until 5:00 p.m., New York City Time, on the Business Day prior to the
Maturity Date this Debenture is convertible, at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common
Stock in accordance with Section 4(d) at the Conversion Rate (as defined
below). The Holder hereof may convert a portion of the Outstanding Principal
Amount of this Debenture if such portion is an integral multiple of $1,000.
If this Debenture remains outstanding on the Maturity Date, then this
Debenture shall be redeemed by the Company in accordance with Section 5(a).
Notwithstanding anything herein to the contrary, concurrent with each
delivery of Conversion Shares to a holder pursuant to this Debenture, the
Company shall pay (in Interest Shares, only if all terms, conditions and
requirements set forth in this Debenture concerning payment of interest in
the form of Interest Shares are satisfied, or cash as determined by the
Company) to such holder all accrued and unpaid interest on the Outstanding
Principal Amount then being converted from the last date on which interest
had been paid on such Outstanding Principal Amount through the Conversion
Date.
b) Company's Right to Mandatory Conversion. Subject to Sections 11 and 26
hereof, if at any time from and after the Original Issuance Date the Weighted
Average Price of the Common Stock shall exceed 175% of the Conversion Price
for any 25 consecutive trading days (the "Mandatory Conversion Measuring
Period"), the Company may deliver on or before the second (2nd) Business Day
following the end of the Mandatory Conversion Measuring Period a written
notice to all, but not less than all, of the Holders and the Transfer Agent
(as defined in Section 4(e)(i)) (the "Mandatory Conversion Notice"),
indicating that the Company is requiring each Holder to convert the then
Outstanding Principal Amount of such Holder's Debenture plus accrued and
unpaid interest thereon to the date fixed for conversion into fully paid,
validly issued and nonassessable shares of Common Stock in accordance with
Section 4(d) hereof at the Conversion Rate as of the Mandatory Conversion
Date (as defined below); provided, however, that the Company may not require
such conversion if (i) an Event of Default shall have occurred at any time on
or prior to the Mandatory Conversion Date and shall have not been cured to
the reasonable satisfaction of the holder of this Debenture, (ii) an event
shall have occurred and be continuing at any time on or prior to the
Mandatory Conversion Date which with the passage of time and the failure to
cure would result in an Event of Default, (iii) either (A) any Registration
Statement is not effective and available for the sale of at least all of the
Registrable Securities (as defined in the Registration Rights Agreement)
required to be included in such Registration Statement or (B) there has been
any Grace Period, in either case on any trading day during the period
beginning on the first day of the Mandatory Conversion Measuring Period and
ending on the Mandatory Conversion Date or (iv) there has been a public
announcement of a pending, proposed or intended Change of Control, unless
such pending, proposed or intended Change of Control has been terminated,
abandoned or consummated and the Company has publicly announced such
termination, abandonment or consummation of such Change of Control (a
"Mandatory Conversion"). The Company shall send the Mandatory Conversion
Notice by facsimile and overnight courier to each Holder and shall indicate
(X) the date fixed for conversion, which shall be not less than fifteen (15)
days nor more than thirty (30) days after each Holder's receipt of the
Mandatory Conversion Notice (the "Mandatory Conversion Date"), (Y) the
Conversion Price and (Z) the number of shares of Common Stock to be issued to
such Holder as of the Mandatory Conversion Date. If the Company has elected a
Mandatory Conversion, the mechanics of conversion set forth in Section 4(e)
shall apply, to the extent applicable, as if the Company and the Transfer
Agent had received from each Holder on the Mandatory Conversion Date a
Conversion Notice (as defined below) with respect to the entire Outstanding
Principal Amount of the Debenture and the interest accrued and unpaid thereon
as of the Mandatory Conversion Date. Promptly following the Mandatory
Conversion Date, the Holder shall surrender its Debenture to the Company or
the Transfer Agent.
c) Partial Conversion of Debenture. If this Debenture is converted in part,
the remaining portion of this Debenture not so converted shall remain
entitled to the conversion rights provided herein.
d) Conversion Price for Holder Converted Shares. The Outstanding Principal
Amount of this Debenture that is converted into shares of Common Stock shall
be convertible into the number of shares of Common Stock which results from
application of the following formula:
P
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Conversion Price
P = Outstanding Principal Amount of this Debenture submitted for conversion
The number of shares of Common Stock into which this Debenture hereto may be
converted pursuant to the foregoing formula is hereafter referred to as the
"Conversion Rate."
e) Mechanics of Conversion. The conversion of this Debenture shall be
conducted in the following manner:
i. Holder's Delivery Requirements. To convert this Debenture (in whole or
in part) into full shares of Common Stock on any date, the Holder
shall (A) transmit by facsimile (or otherwise physically deliver), for
receipt on or prior to 5:00 p.m., New York City Time, on such date, a
copy of a properly completed notice of conversion executed by the
Holder in the form attached hereto as Exhibit I (the "Conversion
Notice") to the Company and the Company's designated transfer agent
(the "Transfer Agent") and (B) surrender this Debenture to a common
carrier for delivery to the Company as soon as practicable following
such date.
ii. Company's Response. Upon receipt by the Company of a copy of a
Conversion Notice, the Company shall (A) as soon as practicable, but
in any event within two (2) Business Days, send, via facsimile, a
confirmation of receipt of such Conversion Notice to such holder and
the Transfer Agent, which confirmation shall constitute an instruction
to the Transfer Agent to process such Conversion Notice in accordance
with the terms herein and (B) then, on or before the second (2nd)
Business Day following the date of receipt by the Company of such
Conversion Notice (the "Share Delivery Date"), (x) issue and deliver
to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number
of shares of Common Stock to which the Holder shall be entitled, or
(y) in the case of a public resale of such Conversion Shares in
accordance with the provisions of the Irrevocable Transfer Agent
Instructions, provided the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer
Program and, if required by DTC, the holder provides a customary
representation letter to DTC, upon the request of the holder, credit
such aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's designee's balance account with DTC
through its Deposit Withdrawal Agent Commission system. If the
specified principal amount submitted for conversion is less than the
then Outstanding Principal Amount of this Debenture, then the Company
shall, as soon as practicable using reasonable best efforts, and in no
event later than five Business Days after receipt of the Debenture
(the "Debenture Delivery Date") and at its own expense, issue and
deliver to the holder a new Debenture representing the Outstanding
Principal Amount not converted. The effective date of conversion (the
"Conversion Date") shall be deemed to be the date on which the Company
receives by facsimile the Conversion Notice, and the Person or Persons
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
iii. Dispute Resolution. In the case of a dispute as to the determination
of the Closing Sale Price, the Weighted Average Price, the Conversion
Price or the arithmetic calculation of the Conversion Rate, the
Company shall instruct the Transfer Agent to issue to the Holder the
number of shares of Common Stock that is not disputed and shall
transmit an explanation of the disputed determinations or arithmetic
calculations to the Holder via facsimile within two (2) Business Days
of receipt of the Holder's Conversion Notice or other date of
determination. If the Holder and the Company are unable to agree upon
the determination of the Closing Sale Price, the Weighted Average
Price, the Conversion Price or arithmetic calculation of the
Conversion Rate within two (2) Business Days of such disputed
determination or arithmetic calculation being transmitted to the
Holder, then the Company shall within two (2) Business Days submit via
facsimile (A) the disputed determination of the Closing Sale Price,
the Weighted Average Price or the Conversion Price, as applicable, to
an independent, reputable investment bank selected by the Company and
approved by the holders of at least 60% of the Outstanding Principal
Amount of the Debentures issued on the Original Issuance Date then
outstanding or (B) the disputed determination of the Conversion Price,
the Weighted Average Price or the Conversion Price, as applicable, or
the disputed arithmetic calculation of the Conversion Rate to the
Company's independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holders
of the results no later than ten (10) Business Days from the time it
receives the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent manifest error.
iv. Company's Failure to Timely Convert.
A) If (x) within five (5) Business Days after the Company's receipt of the
facsimile copy of a Conversion Notice the Company has failed to issue and
deliver a certificate to a Holder or credit the Holder's designee's balance
account with DTC, in accordance with Section 4(e) hereof for the number of
shares of Common Stock to which the Holder is entitled upon the Holder's
conversion of this Debenture or (y) within five (5) Business Days of the
Company's receipt of this Debenture the Company has failed to issue and deliver
a Debenture representing the principal amount of this Debenture not so
converted, then in addition to all other available remedies which such holder
may pursue hereunder and under the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof), the Company shall pay additional
damages to such holder for each day after the Share Delivery Date that such
conversion is not timely effected and/or each day after the Debenture Delivery
Date that this Debenture is not delivered in an amount equal to 0.05% of the
product of (I) the sum of the number of shares of Common Stock not issued to the
holder on or prior to the Share Delivery Date and to which such holder is
entitled as set forth in the applicable Conversion Notice and, in the event the
Company has failed to deliver a Debenture to the holder on or prior to the
Debenture Delivery Date, the number of shares of Common Stock issuable upon
conversion of this Debenture as of the Debenture Delivery Date and (II) the
Closing Sale Price of the Common Stock on the Share Delivery Date, in the case
of the failure to deliver Common Stock, or the Debenture Delivery Date, in the
case of failure to deliver a Debenture. The foregoing notwithstanding, the
damages set forth in this Section 4(e)(iv) shall be stayed with respect to the
number of shares of Common Stock for which there is a good faith dispute being
resolved pursuant to Section 4(e)(iii), pending the resolution of such dispute.
(B) If for any reason a holder has not received all of the shares of Common
Stock to which such holder is entitled prior to the tenth (10th) Business Day
after the Share Delivery Date with respect to a conversion of this Debenture,
then the Holder, upon written notice to the Company, with a copy to the Transfer
Agent, may void its Conversion Notice; provided that the voiding of the Holder's
Conversion Notice shall not affect the Company's obligations to make any
payments which have accrued prior to the date of such notice pursuant to Section
4(e)(iv)(A) or otherwise.
f) No Fractional Shares. The Company shall not issue any fraction of a share of
Common Stock upon any conversion. If the issuance would result in the issuance
of a fraction of a share of Common Stock, the Company shall round such fraction
of a share of Common Stock up or down to the nearest whole share.
g) Release of Funds from Segregated Account. Notwithstanding anything herein to
the contrary, if at any time and from time to time, the balance of the funds
remaining in the Segregated Account (as defined in the Securities Purchase
Agreement), if any, that were paid into the Segregated Account by the initial
holder of this Debenture, as set forth on the Schedule of Buyers attached to the
Securities Purchase Agreement, exceeds the then Outstanding Principal Amount of
this Debenture, together with accrued interest thereon and so long as no Event
of Default, or event that with notice or lapse of time would constitute an Event
of Default, has occurred and is continuing, the holder agrees, by its acceptance
of this Debenture, to distribute promptly to the Company an amount in cash equal
to such excess from the Segregated Account established by the initial holder of
this Debenture, or, if advised in writing by the Company, to use such excess to
remit payment for any obligation under this Debenture to the holder of this
Debenture. If for any reason any portion of the funds held in the Segregated
Account established by the initial holder of this Debenture are not paid to the
Company in accordance with the terms of the Securities Purchase Agreement and
the Outstanding Principal Amount on this Debenture, together with accrued and
unpaid interest thereon, becomes due and payable either at maturity or upon
acceleration or demand upon an Event of Default, the Company and the holder, by
its acceptance of this Debenture, agree that the funds held in the Segregated
Account shall be released to the holder of this Debenture and shall be deemed to
constitute a partial payment of the Outstanding Principal Amount of this
Debenture together with accrued interest thereon then due in an amount equal to
the funds in the Segregated Account. All such payments from the Segregated
Account shall be deemed to be payments of (i) first, accrued and unpaid interest
on the Outstanding Principal Amount of this Debenture and (ii) second,
Outstanding Principal Amount of this Debenture.
h) Application of Conversion Amounts. Subject to the final sentence of Section
24(b), any portion of this Debenture that the Holder elects to convert in
accordance with this Section 4 shall be deducted, at the option of the Holder
(as set forth in the applicable Conversion Notice), either (x) from the
Installment Amount relating to the latest Installment Date (i.e., the
Installment Date nearest to the Maturity Date) with respect to which Installment
Amounts remain outstanding or (y) from the Installment Amount relating to the
nearest Installment Date (i.e., nearest to the Installment Date that has not yet
occurred).
5. Redemption.
a) Mandatory Redemption at Maturity. If this Debenture remains outstanding on
the Maturity Date, the Company shall redeem (a "Maturity Date Mandatory
Redemption") the Outstanding Principal Amount of this Debenture that is not
subject to a Conversion Notice for an amount in cash (the "Maturity Date
Redemption Price") equal to the Outstanding Principal Amount of the Debenture
not converted into shares of Common Stock pursuant to a Conversion Notice,
plus accrued and unpaid interest thereon. The Maturity Date Redemption Price
shall be paid on the Maturity Date to the Holder by wire transfer of
immediately available funds to an account designated in writing by such
Holder. Promptly following payment of the Maturity Date Redemption Price, the
Holder shall surrender this Debenture to the Company.
b) Payment Failures If the Company fails to make any payment of a Maturity Date
Redemption Price, then in addition to any remedy the Holder may have under
this Debenture, the Securities Purchase Agreement and the Registration Rights
Agreement, until the Maturity Date Redemption Price is paid in full, (x) the
Maturity Date Redemption Price payable in respect of such unpaid Maturity
Date Redemption Price shall bear interest at the rate of 1.5% per month,
prorated for partial months, and (y) the Holder shall have the option to
require the Company to convert any or all of the Outstanding Principal Amount
of this Debenture subject to redemption and for which the Maturity Date
Redemption Price (together with any interest thereon) has not been paid into
a number of shares of Common Stock equal to the quotient of the Maturity Date
Redemption Price (together with any interest thereon) divided by the Default
Conversion Price.
6. Anti-dilution Adjustments to Conversion Price. The Conversion Price will be
subject to adjustment from time to time as provided in this Section 6 at all
times prior to, but not after, the date on which cash collateral payments have
been made pursuant to Section 25 in an amount equal to the entire Outstanding
Principal Amount, together with accrued and unpaid interest on all Debentures
outstanding:
a) Anti-dilution Adjustment of Conversion Price upon Issuance of Common Stock.
If and whenever on or after January 26, 2004 and prior to the twelve (12) month
anniversary of Original Issuance Date, the Company issues or sells, or in
accordance with this Section 6(a) is deemed to have issued or sold, any shares
of Common Stock (but excluding shares of Common Stock: (v) deemed to have been
issued by the Company in connection with an Approved Stock Plan; (w) deemed to
have been issued upon issuance of the Debentures and the debentures issued on
January 26, 2004, pursuant to the Securities Purchase Agreement or the Warrants,
or issued upon conversion of the Debentures and the debentures issued on January
26, 2004, pursuant to the Securities Purchase Agreement or exercise of the
Warrants; (x) issued upon exercise of Options or Convertible Securities which
are outstanding on the date immediately preceding January 26, 2004, provided
that (except with regard to the Previously-Issued Securities (as defined in the
Securities Purchase Agreement)) such issuance of shares of Common Stock upon
exercise of such Options or Convertible Securities is made pursuant to the terms
of such Options or Convertible Securities in effect on the date immediately
preceding January 26, 2004, such Options or Convertible Securities are not
amended after the date immediately preceding January 26, 2004, other than with
respect to Options originally issued pursuant to an Approved Stock Plan and the
purchase or exercise price provided for in any such Options, the additional
consideration, if any, payable upon the issue, conversion, exchange or exercise
of any such Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable or exercisable for Common Stock
does not change at any time after January 26, 2004; (y) issued to the public
pursuant to an underwritten offering registered pursuant to the Securities Act
(but in all events excluding offerings pursuant to "equity lines" or similar
products); and (z) issued pursuant to a Strategic Financing ((v) through (z)
collectively "Excluded Issuances")) for a consideration per share (the "New
Securities Issuance Price") less than the Conversion Price in effect immediately
prior to such time (each such sale or issuance, a "Dilutive Issuance"), then
concurrent with such Dilutive Issuance, the Conversion Price then in effect (or
the initial Conversion Price in case such Dilutive Issuance occurs prior to the
issuance of this Debenture) shall be reduced to an amount equal to the New
Securities Issuance Price. If and whenever on or after the twelve (12) month
anniversary of the Original Issuance Date and prior to the Maturity Date, the
Company issues or sells, or in accordance with this Section 6(a) is deemed to
have issued or sold, any shares of Common Stock (but excluding shares of Common
Stock issued or deemed to have been issued pursuant to any Excluded Issuance) in
a Dilutive Issuance, then concurrent with such Dilutive Issuance, the Conversion
Price then in effect (or the initial Conversion Price in case such Dilutive
Issuance occurs prior to the issuance of this Debenture) shall be reduced to a
price (rounded to the nearest cent) equal to the product of (A) the Conversion
Price in effect immediately prior to such Dilutive Issuance and (B) the quotient
determined by dividing (1) the sum of (I) the product derived by multiplying the
Conversion Price in effect immediately prior to such Dilutive Issuance and the
number of shares of Common Stock Deemed Outstanding immediately prior to such
Dilutive Issuance plus (II) the consideration, if any, received by the Company
upon such Dilutive Issuance, by (2) the product derived by multiplying (I) the
Conversion Price in effect immediately prior to such Dilutive Issuance by (II)
the number of shares of Common Stock Deemed Outstanding immediately after such
Dilutive Issuance. For purposes of determining the adjusted Conversion Price
under this Section 6(a), the following shall be applicable:
i. Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities
issuable upon exercise of such Option is less than the Conversion
Price in effect immediately prior to such Dilutive Issuance, then such
share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the granting or
sale of such Option for such price per share. For purposes of this
Section 6(a)(i), the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities
issuable upon exercise of such Option" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon
conversion, exchange or exercise of any Convertible Security issuable
upon exercise of such Option. No further adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Stock or
of such Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion,
exchange or exercise of such Convertible Securities.
ii. Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the lowest price per
share for which one share of Common Stock is issuable upon such
conversion, exchange or exercise thereof is less than the Conversion
Price in effect immediately prior to such Dilutive Issuance, then such
share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance of
sale of such Convertible Securities for such price per share. For the
purposes of this Section 6(a)(ii), the "lowest price per share for
which one share of Common Stock is issuable upon such conversion,
exchange or exercise" shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of
the Convertible Security and upon the conversion, exchange or exercise
of such Convertible Security. No further adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Stock upon
conversion, exchange or exercise of such Convertible Securities, and
if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of the Conversion Price
had been or are to be made pursuant to other provisions of this
Section 6(a), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
iii. Change in Option Price or Rate of Conversion. If the purchase or
exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exchange or
exercise of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion Price
in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase
price, additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold. For
purposes of this Section 6(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance
of the Debentures are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as
of the date of such change. No adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in
effect.
iv. Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto,
then solely for purposes of this Section 6, the Options will be deemed
to have been issued for a consideration of $0.01. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will
be deemed to be the gross amount received by the Company therefor. If
any Common Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the
Company will be the arithmetic average of the Closing Sale Prices of
such securities during the ten (10) consecutive trading days ending on
the date of receipt of such securities. The fair value of any
consideration other than cash or securities will be determined jointly
by the Company and the holders of at least 60% of the Outstanding
Principal Amount of the Debentures issued on the Original Issuance
Date then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within five Business Days after the
tenth (10th) day following the Valuation Event by an independent,
reputable appraiser selected by the Company and the holders of at
least 60% of the Outstanding Principal Amount of the Debentures issued
on the Original Issuance Date then outstanding. The determination of
such appraiser shall be deemed binding upon all parties absent
manifest error and the fees and expenses of such appraiser shall be
borne by the Company.
v. Record Date. If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(b) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. If the Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision (or the initial Conversion Price in case such Dilutive
Issuance occurs prior to the issuance of this Debenture) will be proportionately
reduced. If the Company at any time combines (by combination, reverse stock
split or otherwise) its outstanding shares of Common Stock into a smaller number
of shares and the Conversion Price in effect immediately prior to such
combination will be proportionately increased.
(c) Holder's Right of Alternative Conversion Price Following Issuance of
Convertible Securities. If the Company issues or sells any Options or
Convertible Securities after the Original Issuance Date that are convertible
into or exchangeable or exercisable for Common Stock at a price which varies or
may vary with the market price of the Common Stock, including by way of one or
more reset(s) to a fixed price (each of the formulations for such variable price
being herein referred to as, the "Variable Price"), the Company shall provide
written notice thereof via facsimile and overnight courier to the Holder (the
"Variable Notice") on the date of issuance of such Convertible Securities or
Options. From and after the date the Company issues any such Convertible
Securities or Options with a Variable Price, but only for so long as such
Convertible Securities or Options are outstanding, the Holder shall have the
right, but not the obligation, in its sole discretion to substitute the Variable
Price for the Conversion Price upon conversion of any Debentures held by it by
designating in the Conversion Notice delivered upon conversion of such
Debentures that solely for purposes of such conversion the Holder is relying on
the Variable Price rather than the Conversion Price then in effect. The Holder's
election to rely on a Variable Price for a particular conversion of Debentures
shall not obligate the Holder to rely on a Variable Price for any future
conversions of Debentures.
(d) Other Events. If any event occurs of the type contemplated by the provisions
of this Section 6 in a private transaction (the primary purpose of which is to
raise equity capital) but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features other than pursuant to
an Excluded Issuance), then the Company's Board of Directors will make an
appropriate adjustment in the Conversion Price so as to protect the rights of
the holders of the Debentures; provided that no such adjustment will increase
the Conversion Price as otherwise determined pursuant to this Section 6.
(e) Notices.
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Promptly following any adjustment of the Conversion Price pursuant to this
Section 6, the Company will give written notice thereof to the Holder, setting
forth in reasonable detail, and certifying, the calculation of such adjustment.
In the case of a dispute as to the determination of such adjustment, then such
dispute shall be resolved in accordance with the procedures set forth in Section
4(e)(iii).
The Company will give written notice to the Holder at least ten (10)
Business Days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock,
(B) with respect to any pro rata subscription offer to holders of Common Stock
or (C) for determining rights to vote with respect to any Organic Change (as
defined in Section 7(a)), dissolution or liquidation, provided that the Company
need not in any case provide such notice prior to the time such information is
made known to the public.
The Company will also give written notice to the Holder at least ten (10)
Business Days prior to the date on which any Organic Change, dissolution or
liquidation will take place, provided that the Company need not in any case
provide such notice prior to the time such information is made known to the
public.
7. Other Rights.
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(a) Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets to another Person or other
transaction which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any (i) sale of all
or substantially all of the Company's assets to an acquiring Person or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor, or,
if applicable, the parent of the successor, resulting from such Organic Change
(in each case, the "Acquiring Entity") a written agreement to deliver to each
holder of Outstanding Principal Amount of the Debentures in exchange for such
securities, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to the Debentures, and reasonably
satisfactory to the holders of at least 60% of the Outstanding Principal Amount
of the Debentures issued on the Original Issuance Date then outstanding;
provided that the new security of the Acquiring Entity shall not be required to
be of rank equal to the Debenture if the issuance of a security of such rank is
not permitted by, or is inconsistent with, any agreement or instrument to which
the Acquiring Entity is a party or any security of the Acquiring Entity that is
outstanding, upon the consummation of the Organic Change. Prior to the
consummation of any other Organic Change, the Company shall make appropriate
provision to insure that each of the holders of the Debentures will thereafter
have the right to acquire and receive in lieu of or in addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Debentures such shares of stock,
securities or assets that would have been issued or payable in such Organic
Change with respect to or in exchange for the number of shares of Common Stock
which would have been acquirable and receivable upon the conversion of such
holder's Debentures as of the date of such Organic Change (without taking into
account any limitations or restrictions on the convertibility of the
Debentures).
(b) Optional Redemption at Holder's Election Upon Change of Control. In addition
to the rights of the holders of Debentures under this Debenture, the Securities
Purchase Agreement and the Registration Rights Agreement, upon a Change of
Control (as defined below) of the Company each holder of Debentures shall have
the right, at such holder's option, to require the Company to redeem all or a
portion of such holder's Debentures at a price equal to 100% of the Outstanding
Principal Amount of such Debentures plus the product of (1) 1.75 and (2) the
dollar amount of all Interest Payments scheduled to be paid following the
consummation of the Change of Control and on or prior to the Maturity Date on
the total Outstanding Principal Amount of the Debentures on the date of
consummation of the Change of Control ("Change of Control Redemption Price"). No
sooner than 20 Business Days nor later than 10 Business Days prior to the
consummation of a Change of Control, but not prior to the public announcement of
such Change of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier (a "Notice of Change of Control") to each holder
of Debentures. At any time during the period beginning after receipt of a Notice
of Change of Control (or, in the event a Notice of Change of Control is not
delivered at least 10 Business Days prior to a Change of Control, at any time on
or after the date which is 10 Business Days prior to a Change of Control) and
ending on the date one (1) Business Day prior to such Change of Control, any
holder of the Debentures then outstanding may require the Company to redeem all
or a portion of the holder's Debentures then outstanding by delivering written
notice thereof via facsimile and overnight courier (a "Notice of Redemption Upon
Change of Control") to the Company, which Notice of Redemption Upon Change of
Control shall indicate (i) the principal amount of the Debentures that such
holder is submitting for redemption, and (ii) the applicable Change of Control
Redemption Price, as calculated pursuant to this Section 7(b). Upon the
Company's receipt of a Notice(s) of Redemption Upon Change of Control from any
holder of Debentures, the Company shall promptly, but in no event later than two
(2) Business Days following such receipt, notify each holder of Debentures by
facsimile of the Company's receipt of such Notice(s) of Redemption Upon Change
of Control. The Company shall deliver to the holder of each Debenture who has
delivered a Notice of Redemption upon Change of Control, the applicable Change
of Control Redemption Price simultaneously with the consummation of the Change
of Control provided that a holder's Debentures shall have been so delivered to
the Company. For purposes of this Section 7(b), "Change of Control" shall mean
(i) the consolidation, merger or other business combination of the Company with
or into another Person (other than (A) a consolidation, merger or other business
combination in which holders of the Company's voting power immediately prior to
the transaction continue after the transaction to hold, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company), (ii) the sale or transfer of all or substantially
all of the Company's assets, or (iii) a tender or exchange offer made to and
accepted by the holders of more than 50% of the aggregate voting power of the
outstanding Common Stock.
(c) Optional Redemption At the Company's Election Upon Cash Transaction. At any
time or times on or after the date the Company publicly discloses a pending,
proposed or intended Cash Transaction, the Company shall have the right, in its
sole discretion, to require that all, but not less than all, of the Outstanding
Principal Amount of this Debenture be redeemed ("Cash Transaction Redemption
Election") at a price equal to 100% of the Outstanding Principal Amount of this
Debenture plus the product of (1) 1.75 and (2) the dollar amount of all Interest
Payments scheduled to be paid following the consummation of the Cash Transaction
and on or prior to the Maturity Date on the total Outstanding Principal Amount
of the Debentures redeemed on the date of consummation of the Cash Transaction
(the "Cash Transaction Redemption Price"). The Company shall exercise its right
to make a Cash Transaction Redemption Election by providing each holder of
Debentures written notice ("Notice of Cash Transaction Redemption") by facsimile
or overnight courier, after the public disclosure of a proposed, pending or
intended Cash Transaction and at least ten (10) Business Days prior to the date
of consummation of the Cash Transaction ("Cash Transaction Election Redemption
Date"), which Cash Transaction Election Redemption Date shall be the date of the
consummation of the Cash Transaction. The Notice of Cash Transaction Redemption
shall indicate the anticipated Cash Transaction Election Redemption Date. If the
Company has exercised its right of Cash Transaction Redemption Election then the
Outstanding Principal Amount of the Debenture at the time of the consummation of
the Cash Transaction shall be redeemed on the Cash Transaction Election
Redemption Date by payment by or on behalf of the Company to each holder of
Debentures of the applicable Cash Transaction Redemption Price concurrent with
the closing of the Cash Transaction. All holders of Debentures shall thereupon,
if the Cash Transaction Redemption Price has been paid, except as specifically
set forth herein, in the Securities Purchase Agreement or in the Registration
Rights Agreement, cease to have any rights with respect to the Debentures and
within two (2) Business Days after the Cash Transaction Election Redemption
Date, or such earlier date as the Company and holders of no less then 60% of the
Outstanding Principal Amount of the Debentures issued on the Original Issuance
Date mutually agree, shall surrender all Debentures to the Company.
(d) Right to Convert on an Organic Change or Change of Control or Agreement of
the Parties. In addition to the foregoing, following the announcement of any
Change of Control or other Organic Change following which the Company is not the
surviving entity or otherwise upon the mutual agreement of the Company and
holders of at least 60% of the Outstanding Principal Amount of all Debentures
issued on the Original Issuance Date, the Holder shall continue pursuant to
Section 4(a) hereof to have the right to convert the Outstanding Principal
Amount of this Debenture at the then prevailing Conversion Rate until the
Debenture is redeemed or otherwise converted pursuant to this Section 7.
8. Reservation of Stock Issuable Upon Conversion. The Company shall, so long as
any of the Debentures are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversions of the Debentures, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Debentures then outstanding; provided that the number of shares of
Common Stock so reserved shall at no time prior to the date on which cash
collateral payments have been made pursuant to Section 25 in an amount equal to
the entire Outstanding Principal Amount, together with accrued and unpaid
interest on all Debentures outstanding be less than 135% of the number of shares
of Common Stock needed to provide for the issuance of the shares of Common Stock
upon conversion of all of the Debentures (without regard to any limitations on
conversion) and the maximum number of Interest Shares issuable over the full
term of the Debentures (assuming the Company paid the maximum amount of interest
permitted to be paid in Interest Shares over the full term of the Debentures)
and after such time 100% of the number of shares of Common Stock needed to
provide for the issuance of the shares of Common Stock upon conversion of all of
the Debentures (without regard to any limitations on conversion).
9. No Reissuance of Debentures. No Debentures acquired by the Company by reason
of redemption, purchase, conversion or otherwise shall be reissued, and all such
Debentures shall be retired. No additional Debentures (other than the Debentures
issued pursuant to the Securities Purchase Agreement) shall be authorized or
issued without the consent of the holders of at least 60% of the Outstanding
Principal Amount of the Debentures issued on the Original Issuance Date.
10. No Impairment. The Company shall not intentionally take any action
which would impair the rights and privileges of the Debentures set
forth herein or the Holders thereof.
11. Limitation on Beneficial Ownership. The Company shall not effect and shall
have no obligation to effect any conversion of Debentures, and no holder of
Debentures shall have the right to convert any Debentures, to the extent that
after giving effect to such conversion, the beneficial owner of such shares
(together with such Person's affiliates) would have acquired, through conversion
of Debentures or otherwise, beneficial ownership of a number of shares of Common
Stock that exceeds 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to such conversion. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by a
Person and its affiliates shall include the number of shares of Common Stock
issuable upon conversion of the Debentures with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted Debentures beneficially owned by such Person or any of
its affiliates and (B) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company (including, without limitation,
any warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by such Person or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 11, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this
Section 11, in determining the number of outstanding shares of Common Stock, a
holder may rely on the number of outstanding shares of Common Stock as reflected
in (1) the Company's most recent Form 10-Q, Form 10-K or other public filing
with the SEC, as the case may be, (2) a more recent public announcement by the
Company, or (3) any other notice by the Company or its transfer agent setting
forth the number of shares of Common Stock outstanding. Upon the written request
of the Holder, the Company shall promptly, but in no event later than two (2)
Business Days following the receipt of such notice, confirm in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to conversions of Debentures by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
12. Obligations Absolute. No provision of this Debenture shall alter
or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this
Debenture at the time, place and rate, and in the manner, herein
prescribed.
13. Waivers of Demand, Etc. The Company hereby expressly waives (to the extent
permitted by applicable law) demand and presentment for payment, notice of
nonpayment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, bringing of suit and diligence in taking
any action to collect amounts called for hereunder and will be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
14. Replacement Debentures. In the event that any Holder notifies the Company
that its Debenture(s) have been lost, stolen or destroyed, replacement
Debenture(s) identical in all respects to the original Debenture(s) (except for
registration number and Outstanding Principal Amount, if different than that
shown on the original Debenture(s)) shall be issued by the Company to the
Holder, provided that the Holder executes and delivers to the Company an
agreement reasonably satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such Debenture(s).
14A. Payment of Expenses. The Company agrees to pay all reasonable
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in successfully enforcing the provisions of this Debenture and/or
successfully collecting any amount due under this Debenture, the Securities
Purchase Agreement, the Security Agreement, the Account Control Agreement (as
defined in the Securities Purchase Agreement), the Warrants, the Registration
Rights Agreement or any other Transaction Document.
15. Defaults. The following shall constitute "Events of Default":
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(a) Any Event of Default under any other Debenture; or
(b) The suspension from trading or failure of the Common Stock to be listed on
NASDAQ, the ASE or the NYSE for more than an aggregate of ten (10) trading days
in any 365-day period; or
(c) Any money judgment (including any arbitration award, but only if reduced to
a judgment), writ or warrant of attachment, or similar process in excess of Two
Hundred and Fifty Thousand Dollars ($250,000) in the aggregate, net of any
applicable insurance coverage, shall be entered or filed against the Company,
its Subsidiaries or any of their properties or other assets and which shall
remain unpaid, unvacated, unbonded and unstayed for a period of seventy-five
(75) days; or
(d) The Company shall default in the payment when due (including, without
limitation, the Company's failure to pay any redemption payments or amounts
hereunder) of (i) interest on this Debenture, and such default shall continue
for thirty (30) calendar days after the due date thereof, or (ii) the
Outstanding Principal Amount of this Debenture; or
(e) Any of the representations or warranties made by the Company herein
(including any Cash Collateral Certificate delivered under Section 25(g)(iii)),
in the Securities Purchase Agreement, the Warrants, the Security Agreement, the
Account Control Agreement, any Mortgage, the Registration Rights Agreement or
any other Transaction Document shall be untrue in any material respect at the
time made and such condition (to the extent capable of being cured) shall
continue uncured for a period of ten (10) Business Days after notice from the
Holder of such condition; and such breach of representations and warranties,
singly or in the aggregate, would have a Material Adverse Effect or materially
impair the ability of the Company to perform or satisfy its obligations to the
Holder pursuant to the Transaction Documents; or
(f) The Company shall fail to perform or observe in any material respect any
material covenant or agreement in the Securities Purchase Agreement, the
Security Agreement, the Warrants, any Mortgage, the Account Control Agreement,
the Registration Rights Agreement, this Debenture or any other Transaction
Document, including, without limitation, (i) the failure to honor any Conversion
Notice and deliver shares pursuant thereto, and such failure shall continue
uncured for a period of ten (10) Business Days after notice from the Holder of
such failure or (ii) the failure by the Company to comply with its obligations
under Section 25(g) hereof, including, without limitation, (A) the obligation to
disclose sufficient and timely information in its public filings with the SEC
for the holder to verify and reconcile Company Consolidated Revenues for the
relevant periods, as required by Section 25(g)(iv) hereof, (B) the obligation to
make payments timely as and when due and in the form of cash and/or Repayment
Shares as provided thereunder, (C) the failure of the Company to deliver timely
a completed Cash Collateral Certificate in the manner required by Section
25(g)(v) hereof and (D) the delivery by or on behalf of the Company of any Cash
Collateral Certificate to any holder of Debentures without the express prior
written consent of such holder; or
(g) The Company shall (i) become insolvent; (ii) admit in writing its inability
to pay its debts generally as they mature; (iii) make an assignment for the
benefit of creditors or commence proceedings for its dissolution; or (iv) apply
for or consent to the appointment of a trustee, liquidator or receiver for it or
for a substantial part of its property or business; or
(h) A trustee, liquidator or receiver shall be appointed for the Company or for
a substantial part of its property or business without its consent and shall not
be discharged within sixty (60) days after such appointment; or
(i) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within sixty (60) days thereafter; or
(j) The Company shall fail to pay any debt for borrowed money or other similar
obligation or liability ("Indebtedness") (excluding Indebtedness evidenced by
the Debentures, Subordinated Indebtedness and Pari Passu Indebtedness) of the
Company, or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), in an
outstanding principal amount equal to or in excess of One Million Dollars
($1,000,000), singly or in the aggregate and such failure shall continue after
the applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness, or any such Indebtedness of the Company shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
or
(k) The Company shall fail to make any payment of principal in respect of
Subordinated Indebtedness or Pari Passu Indebtedness or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Subordinated Indebtedness or Pari Passu Indebtedness, or any
such Subordinated Indebtedness or Pari Passu Indebtedness shall be declared to
be due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment), prior to the stated maturity thereof; or
(l) Bankruptcy, reorganization, insolvency or liquidation proceedings or other
similar proceedings, or relief under any bankruptcy law or any similar law for
the relief of debt shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit to any material
allegations of, or default in answering a petition filed in any such proceeding;
or
(m) Unless the Company shall have made cash collateral payments in an amount
equal to the entire Outstanding Principal Amount of all Debentures, together
with accrued and unpaid interest thereon, in accordance with Section 25(g), the
Registration Statement (as defined in the Registration Rights Agreement) is not
declared effective by the SEC and available for the sale of at least all of the
Registrable Securities (as defined in the Registration Rights Agreement pursuant
to the terms of the Registration Rights Agreement) required to be included in
such Registration Statement on or before July 26, 2004; or
(n) the Security Agreement, any Mortgage (as defined in the Securities Purchase
Agreement) or any other security document, after delivery thereof pursuant to
the Securities Purchase Agreement, shall for any reason fail or cease to create
a valid and perfected and, except to the extent permitted by the terms hereof or
thereof, first priority lien in favor of the agent for the benefit of the
holders of Debentures on any collateral purported to be covered thereby; or
(o) the Cash Collateral Account Bank shall fail to comply with any of
the terms of the Account Control Agreement;
(p) at any time required to be in full force and effect under the Securities
Purchase Agreement, the Letters of Credit shall for any reason cease to be in
full force and effect other than in accordance with their express terms or any
issuer of any of the Letters of Credit shall fail to maintain a Minimum Rating
(as defined in the Securities Purchase Agreement) or fail to perform its
obligations thereunder or shall, in writing, repudiate the Letter of Credit
issued by it or deny that its obligations thereunder are valid, binding and
enforceable, and such failure shall continue uncured for a period of fifteen
(15) days after notice from the Holder of such failure;
(q) the report of the Company's auditors on the Company's consolidated audited
financial statements for the year ended December 31, 2003 shall have contained
any going concern qualification; or
(r) any material damage to, or loss, theft or destruction of, any Collateral,
whether or not insured, or any strike, lockout, labor dispute, embargo,
condemnation, act of God or public enemy, or other casualty which causes, for
more than fifteen (15) consecutive days, the cessation or substantial
curtailment of revenue producing activities at any material facility of the
Company or any of its Subsidiaries.
Unless an Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default),
upon the occurrence of an Event of Default, and for so long as such Event of
Default shall be continuing, at the option of and on notice by the Holder to the
Company in writing and in the Holder's sole discretion, the Holder may consider
this Debenture immediately due and payable, without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived, anything herein
or in any other instruments contained to the contrary notwithstanding to the
extent permitted by applicable law (provided, however, that upon the occurrence
of any Event of Default described in subsection (g), (h) or (l) above, without
any notice to the Company or any act by the Holder or the Agent, this Debenture
shall become due and payable automatically and immediately, without presentment,
demand, protest or notice of any kind, all of which are expressly waived by the
Company, anything herein or in any other instrument contained to the contrary
notwithstanding to the extent permitted by applicable law), and the Holder may
immediately, and without expiration of any further period of grace, enforce any
and all of the Holder's rights and remedies provided herein, or under the
Security Agreement, the Mortgages, the Account Control Agreement and the Letters
of Credit or any other rights or remedies afforded by law. In such event this
Debenture shall be redeemed at a redemption price equal to 100% of the
Outstanding Principal Amount of the Debenture, plus accrued and unpaid interest
on this Debenture. In addition to the foregoing, upon an Event of Default, the
rate of interest on this Debenture, shall, to the maximum extent of the law, be
permanently increased by two percent (2%) per annum (i.e., from 7% to 9% per
annum) commencing on the first day of the thirty (30) day period (or part
thereof) following the Event of Default; and, solely in the case of an Event of
Default triggered by a Conversion Failure, an additional two percent (2%) per
annum commencing on the first day of each of the second and third such thirty
(30) day periods (or part thereof); and an additional one percent (1%) on the
first day of each consecutive thirty (30) day period (or part thereof)
thereafter until this Debenture has been duly converted or redeemed as herein
provided; provided that in no event shall the rate of interest exceed the lower
of 20% or the highest rate permitted by applicable law. The Company shall within
one (1) Business Day notify each Holder of Debentures upon becoming aware of the
occurrence of any Event of Default (whether or not waived by any other Holder of
Debentures) or of any action taken by any Holder of Debentures with respect to
the occurrence of any Event of Default.
16. Savings Clause. In case any provision of this Debenture is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
17. Entire Agreement. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement between the
Company and the Holder with respect to the subject hereof. Neither this
Debenture nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and the Holder.
18. Assignment, Etc. The Holder may, subject to compliance with the Securities
Purchase Agreement and to applicable federal and state securities laws, transfer
or assign this Debenture or any portion thereof and may pledge, encumber or
transfer its rights or interest in and to this Debenture or any part hereof,
provided, that such transfer or assignment of this Debenture does not result in
more than ten (10) holders of the total Outstanding Principal Amount of all
Debentures and any such part or portion of this Debenture constitutes at least
10% of the Outstanding Principal Amount or such lesser amount if such transfer
involves the entire Outstanding Principal Amount then held by such transferor.
Any such transfer or assignment shall only be effective upon the Company's
receipt of written notice thereof. Each such assignee, transferee and pledgee
shall have all of the rights of the Holder under this Debenture. The Company
agrees that, subject to compliance with the Securities Purchase Agreement, after
receipt by the Company of written notice of assignment from the Holder and the
Holder's assignee, all principal, interest and other amounts which are then, and
thereafter become, due under this Debenture shall be paid to such assignee,
transferee or pledgee at the place of payment designated in such notice. This
Debenture shall be binding upon the Company and its successors and shall inure
to the benefit of the Holder and its successors and registered assigns.
19. No Waiver. No failure on the part of the Holder to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Holder of any right,
remedy or power hereunder preclude any other or future exercise of any other
right, remedy or power. Each and every right, remedy or power hereby granted to
the Holder or allowed it by law or other agreement shall be cumulative and not
exclusive of any other, and may be exercised by the Holder from time to time.
20. Notices. Unless otherwise provided herein, any notices, consents, waivers or
other communications required or permitted to be given under the terms of this
Debenture must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Hemispherx Biopharma, Inc.
1617 JFK Boulevard
Suite 660
Philadelphia, PA 19103
Telephone: (215) 998-8000
Facsimile: (215) 998-1739
Attention: Chief Executive Officer
With a copy to:
Ransom W. Etheridge, Esq.
2610 Potters Road
Suite 200
Virginia Beach, VA 23452
Telephone: (757-486-0599
Facsimile: (757) 486-0792
If to a holder, to its address and facsimile number set forth on the Schedule of
Buyers attached to the Securities Purchase Agreement, with copies to such
holder's representatives as set forth on the Schedule of Buyers, or to such
other address and/or facsimile number and/or to the attention of such other
person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
courier or overnight courier service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
21. Miscellaneous. Whenever the sense of this Debenture requires,
words in the singular shall be deemed to include the plural and words
in the plural shall be deemed to include the singular. Paragraph
headings are for convenience only and shall not affect the meaning of
this document.
22. Choice of Law and Venue; Waiver of Jury Trial. THIS DEBENTURE SHALL BE
CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW OR CHOICE OF LAW (OTHER THAN SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW). The parties hereto hereby agree that all actions or
proceedings arising directly or indirectly from or in connection with this
Debenture shall be litigated only in the Supreme Court of the State of New York
or the United States District Court for the Southern District of New York
located in New York County, New York. The parties hereto consent to the
jurisdiction and venue of the foregoing courts and consent that any process or
notice of motion or other application to either of said courts or a judge
thereof may be served inside or outside the State of New York or the Southern
District of New York by registered mail, return receipt requested, directed as
provided in Section 20 (and service so made shall be deemed complete five (5)
days after the same has been posted as aforesaid) or by personal service or in
such other manner as may be permissible under the rules of said courts. The
parties hereto hereby waive any right to a jury trial in connection with any
litigation pursuant to this Debenture.
23. Rule 144. With a view to making available to the Holder the benefits of Rule
144 promulgated under the Act ("Rule 144") and any other rule or regulation of
the SEC that may at any time permit the Holder to sell the underlying stock of
the Company issuable upon conversion or exercise of the Debentures and the
Warrants to the public without registration, the Company agrees to use its
reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); and
(c) furnish to any Holder, promptly upon request, a written statement by the
Company (provided true at the time) that it has complied with the applicable
reporting and filing requirements of the Act and the Exchange Act, a copy of the
most recent annual or quarterly report of the Company, and copies of such other
reports and documents (if any) so filed by the Company as may be reasonably
requested to permit any such Holder to take advantage of any rule or regulation
of the SEC permitting the selling of any such securities without registration.
24. Company Installment Conversion or Redemption.
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(a) General. On each Installment Date (unless waived by the Holder), the Company
shall pay to the Holder of this Note the Installment Amount as of such
Installment Date by the combination of any of the following, but subject to and
in accordance with the terms of this Section 24, (i) requiring the conversion of
a portion of the applicable Installment Amount, in whole or in part, in
accordance with this Section 24 but subject to the satisfaction of the
Conditions to Company Conversion (as defined below) (a "Company Conversion"),
and/or (ii) redeeming the applicable Installment Amount, in whole or in part, in
accordance with this Section 24 (a "Company Redemption"); provided that all of
the outstanding applicable Installment Amount as of each such Installment Date
must be converted and/or redeemed by the Company on the applicable Installment
Date, subject to the provisions of this Section 24. On or prior to the date
which is at least 2 Trading Days prior to each Installment Measuring Period, the
Company shall deliver written notice to the Holder (each, a "Company Installment
Notice"), which Company Installment Notice shall state (i) the portion, if any,
of the applicable Installment Amount which the Company elects to convert
pursuant to a Company Conversion, which amount when added to the Company
Redemption Amount must equal the applicable Installment Amount (the "Company
Conversion Amount"), (ii) the portion, if any, of the applicable Installment
Amount which the Company elects to redeem pursuant to a Company Redemption (the
"Company Redemption Amount"), which amount when added to the Company Conversion
Amount must equal the applicable Installment Amount, and (iii) if the Company
has elected, in whole or in part, a Company Conversion, then the Company
Installment Notice shall certify that the Conditions to Company Conversion are
satisfied as of the date of the Company Installment Notice. If the Company does
not deliver a Company Installment Notice in accordance with this Section 24(a),
then the "Company Redemption Amount" and the "Company Conversion Amount" with
respect to such Installment Date shall be in such amounts and proportions as the
Holder shall designate in writing to the Company in its sole discretion and the
Company shall be deemed to have delivered a Company Installment Notice setting
forth such amounts. Each Company Installment Notice shall be irrevocable. Except
as expressly provided in this Section 24(a), the Company shall redeem and
convert the applicable Installment Amount of this Debenture pursuant to this
Section 24 and the corresponding Installment Amounts of the other Debentures
pursuant to the corresponding provisions of the other Debentures in the same
ratio of the Installment Amount being redeemed and converted hereunder. The
Company Redemption Amount (whether set forth in the Company Installment Notice
or by operation of this Section 24) shall be redeemed in accordance with Section
24(b), and the Company Conversion Amount shall be converted in accordance with
Section 24(c).
(b) Mechanics of Company Redemption. If the Company elects, or is deemed to have
elected, a Company Redemption in accordance with Section 24(a), then the Company
Redemption Amount, if any, which is to be paid to the Holder on the applicable
Installment Date shall be redeemed by the Company on such Installment Date, and
the Company shall pay to the Holder on such Installment Date, by wire transfer
of immediately available funds, an amount in cash (the "Company Installment
Redemption Price") equal to the sum of 100% of the Company Redemption Amount.
Notwithstanding anything to the contrary in this Section 24(b), but subject to
Sections 11 and 26, until the Company Installment Redemption Price (together
with any interest thereon) is paid in full, the Company Redemption Amount
(together with any interest thereon permitted hereunder to be paid by the
Company in Common Stock) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 4.
(c) Mechanics of Company Conversion. Subject to Sections 11 and 26 and Section
24(e), if the Company delivers a Company Installment Notice and elects or is
deemed to have elected, in whole or in part, a Company Conversion in accordance
with Section 24(a), then the applicable Company Conversion Amount, if any, which
remains outstanding shall be converted as of the applicable Installment Date by
converting on such Installment Date such Company Conversion Amount as if the
Holder had delivered a Conversion Notice pursuant to Section 4 with respect to
such Company Conversion Amount on such Installment Date but without the Holder
being required to actually deliver such Conversion Notice; provided that the
Conditions to Company Conversion are satisfied (or waived in writing by the
Holder) on such Installment Date. If the Conditions to Company Conversion are
not satisfied (or waived in writing by the Holder) on such Installment Date,
then at the option of the Holder designated in writing to the Company, the
Holder may require the Company to do any one or more of the following: (i) the
Company shall redeem all or any part designated by the Holder of the unconverted
Company Conversion Amount (such designated amount is referred to as the "First
Redemption Amount") on such Installment Date and the Company shall pay to the
Holder on such Installment Date, by wire transfer of immediately available
funds, an amount in cash equal to such First Redemption Amount, or (ii) the
Company Conversion shall be null and void with respect to all or any part
designated by the Holder of the unconverted Company Conversion Amount and the
Holder shall be entitled to all the rights of a holder of this Note with respect
to such amount of the Company Conversion Amount. If the Company fails to redeem
any First Redemption Amount on the applicable Installment Date by payment of
such amount on the applicable Installment Date, then the Holder shall have the
rights set forth in Section 24(b) as if the Company failed to pay the applicable
Company Redemption Price and all other rights under this Note (including,
without limitation, such failure constituting an Event of Default described in
Section 15(d)). In the event the Holder delivers a Conversion Notice to the
Company after the earlier of the date which is 10 days prior to the applicable
Installment Date and the Holder's receipt of the Company Installment Notice in
respect of such Installment Date in which the Company elects or is deemed to
have elected a Company Redemption, the Principal amount specified in such
Conversion Notice shall be deducted (1) first, from the Principal represented by
the Company Redemption Amount and then (2) second, in accordance with Section
4(e)(h).
(d) Conditions to Company Conversion. For purposes of this Section 24,
"Conditions to Company Conversion" means (i) during the period beginning on the
Original Issuance Date and ending on and including the applicable Installment
Date, the Company shall have delivered shares of Common Stock upon any
conversion of Conversion Amounts on a timely basis as set forth in Section
4(e)(ii) and analogous provisions under the other Debentures, and shall have
delivered shares of Common Stock upon exercise of any Warrants on a timely basis
as set forth in Section 2(a) of the Warrants; (ii) on each day during the period
beginning on the Original Issuance Date and ending on and including the
applicable Installment Date, the Common Stock shall be listed on the Principal
Market and delisting or suspension of the Common Stock by such market or
exchange shall not have been threatened either (A) in writing by such market or
exchange or (B) by falling below the minimum listing maintenance requirements of
such market or exchange for the Common Stock; (iii) during the period beginning
on the Original Issuance Date and ending on and including the applicable
Installment Date, there shall not have occurred either (x) the public
announcement of a pending, proposed or intended Change of Control which has not
been abandoned, terminated or consummated or (y) an Event of Default; (iv)
during the period beginning on the date which is the Original Issuance Date and
ending on and including the applicable Installment Date, there shall not have
occurred an event that with the passage of time or giving of notice, and
assuming it were not cured, would constitute an Event of Default; (v) on each
day of the period beginning on the date of delivery of a Company Installment
Notice with respect to an Installment Date and ending on the applicable
Installment Date either (x) the Registration Statement or Registration
Statements required pursuant to the Registration Rights Agreement shall be
effective and available for the resale of all of the Registrable Securities in
accordance with and to the extent required by the terms of the Registration
Rights Agreement or (y) all shares of Common Stock issuable upon conversion of
the Debentures and shares of Common Stock issuable upon exercise of the Warrants
shall be eligible for sale without restriction (other than any restriction
arising under applicable federal or state securities laws as a result of the
holder of such securities being an Affiliate of the Company) and without the
need for registration under any applicable federal or state securities laws;
(vi) on each day of the period beginning on the applicable Installment Date and
ending thirty Trading Days thereafter either (x) the Registration Statements
required pursuant to the Registration Rights Agreement shall be expected to be
effective and available for the resale of at least all of the Registrable
Securities in accordance with and to the extent required by the terms of the
Registration Rights Agreement or (y) all shares of Common Stock issuable upon
conversion of the Debentures and shares of Common Stock issuable upon exercise
of the Warrants shall be eligible for sale without restriction (other than any
restriction arising under applicable federal or state securities laws as a
result of the holder of such securities states as an Affiliate of the Company)
and without the need for registration under any applicable federal or state
securities laws; and (vii) the Company otherwise shall have been in material
compliance with and shall not have breached, in any material respect, any
provision, covenant, representation or warranty of the Securities Purchase
Agreement, any of the Warrants, any of the Debentures or any of the other
Transaction Documents.
(e) Certain Definitions. For purposes of this Section 24, the following
capitalized terms shall have the following meanings:
(i) "Company Conversion Price" means, with respect to any Company
Conversion, that price which shall be computed as 95% of the arithmetic average
of the Weighted Average Price of the Common Stock on each trading day in the
Installment Measuring Period.
(ii) "Installment Amount" means, with respect to any Installment Date, the
Outstanding Principal Amount of this Debenture as of the Installment Date
divided by the number of full months between the Installment Date and June 30,
2007. In the event the Holder shall sell or otherwise transfer any portion of
this Debenture, the transferee shall be allocated a pro rata portion of the
Installment Amount.
(iii) "Installment Date" means each monthly anniversary of the Original
Issuance Date, commencing on January 1, 2007.
(iv) "Installment Measuring Period" means, with respect to an Installment
Date, the 10-day trading day period commencing on and including the eleventh
trading day immediately preceding such Installment Date and ending on and
including the trading day immediately preceding such Installment Date.
25. Rank; Covenants; Cash Collateral.
--------------------------------
(a) Definitions. For purposes of this Section 25, the following terms
shall have the following meanings:
(i) "Acquisition Buildings" shall mean the buildings being purchased by
the Company in connection with the Interferon Acquisition and located
at 783 Jersey Avenue, 5 Jules Lane, New Brunswick Middlesex Co., New
Jersey.
(ii) "Acquisition Indebtedness" shall mean any Indebtedness incurred,
assumed or guaranteed by the Company or any of its Subsidiaries in
respect of the purchase price for, or in connection with the purchase
of, any assets, business or securities (an "Acquired Business")
acquired by the Company or any of its Subsidiaries, other than
Indebtedness incurred, assumed or guaranteed in connection with the
Interferon Acquisition.
(iii)"Acquisition Multiple" shall mean, subject in all respects to the
final sentence of Section 25(b)(i) hereof, (i) in the event the
Acquired Business is not a Qualified Competitor, three times the
EBITDA of the Acquired Business or (ii) in the event the Acquired
Business is a Qualified Competitor, four times the EBITDA of the
Acquired Business; provided, however, that if prior to the closing of
the acquisition of any Acquired Business under subsections (i) or (ii)
of this definition, the Company has not been furnished with financial
statements of such Acquired Business that have been audited by a
nationally recognized auditing firm, the Acquisition Multiple shall be
two and one half (2 1/2) times the EBITDA of the Acquired Business.
(iv) "Biweekly Revenue Cash Collateral Date" shall mean the 15th and last
calendar day of each month during the Initial Cash Collateral Period.
If any Biweekly Revenue Cash Collateral Date is not a Business Day,
then the Biweekly Revenue Cash Collateral Date shall be the Business
Day immediately following such Biweekly Revenue Cash Collateral Date.
(v) "Cash Collateral Date" shall mean each Biweekly Revenue Cash
Collateral Date, Monthly Revenue Cash Collateral Date, the First
Revenue Milestone Cash Collateral Date, the Second Revenue Milestone
Cash Collateral Date, the Third Revenue Milestone Cash Collateral
Date, the Qualified Inventory Financing Date and the Qualified
Mortgage Financing Date.
(vi) "Company Consolidated Revenues" shall mean the aggregate amount of all
cash collected by the Company and its Subsidiaries, including, without
limitation, cash proceeds from the sales of inventory, cash
collections of accounts receivable, cash collections of licensing
fees, cash proceeds from the issuance of all Indebtedness (excluding
cash received for the purchase of the Debentures), but excluding cash
received from (a) the issuance of any equity or equity linked
securities of the Company, (b) the Qualified Mortgage Financing and
(c) the Qualified Inventory Financing.
(vii)"EBITDA" shall mean (1) the earnings before interest, income taxes,
depreciation and amortization of the Acquired Business for the twelve
(12) full months immediately preceding the closing date in respect of
the purchase of the Acquired Business less (2) any capital
expenditures of the Acquired Business during such period.
(viii) "First Revenue Milestone Cash Collateral Date" shall mean March 31,
2004.
(ix) "First Revenue Milestone Measuring Period" shall mean the period
commencing on January 1, 2004 and ending on the First Revenue
Milestone Cash Collateral Date.
(x) "First Revenue Milestone Target" shall mean $800,000.00.
(xi) "Initial Cash Collateral Period" shall mean the period commencing on
and including April 15, 2004 and ending on and including April 29,
2005.
(xii)"Inventory" shall mean, with respect to any Person, all goods and
merchandise of such Person, including, without limitation, all raw
materials, work-in-process, packaging, supplies, materials and
finished goods of every nature used or usable in connection with the
shipping, storing, advertising or sale of such goods and merchandise,
whether now owned or hereafter acquired, and all such other property
the sale or other disposition of which would give rise to an account
receivable, including, without limitation, all of the items listed on
Exhibit B to this Debenture.
(xiii) "Lien" shall mean any mortgage, deed of trust, pledge, lien
(statutory or otherwise), security interest, charge or other
encumbrance or security or preferential arrangement of any nature,
including, without limitation, any conditional sale or title retention
arrangement, any capitalized lease and any assignment, deposit
arrangement or financing lease intended as, or having the effect of,
security.
(xiv)"Monthly Revenue Cash Collateral Date" shall mean the 30th calendar
day of each month during the Secondary Cash Collateral Period (except
for the month of January 2005, which shall be the 31st calendar day of
such month and the month of February, which shall be the 28th calendar
day of such month). If any Monthly Revenue Cash Collateral Date is not
a Business Day, then the Monthly Revenue Cash Collateral Date shall be
the Business Day immediately following such Monthly Revenue Cash
Collateral Date.
(xv) "Pari Passu Indebtedness" shall mean Indebtedness that is made
expressly "pari passu" in right of payment with the Debentures in an
aggregate of (i) up to an aggregate principal amount of $5,000,000 of
Indebtedness, (ii) up to an additional aggregate principal amount of
$5,000,000 of Indebtedness incurred at any time after the eighteen
(18) month anniversary of the Original Issuance Date, provided that in
order to incur any Pari Passu Indebtedness pursuant to this clause
(ii) the arithmetic average of the Weighted Average Price of the
Common Stock on each trading day during the twenty consecutive trading
day period prior to the incurrence of any such Pari Passu Indebtedness
under this clause (ii) must equal or exceed 150% of the Conversion
Price then in effect, (iii) up to an additional aggregate principal
amount of $4,000,000 of Indebtedness incurred any time after the
Outstanding Principal Amount of all Debentures is less than
$1,000,000; provided, that in order to incur any Pari Passu
Indebtedness under this clause (iii) the arithmetic average of the
Weighted Average Price of the Common Stock on each trading day during
the twenty consecutive trading day period prior to the incurrence of
any such Pari Passu Indebtedness under this clause (iii) must equal or
exceed 150% of the Conversion Price then in effect (iv) Acquisition
Indebtedness, and (v) any other indebtedness of the Company which the
Company and the holders of more than 60% of the then Outstanding
Principal Amount of the Debentures issued on the Original Issuance
Date may hereafter from time to time expressly and specifically agree
in writing shall constitute Pari Passu Indebtedness.
(xvi) "Permitted Liens" shall mean:
(A) Liens securing all obligations under the Debentures and the
agreements and instruments entered into in connection therewith;
(B) the Qualified Mortgage;
(C) the Qualified Inventory Liens;
(D) Liens on any Intellectual Property of the Company or any of its
Subsidiaries; and
(E) Liens securing all obligations under the Company's Series A and
Series B 7% Senior Secured Convertible Debentures Due June 30, 2007
and the agreements and instruments entered into in connection
therewith.
(xvii) "Qualified Competitor" shall mean an Acquired Business that is
competitive with and in the same business with a business of the
Company or any of its Subsidiaries, where the Company's Board of
Directors determines, in its reasonable judgment, that substantially
all overhead expenses of the Acquired Business during the trailing
twelve months immediately preceding the acquisition of such Acquired
Business are duplicative with overhead expenses of the Company or any
of such Subsidiaries and such duplicative expenses will be eliminated
within six (6) months immediately following the purchase of the
Acquired Business.
(xviii) "Qualified Indebtedness" shall mean Pari Passu Indebtedness that is
not evidenced by any certificate, instrument, note or other agreement
that, directly or indirectly, permits or requires such Indebtedness to
be convertible into or exercisable or exchangeable for Common Stock
(other than Options that may be issued by the Company to the holder(s)
of such Indebtedness, the value of which does not exceed 10% of the
principal amount of Indebtedness so incurred, as determined using the
Black-Scholes valuation methodology).
(xix)"Qualified Inventory Financing" shall mean a single financing
arrangement pursuant to which the Company and/or its Subsidiaries
obtains financing solely through the granting of Liens on Inventory
that yield total net unrestricted cash proceeds to the Company at the
time of the creation of such Liens of not less than $2,000,000.00.
(xx) "Qualified Inventory Financing Date" shall mean the date on which the
Qualified Inventory Financing is consummated.
(xxi)"Qualified Inventory Liens" shall mean Liens on Inventory that are
created or imposed solely in connection with a Qualified Inventory
Financing.
(xxii) "Qualified Mortgage" shall mean a mortgage on the Acquisition
Buildings that is created or imposed solely in connection with a
Qualified Mortgage Financing.
(xxiii) "Qualified Mortgage Financing" shall mean a single financing
arrangement pursuant to which the Company either (i) obtains financing
solely through the granting of Liens on the Acquisition Buildings or
(ii) sells the Acquisition Building, in each case in a transaction
that yields total net unrestricted cash proceeds to the Company at the
time of the creation of such Liens or at the time of such sale, as
applicable, of not less than $1,500,000.00.
(xxiv) "Qualified Mortgage Financing Date" shall mean the date on which the
Qualified Mortgage Financing is consummated.
(xxv)"Secondary Cash Collateral Period" shall mean the period commencing
on and including April 30, 2005 and ending on and including the
Maturity Date.
(xxvi) "Second Revenue Milestone Cash Collateral Date" shall mean June 30,
2004; provided that if such day is not a Business Day, then the Second
Revenue Milestone Cash Collateral Date shall be the Business Day
immediately following the Second Revenue Milestone Cash Collateral
Date.
(xxvii) "Second Revenue Milestone Measuring Period" shall mean the period
commencing on January 1, 2004 and ending on the Second Revenue
Milestone Cash Collateral Date.
(xxviii) "Second Revenue Milestone Target" shall mean $1,500,000.00.
(xxix) "Third Revenue Milestone Cash Collateral Date" shall mean December
31 2004; provided that if such day is not a Business Day, then the
Third Revenue Milestone Cash Collateral Date shall be the Business Day
immediately following the Third Revenue Milestone Cash Collateral
Date.
(xxx)"Third Revenue Milestone Measuring Period" shall mean the period
commencing on January 1, 2004 and ending on the Third Revenue
Milestone Cash Collateral Date.
(xxxi) "Third Revenue Milestone Target" shall mean $3,000,000.00.
(b) Incurrence of Indebtedness.
--------------------------
i. So long as any of the Debentures are outstanding and cash collateral
payments have not been made in an amount equal to the entire
Outstanding Principal Amount and accrued and unpaid interest on all
Debentures pursuant to Section 25(g), the Company shall not, and the
Company shall not permit any of its Subsidiaries to, directly or
indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (A) the Indebtedness evidenced by the
Debentures which shall rank ratably and equally with each other, (B)
Pari Passu Indebtedness that is not secured by any assets of the
Company or any of its Subsidiaries and that does not provide at any
time for the payment of any principal thereon until at least 91 days
after the Maturity Date of the Debentures (except for the payment of
principal on Qualified Indebtedness to the extent permitted under
Section 25(e)(ii)), (C) Indebtedness represented by trade payables
incurred by the Company in the ordinary course of business, (D)
Indebtedness incurred in connection with a Qualified Inventory
Financing, provided that the proceeds of such Qualified Inventory
Financing are applied to make cash collateral payments on the
Debentures in the manner provided in Section 25(g)(i)(F) hereof, (E)
Indebtedness incurred in connection with a Qualified Mortgage
Financing, provided that the proceeds of such Qualified Mortgage
Financing are applied to make cash collateral payments on the
Debentures in the manner provided in Section 25(g)(i)(G) hereof, (F)
Indebtedness that is not secured by any assets or property of the
Company or any of its Subsidiaries, is made expressly subordinate in
right of payment to the Debentures and that does not provide at any
time for the payment of any principal thereon until at least 91 days
after the Maturity Date of the Debentures ("Subordinated
Indebtedness") pursuant to a subordination agreement containing the
provisions attached hereto as Exhibit A executed and delivered by the
Company and any holder of Subordinated Indebtedness to each holder of
Debentures as a condition to the incurrence of such Indebtedness, (G)
Indebtedness incurred, assumed or guaranteed in connection with the
Interferon Acquisition, and (H) Indebtedness relating to the Company's
Series A and/or B 7% Senior Secured Convertible Debentures Due June
30, 2007. Notwithstanding anything herein to the contrary, no
Qualified Indebtedness may be incurred (but excluding Acquisition
Indebtedness) unless as a condition to the incurrence of such
Indebtedness, the Company shall have made cash collateral payments in
an aggregate amount of Outstanding Principal Amount of all Debentures
as of the date of the incurrence of such Indebtedness (pro rata among
all holders of Debentures) in accordance with Section 25(g)(ii) hereof
equal to fifty percent (50%) of the principal amount of the
Indebtedness so incurred or an amount as otherwise required by this
Section 25 (or if such amount exceeds the remaining Outstanding
Principal Amount on all outstanding Debentures together with the
accrued and unpaid interest thereon, then an amount equal to the
remaining Outstanding Principal Amount on all outstanding Debentures
together with the accrued and unpaid interest thereon). The Company
shall file with the SEC on Form 8-K true and complete copies of the
financial statements of an Acquired Business for which the purchase
price is paid or payable in cash and/or cash equivalents and/or
Indebtedness indicating thereon, among other things, the items
comprising the EBITDA of the Acquired Business and contemporaneously
therewith, but in no event prior to the filing of such Form 8-K,
deliver a copy of such financial statements to each holder of
Debentures; provided, however, that, notwithstanding anything
herein to the contrary, if the Company does not file with the
SEC financial statements of any Acquired Business for which the
purchase price is paid or payable in cash and/or cash equivalents
and/or Indebtedness in the time and manner provided herein, then the
Acquisition Multiple with respect to such Acquired Business shall be
deemed zero (0) and the Company shall not be entitled to acquire such
Acquired Business unless as a condition thereto, the Company shall
have contemporaneously with the closing of the acquisition of such
Acquired Business made a cash collateral payment on the Outstanding
Principal Amount of the Debentures then outstanding (pro rata among
all holders of Debentures) in an amount equal to 100% of the aggregate
cash, cash equivalents and Acquisition Indebtedness incurred in
connection with the acquisition of such Acquired Business in
accordance with Section 25(g)(ii) hereunder (or if such amount exceeds
the remaining Outstanding Principal Amount on all outstanding
Debentures together with the accrued and unpaid interest thereon, then
an amount equal to the remaining Outstanding Principal Amount on all
outstanding Debentures together with the accrued and unpaid interest
thereon).
ii. Notwithstanding the foregoing, so long as any of the Debentures are
outstanding and cash collateral payments have not been made in an
amount equal to the entire Outstanding Principal Amount and accrued
and unpaid interest on all Debentures pursuant to Section 25(g), no
Pari Passu Indebtedness or Subordinated Indebtedness may be incurred,
directly or indirectly, by the Company or any of its Subsidiaries if
during the period commencing on the tenth (10th) Business Day (or in
the case of clause (ii) of the definition of Pari Passu Indebtedness,
the twentieth (20th) Business Day) immediately preceding the
incurrence of any such Pari Passu Indebtedness or Subordinated
Indebtedness and ending on and including the date on which any such
Pari Passu Indebtedness or Subordinated Indebtedness is incurred (A)
an event constituting an Event of Default or an event that with the
passage of time and without being cured would constitute an Event of
Default, has occurred and is continuing, (B) any Registration
Statement that is required to be effective pursuant to the
Registration Rights Agreement is not effective and available for the
sale of at least all of the Registrable Securities (as defined in the
Registration Rights Agreement) required to be included in such
Registration Statement pursuant to the terms of the Registration
Rights Agreement or (C) there has been any Grace Period (as such term
is defined in the Registration Rights Agreement).
iii. If at any time when any of the Debentures are outstanding and cash
collateral payments shall not have been made in an amount equal to the
entire Outstanding Principal Amount of the Debentures, together with
accrued interest thereon, in accordance with Section 25(g)(ii), the
Company shall purchase any Acquired Business, whether in one or a
series of transactions, for an amount of aggregate consideration
(whenever paid in the form of cash, cash equivalents or Acquisition
Indebtedness) that exceeds the Acquisition Multiple for such Acquired
Business, (such excess amount, the "Excess Permitted Aggregate
Consideration"), the Company shall, simultaneous with the closing of
the purchase of the Acquired Business, make cash collateral payments
in respect of an aggregate Outstanding Principal Amount of the
Debentures (pro rata among all holders of Debentures) in accordance
with Section 25(g)(ii) hereof equal to one hundred percent (100%) of
the Excess Permitted Aggregate Consideration (or if such amount
exceeds the remaining Outstanding Principal Amount on all outstanding
Debentures together with the accrued and unpaid interest thereon, then
an amount equal to the remaining Outstanding Principal Amount on all
outstanding Debentures together with the accrued and unpaid interest
thereon).
(c) Restricted Payments. Notwithstanding anything herein to the contrary, so
long as any of the Debentures are outstanding and cash collateral payments have
not been made in an amount equal to the entire Outstanding Principal Amount and
accrued and unpaid interest on all Debentures pursuant to Section 25(g), the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly redeem, defease, repurchase, repay or make any payments
in respect of, by the payment of cash or marketable securities, including,
without limitation, Common Stock (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or any
portion of any Pari Passu Indebtedness, Qualified Mortgage Financing, Qualified
Inventory Financing or Subordinated Indebtedness of the Company or any of its
Subsidiaries, whether by way of payment in respect of principal of (or premium,
if any) or interest on, such Pari Passu Indebtedness, Qualified Mortgage
Financing, Qualified Inventory Financing or Subordinated Indebtedness or
otherwise; provided, however, that, so long as no event constituting, or that
with the passage of time and without being cured would constitute, an Event of
Default has occurred and is continuing, on the date any of the following
payments is due or is otherwise made and subject to the terms and conditions of
any subordination agreement entered into in connection with the issuance of any
Subordinated Indebtedness as provided herein, the Company may, without regard to
the foregoing limitation: (i) pay in cash scheduled interest payments, in each
case in the manner set forth in the original documentation governing such Pari
Passu Indebtedness, Qualified Mortgage Financing, Qualified Inventory Financing
or Subordinated Indebtedness, at an annual rate not to exceed (A) 10% per annum,
if such interest rate is fixed, or (B) the prime rate plus two percent (2%), if
such interest rate is floating, of such Pari Passu Indebtedness, Qualified
Mortgage Financing, Qualified Inventory Financing or Subordinated Indebtedness,
and (ii) make any principal payments when due on any Qualified Indebtedness at
any time prior to the two-year anniversary of the Original Issuance Date;
provided, however, that the Company may not make any such principal payments
unless as a condition to each time any such Qualified Indebtedness is incurred,
other than Acquisition Indebtedness, (including each time any Qualified
Indebtedness is incurred under a revolving credit facility or otherwise), the
Company shall have made cash collateral payments in an aggregate amount of
Outstanding Principal Amount of all Debentures then outstanding at the time such
Qualified Indebtedness was incurred (pro rata among all holders of Debentures)
in accordance with Section 25(g)(ii) hereof equal to fifty percent (50%) of the
principal amount of the Qualified Indebtedness so incurred, it being understood
and agreed that, for the avoidance of doubt, if the Company has not satisfied
its cash collateral payment obligations under Section 25(g)(ii) in connection
with the incurrence of any such Qualified Indebtedness, the Company may not make
any of the principal payments otherwise permitted under this subsection (ii).
(d) Restrictions on Liens. So long as any of the Debentures are outstanding and
cash collateral payments have not been made in an amount equal to the entire
Outstanding Principal Amount and accrued and unpaid interest on all Debentures
pursuant to Section 25(g), the Company shall not create, incur, assume or suffer
to exist, or permit any of its Subsidiaries to create, incur, assume or suffer
to exist, any Lien upon or with respect to any of its assets or properties,
whether now owned or hereafter acquired; file or suffer to exist under the
Uniform Commercial Code or any similar law or statute of any jurisdiction, a
financing statement (or the equivalent thereof) that names it or any of its
Subsidiaries as debtor; sign or suffer to exist any security agreement
authorizing any secured party thereunder to file such financing statement (or
the equivalent thereof); sell any of its property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable) with recourse to it or any of
its Subsidiaries or assign or otherwise transfer, or permit any of its
Subsidiaries to assign or otherwise transfer, any account or other right to
receive income; other than, as to all of the above, Permitted Liens;
(e) Restricted Investments.
----------------------
(xxxii) Except as provided in Section 4(v) of the Securities Purchase Agreement
and except for cash held by the Company's Belgian Subsidiary in
connection with the Belgian Contribution, so long as any of the
Debentures are outstanding and cash collateral payments have not been
made in an amount equal to the entire Outstanding Principal Amount and
accrued and unpaid interest on all Debentures pursuant to Section
25(g), the Company shall not and shall not permit any of its
Subsidiaries to, directly or indirectly, deposit or hold any cash,
securities, certificates of deposit, investments or other funds or cash
equivalent in any account for which the Agent has not executed an
account control agreement and obtained a perfected first priority
security interest thereover.
(xxxiii) So long as any of the Debentures are outstanding and cash collateral
payments have not been made in an amount equal to the entire
Outstanding Principal Amount and accrued and unpaid interest on all
Debentures pursuant to Section 25(g), the Company shall not, directly
or indirectly, make or commit or agree to make any loan, advance,
guarantee of obligations, other extension of credit or capital
contributions to, or hold or invest in or commit or agree to hold or
invest in, or purchase or otherwise acquire or commit or agree to
purchase or otherwise acquire any shares of the capital stock, bonds,
notes, debentures or other securities of, or make or commit or agree to
make any other investment in, any other Person (including, without
limitation, a Subsidiary), or purchase or own any futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or
otherwise transfer any cash, property or other assets to any
Subsidiary, or permit any of its Subsidiaries to do any of the
foregoing, other than in connection with (i) the Interferon
Acquisition, (ii) an acquisition of, or investment in, the assets or
capital stock of any other Person by the Company or any of its
Subsidiaries for consideration consisting solely of shares of Common
Stock that are not subject to any repurchase, retirement or redemption
obligation of the Company or any of its Subsidiaries (a "Stock
Acquisition") and (iii) the contribution by the Company to its Belgian
Subsidiary of not more than $25,000 in the aggregate for the payment of
ordinary course business expenses (the "Belgian Contribution").
(f) Restrictions on Asset Sales and Purchases. So long as any of the Debentures
are outstanding and cash collateral payments have not been made in an amount
equal to the entire Outstanding Principal Amount and accrued and unpaid interest
on all Debentures pursuant to Section 25(g), the Company shall not and shall not
permit any of its Subsidiaries to convey, sell, lease or sublease, transfer or
otherwise dispose of, whether in one transaction or a series of related
transactions, all or any part of its business, property or assets, whether now
owned or hereafter acquired (or agree to do any of the foregoing), other than,
so long as no event constituting an Event of Default or an event that with the
passage of time and without being cured would constitute an Event of Default,
has occurred and is continuing at the time of such sale, (i) sales of
Intellectual Property, (ii) sales of Inventory in the ordinary course of
business (iii) or as otherwise expressly permitted under this Debenture. So long
as any of the Debentures are outstanding and cash collateral payments have not
been made in an amount equal to the entire Outstanding Principal Amount and
accrued and unpaid interest on all Debentures pursuant to Section 25(g), the
Company shall not and shall not permit any of its Subsidiaries to purchase or
otherwise acquire, whether in one transaction or a series of related
transactions, all or substantially all of the assets of any Person (or any
division thereof), other than in connection with (A) the Interferon Acquisition,
(B) the incurrence of Acquisition Indebtedness to the extent permitted
hereunder, (C) a Qualified Inventory Financing, (D) a Qualified Mortgage
Financing or (E) a Stock Acquisition.
(g) Cash Collateral.
---------------
i. Unless and until such time as the Company shall have made cash
collateral payments in respect of the entire Outstanding Principal
Amount of this Debenture, together with accrued and unpaid interest
thereon, the Company shall make cash collateral payments in accordance
with this Section 25(g) in respect of a portion of the Outstanding
Principal Amount of this Debenture, together with accrued and unpaid
interest thereon, in cash and/or Common Stock (as provided in Section
25(g)(ii) and (iii)) as follows:
(A) on each Biweekly Revenue Cash Collateral Date, the Company shall make
cash collateral payments in respect of the Outstanding Principal Amount of all
Debentures, together with accrued interest thereon, in an amount equal to the
product derived by multiplying (i) .5 by (ii) the Company Consolidated Revenues
for the period commencing on the date of the immediately preceding Biweekly
Revenue Cash Collateral Date (or the Original Issuance Date, in the case of the
first Biweekly Revenue Cash Collateral Date) through the Business Day
immediately preceding the applicable Biweekly Revenue Cash Collateral Date;
(B) on each Monthly Revenue Cash Collateral Date, the Company shall make
cash collateral payments in respect of the Outstanding Principal Amount of all
Debentures, together with accrued interest thereon, in an amount equal to the
greater of (i) the product derived by multiplying (a) .1 by (b) the portion of
the Outstanding Principal Amount of all Debentures and accrued and unpaid
interest thereon for which cash collateral payments have not been made under
Section 25(g) as of March 31, 2004 and (ii) the product derived by multiplying
(a) .5 by (b) the Company Consolidated Revenues for the period commencing on the
date of the immediately preceding Monthly Revenue Cash Collateral Date (or April
1, 2004, in the case of the first Monthly Revenue Cash Collateral Date) through
the Business Day immediately preceding the applicable Monthly Revenue Cash
Collateral Date;
(C) on the First Revenue Milestone Cash Collateral Date, the Company shall
make cash collateral payments in respect of the Outstanding Principal Amount of
all Debentures, together with accrued interest thereon, in an amount equal to
the sum of (i) $400,000 and (ii) the product derived by multiplying (X) .8 by
(Y) the amount, if any, by which the Company Consolidated Revenues during the
First Revenue Milestone Measuring Period exceeds the First Revenue Milestone
Target;
(D) on the Second Revenue Milestone Cash Collateral Date, the Company shall
make cash collateral payments in respect of the Outstanding Principal Amount of
all Debentures, together with accrued interest thereon, in an amount equal to
the excess, if any, of (i) the sum of (a) $750,000 and (b) the product derived
by multiplying (X) .8 by (Y) the amount, if any, by which the Company
Consolidated Revenues during the Second Revenue Milestone Measuring Period
exceeds the Second Revenue Milestone Target, over (ii) the cumulative amount of
cash collateral payments (including the dollar value attributed to any such
payments made in the form of Repayment Shares in accordance with the provisions
of Section 25(g)(iii)) that have been made by the Company prior to the Second
Revenue Milestone Cash Collateral Date pursuant to Sections 25(g)(i)(A) and
25(g)(i)(C) hereof;
(E) on the Third Revenue Milestone Cash Collateral Date, the Company shall
make cash collateral payments in respect of the Outstanding Principal Amount of
all Debentures, together with accrued interest thereon, in an amount equal to
the excess, if any, of (i) the sum of (a) $1,500,000 and (b) the product derived
by multiplying (X) .8 by (Y) the amount, if any, by which the Company
Consolidated Revenues during the Third Revenue Milestone Measuring Period
exceeds the Third Revenue Milestone Target, over (ii) the cumulative amount of
cash collateral payments (including the dollar value attributed to any such
payments made in the form of Repayment Shares in accordance with the provisions
of Section 25(g)(iii)) that have been made by the Company prior to the Third
Revenue Milestone Cash Collateral Date pursuant to Sections 25(g)(i)(A),
25(g)(i)(C) and 25(g)(i)(D) hereof;
(F) on the Qualified Inventory Financing Date, subject to Section 28(d),
the Company shall make cash collateral payments in respect of the Outstanding
Principal Amount of all Debentures, together with accrued interest thereon, in
an amount an amount equal to $2,000,000.00; and
(G) on the Qualified Mortgage Financing Date, subject to Section 28(c), the
Company shall make cash collateral payments in respect of the Outstanding
Principal Amount of all Debentures, together with accrued interest thereon, in
an amount equal to $1,500,000.00.
ii. On each Cash Collateral Date (and any date for which a cash collateral
payment is required under this Section 25), the Company shall
irrevocably deposit, or cause to be irrevocably deposited into the
Cash Collateral Account, the portion of the total Outstanding
Principal Amount of all Debentures and accrued and unpaid interest
thereon for which cash collateral payments are required to be made in
accordance with Section 25(g)(i) (or any other provision of Section 25
requiring cash collateral payments), subject to Section 25(g)(iii), in
cash in U.S. Dollars to secure payment of the principal of, premium,
if any, penalties, if any, and interest due on the outstanding
Debentures, pursuant to the Account Control Agreement and such other
written agreements and other arrangements satisfactory to the holders
of 60% of the Outstanding Principal Amount of all Debentures issued on
the Original Issuance Date then outstanding, which shall, among other
things, confirm that the funds deposited in the Cash Collateral
Account and the proceeds of any letter of credit issued shall be
subject to a perfected first priority security interest in favor of
the Agent for the benefit of the holders of Debentures.
iii. Notwithstanding anything in Section 25(g)(ii) hereof, but subject to
Sections 11 and 26 hereof, (A) on each Cash Collateral Date relating
to a cash collateral payment under Section 25(g)(i)(A), the Company
shall make a payment by way of delivery of 25,000 fully paid and
nonassessable shares of Common Stock (as equitably adjusted for any
stock dividend, stock split or other similar transaction and pro rata
among all holders of Debentures) and (B) on each Cash Collateral Date
relating to a cash collateral payment under Section 25(g)(i)(B), the
Company shall make a payment by way of delivery of 50,000 fully paid
and nonassessable shares of Common Stock (as equitably adjusted for
any stock dividend, stock split or other similar transaction and pro
rata among all holders of Debentures), in each case delivered to the
holder in lieu of cash for such amount (it being understood and agreed
that (x) the remaining balance of such payments, if any, shall be paid
in cash in accordance with Section 25(g)(ii) above and (y)
irrespective of whether the value of the shares of Common Stock
payable under clauses (A) or (B) of this Section 25(g)(iii) exceeds
the amount otherwise due under Section 25(g)(i)(A) or Section
25(g)(i)(B), as applicable, the Company shall issue the full amount of
the 25,000 or 50,000 shares of Common Stock, as applicable, on the
applicable Cash Collateral Date and the value of the additional shares
of Common Stock, if any, delivered to the holder that exceed the
amount required to be paid under the applicable subsection of this
Section 25(g) shall be deemed to be a permitted prepayment of this
Debenture as provided in the final sentence of this Section
25(g)(iii)) represented by duly executed stock certificates registered
in the name of the holder or its designee (the "Repayment Shares")
(or, in the case of a public resale of such Repayment Shares in
accordance with the provisions of the Irrevocable Transfer Agent
Instructions, provided the Transfer Agent is participating in The DTC
Fast Automated Securities Transfer Program and, if required by DTC,
the holder provides a customary representation letter to DTC, upon the
request of the holder, credit such aggregate number of shares of
Common Stock to which the holder shall be entitled to the holder's
designee's balance account with DTC through its Deposit Withdrawal
Agent Commission system) with each Repayment Share being ascribed a
valued for purposes of this Section 25(g)(iii) equal to the product
derived by multiplying (A) .825 by (B) the arithmetic average of
Weighted Average Prices of the Common Stock on the five consecutive
Business Days ending on and including the Business Day immediately
preceding the applicable Cash Collateral Date (the "Equity Collateral
Conversion Rate") provided, however, that (x) in no event may the
Company pay any portion of a cash -------- ------- collateral payment
obligation in Repayment Shares if a Registration Statement is not then
effective and available for the resale of all of the Repayment Shares
on the applicable Cash Collateral Date or each date which is within 10
Business Days prior to such Cash Collateral Date, in which case the
full amount of such payments shall instead be made in cash in
accordance with Section 25(g)(ii) and (y) in the event the Company
does not have a sufficient number of Repayment Shares reserved and
available for issuance pursuant to this Section 25(g)(iii), the
Company shall issue the maximum number of Repayment Shares that are
available for issuance, pro rata among all holders of Debentures, and
the balance of such payment shall instead be made in cash in
accordance with Section 25(g)(ii) hereof. Cash collateral payments
validly made in the form of Repayment Shares under this Section
25(g)(iii) shall be deemed prepayments of (i) first, accrued and
unpaid interest on the Outstanding Principal Amount of this Debenture
and (ii) second, Outstanding Principal Amount of this Debenture.
iv. The Company covenants and agrees that it shall make all calculations,
including, without limitation, all calculations of Company
Consolidated Revenues, necessary to determine the amounts to be paid
from time to time under this Section 25(g) in strict accordance with
the terms of this Agreement. The Company further covenants and agrees
that it shall prepare and publish its quarterly and annual earnings
releases and quarterly and annual reports filed with the SEC with
sufficient detail so that the holder of this Debenture shall be able
to determine and verify solely from the information contained therein
the amount of Company Consolidated Revenues used to calculate amounts
to be paid from time to time under this Section 25(g) and to reconcile
the amount of Company Consolidated Revenues with the amounts actually
paid under this Section 25(g). If any holder of Debentures disputes
any calculations of Company Consolidated Revenues set forth in or
omitted from any public release or SEC filing that covers any period
relevant for the determinations required under this Section 25(g),
such holder shall deliver written notice to the Company within ten
Business Days of the publication of such release or SEC filing,
describing in reasonable detail the basis for such dispute (and the
Company shall promptly deliver such notice to all other holders). If
the Company and the disputing holder(s) of Debentures are unable to
resolve any such dispute within two Business Days of the Company's
receipt of notice thereof, the Company shall within two (2) Business
Days submit the disputed matters to the Company's independent, outside
accountant. The Company shall cause the accountant to perform the
determinations or calculations and notify the Company and the holders
of the results no later than ten (10) Business Days from the time it
receives the disputed determinations or calculations. Such
accountant's determination, as the case may be, shall be binding upon
all parties absent manifest error. The Company shall bear all costs,
fees and expenses of the accountant in rendering any such
determinations.
v. On each Cash Collateral Date, the Company covenants and agrees to
execute and deliver a completed Cash Collateral Accounting Certificate
in the form attached hereto as Exhibit C (the "Cash Collateral
Certificate") by facsimile and first class mail to the Person
designated on the form of Cash Collateral Certificate (or such other
Person or Persons as the holders of not less than 60% of the then
Outstanding Principal Amount of Debentures may designate in writing to
the Company), which shall be certified to each holder of Debentures as
true and correct by the Chief Executive Officer or Chief Financial
Officer of the Company. THE COMPANY ACKNOWLEDGES AND AGREES THAT IN NO
EVENT SHALL IT OR ANY PERSON ON THE COMPANY'S BEHALF DELIVER ANY CASH
COLLATERAL CERTIFICATE TO ANY HOLDER OF DEBENTURES WITHOUT THE EXPRESS
PRIOR WRITTEN CONSENT OF SUCH HOLDER.
vi. All payments by the Company pursuant to this Section 25(g), whether in
the form of cash or Repayment Shares, shall be made pro rata among all
Debentures.
vii. Notwithstanding anything herein to the contrary, the Company shall not
be obligated to make any collateral payments, or deliver any Cash
Collateral Certificates, pursuant to this Section 25(g) (whether in
cash or in shares of Common Stock) on any Biweekly Revenue Cash
Collateral Date, Monthly Revenue Cash Collateral Date, the First
Revenue Milestone Cash Collateral Date, the Second Revenue Milestone
Cash Collateral Date, or the Third Revenue Milestone Cash Collateral
Date to the extent that the balance in the Cash Collateral Account (as
defined in the Securities Purchase Agreement) is not less than
$1,300,000.
(viii) the Holder agrees that, in the event of any unauthorized
distributions (as defined below) from the Cash Collateral Account, the
principal amounts of the Debentures will be reduced by the amount of
such unauthorized distributions; the allocation of such reduction to
the PL Debentures to be made pro rata. An unauthorized distribution
would be any distribution other than as permitted under the PL
Debentures or the related agreements.
(h) Conflicts. In the event there is any conflict among provisions of this
Section 25 as to the amount of any cash collateral payment required to be paid
by the Company into the Cash Collateral Account, the provision requiring the
Company to pay the greater amount shall in all instances control.
26. Limitation on Number of Conversion Shares. The Company (1) shall not be
obligated to issue Conversion Shares upon conversion of this Debenture, (2)
shall not be permitted to issue Interest Shares (but instead shall make Cash
Interest Payments), (3) shall not be permitted to issue Repayment Shares (but
instead shall make cash collateral payments in cash), (4) shall not be permitted
to make a Company Conversion, and (5) shall not be permitted to issue conversion
shares, interest shares, repayment shares, or warrant shares in connection with
the Previously-Issued Securities (as defined in the Securities Purchase
Agreement), in each case to the extent that the issuance of such shares of
Common Stock would cause the Company to exceed that number of shares of Common
Stock which the Company may issue under this Debenture (the "Exchange Cap")
without breaching the Company's obligations under the rules or regulations of
the Principal Market, except that such limitation shall not apply in the event
that the Company obtains the approval of its stockholders as required by the
Principal Market (or any successor rule or regulation) for issuances of Common
Stock in excess of such amount. Until such approval is obtained, the holder of
this Debenture shall not be issued, upon conversion or redemption of, or as
interest under, this Debenture, shares of Common Stock in an amount greater than
the difference between (i) the product of (x) the Exchange Cap amount multiplied
by (y) a fraction, the numerator of which is the aggregate principal amount of
Debentures issued to such Holder pursuant to the Securities Purchase Agreement
and the denominator of which is the aggregate principal amount of all the
Debentures issued to all Debenture holders pursuant to the Securities Purchase
Agreement and (ii) the sum of (A) the aggregate number of Interest Shares and
Repayment Shares and shares issued in connection with a Company Conversion
issued to the holder of this Debenture (and all predecessor holders) as of the
date of such conversion plus (B) the aggregate number of shares of Common Stock
issued to the holder of this Debenture (and all predecessor holders) upon the
exercise of any Warrants held by such holder (and all predecessor holders) as of
the date of such conversion plus (C) the aggregate number of shares of Common
Stock issued to the holder of this Debenture (and all predecessor holders)
pursuant to the Previously-Issued Securities (such difference, the "Cap
Allocation Amount"). If at any time when the Holder shall deliver a Conversion
Notice pursuant to Section 4 hereof the Company shall be prohibited pursuant to
the provisions of this Section 26 from issuing all or any portion of the
Conversion Shares issuable pursuant to such Conversion Notice, then the Company
shall pay in immediately available funds to the holder of this Debenture within
two (2) Business Days of the date of delivery of such Conversion Notice, an
amount in cash equal to the product of (X) the number of shares of Common Stock
which could not be issued by virtue of the limitations contained in this Section
26 multiplied by (Y) the average of the Weighted Average Price of the Common
Stock on each of the five (5) trading days ending on the third trading day
immediately preceding the date the date of delivery of such Conversion Notice.
The Outstanding Principal Amount of this Debenture shall be reduced by an amount
equal to the Outstanding Principal Amount of this Debenture designated in the
Conversion Notice that could not be converted by virtue of the limitations set
forth in this Section 26 and for which the Company has made payment pursuant to
the immediately preceding sentence.
27. Taxes.
-----
(a) The Company shall pay any and all documentary, stamp, transfer (but only in
respect of the registered holder thereof) and other similar taxes that may be
payable with respect to the issuance and delivery of Common Stock upon the
conversion of Debentures; provided, however, that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issue or delivery of Common Stock or other securities or property in a
name other than that of the registered holder of this Debenture to be converted
and such holder shall pay such amount, if any, to cover any applicable transfer
or similar tax.
(b) The Company shall be permitted to withhold from any amounts payable to a
Debenture holder or a holder of Common Stock any taxes required by law to be
withheld from such amount. If the Company shall be required to withhold or
deduct any tax, levy or other governmental charge, excluding (A) net income
taxes, franchise taxes, or taxes imposed on or measured by net income (or
overall gross receipts, to the extent such tax is imposed in lieu of a tax on
net income by a jurisdiction that does not impose any tax based on or measured
by net income) on any Debenture holder by the jurisdiction in which such
Debenture holder is organized or any other jurisdiction in which such Debenture
holder would be subject to tax without regard to the transactions contemplated
hereby and (B) U.S. Federal withholding taxes (unless such U.S. Federal
withholding taxes would not be imposed but for a change in or amendment to the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
or any other administrative authority thereunder or any tax treaty or the
release or promulgation of any judicial decision relating thereto, in each case,
on or after the date such Debenture holder acquires a Debenture (each, a "Change
in Law")) (all such non-excluded taxes, levies or other governmental charges,
"Taxes") from any payment of interest, or any accrual of original issue discount
(if applicable), for U.S. Federal income tax purposes made hereunder or under
any Debenture to or for the benefit of any Debenture holder, then (A) the amount
payable shall be increased by the amount necessary so that after making all
required deductions and withholdings (including deductions and withholdings with
respect to additional amounts payable under this Section 27(b)) such Debenture
holder shall receive an amount equal to the amount it would have received if no
such deduction or withholding of Taxes had been required, (B) the Company shall
make such deduction or withholding and (C) the Company shall pay the full amount
deducted to the appropriate governmental authority in accordance with applicable
law. If any Debenture holder is organized under the laws of a jurisdiction other
than the United States, any State thereof or the District of Columbia (each a
"Non-U.S. Debenture Holder"), it shall deliver to the Company two copies of
either (A) U.S. Internal Revenue Service Form W-8BEN (claiming complete
exemption from U.S. Federal withholding tax under an income tax treaty), or any
successor form; (B) U.S. Internal Revenue Service Form W-8ECI (claiming complete
exemption from U.S. Federal withholding tax because the income is effectively
connected with a U.S. trade or business), or any successor form; (C) in the case
of a Non-U.S. Debenture Holder claiming exemption from U.S. Federal withholding
tax under Section 871(h) or 881(c) of the Code, with respect to payments of
"portfolio interest," U.S. Internal Revenue Service Form W-8BEN (certifying as
to beneficial ownership), or any successor form, and a certificate in form and
substance reasonably acceptable to the Company representing that such Non-U.S.
Debenture Holder is not a "bank" for purposes of Section 881(c) of the Code, is
not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the
Code) of the Company and is not a "controlled foreign corporation" related to
the Company (within the meaning of Section 864(d)(4) of the Code); or (D) other
applicable form, certificate or document prescribed by the U.S. Internal Revenue
Service certifying as to such Non-U.S. Debenture Holder's entitlement to a
complete exemption from U.S. Federal withholding tax, as applicable, in all
cases such forms and other documents being properly completed and duly executed
by such Non-U.S. Debenture Holder claiming complete exemption from U.S. Federal
withholding tax on payments of interest (or of original issue discount, if
applicable) for U.S. Federal income tax purposes by the Company under the
Debentures. Each Debenture holder and each holder of common stock that is
organized under the laws of a jurisdiction other than the United States, any
State thereof or the District of Columbia (each a "Non-U.S. Equity Holder") also
shall deliver to the Company, to the extent legally able to do so, with respect
to payments of dividends for U.S. Federal income tax purposes by the Company, if
applicable, two copies of either (A) U.S. Internal Revenue Service Form W-8BEN
(claiming a reduction of U.S. Federal withholding tax under an applicable income
tax treaty, if any), or any successor form, (B) U.S. Internal Revenue Service
Form W-8ECI (claiming complete exemption from U.S. Federal withholding tax
because the income is effectively connected with a U.S. trade or business), or
any successor form, or (C) other applicable form, certificate or document
prescribed by the U.S. Internal Revenue Service certifying as to such Non-U.S.
Equity Holder's entitlement to an exemption from, or a reduction of, U.S.
Federal withholding tax on payments of dividends for U.S. Federal income tax
purposes by the Company, as applicable, in all cases such forms and other
documents being properly completed and duly executed by such Non-U.S. Equity
Holder. In addition, each Debenture holder and each holder of Common Stock that
is not otherwise exempt from "back-up withholding" shall deliver to the Company
two properly completed and duly executed copies of either (A) U.S. Internal
Revenue Service Form W-8BEN, or any successor form, (B) U.S. Internal Revenue
Service Form W-8ECI, or any successor form, (C) U.S. Internal Revenue Service
Form W-9, or any successor form, or (D) other applicable form, certificate or
document prescribed by the U.S. Internal Revenue Service, as applicable, in each
case indicating that such Debenture holder or holder of Common Stock is not
subject to "back-up withholding" for U.S. Federal income tax purposes. The forms
and other documents required to be delivered pursuant to this Section 27(b)
shall be delivered (A) on or prior to the Original Issuance Date and (B) from
time to time thereafter if within ten (10) Business Days after receipt of a
written request therefor by the Company. In addition, each Debenture holder and
each holder of Common Stock shall promptly notify the Company at any time it
determines that it is no longer in a position to provide any previously
delivered (or requested) form, document or certificate to the Company, including
as a result in whole or in part from a Change in Law; provided, however, that
the failure to provide such notice shall not affect any Debenture holder's right
to any additional amounts hereunder.
(c) Notwithstanding anything to the contrary in Section 27(b) above, the Company
shall not be required to pay any additional amount to any Debenture holder
pursuant to the preceding paragraph to the extent the Tax in respect of which
such additional amount would otherwise be payable would not have been imposed
but for the failure of such Debenture holder to comply with its obligations
under such paragraph; provided, however, that the failure to provide the
applicable form, document or certificate pursuant to the preceding paragraph as
provided in the notice required by the preceding paragraph resulting in whole or
in part from a Change in Law shall not affect such Debenture holder's right to
any additional amounts hereunder.
28. Security.
--------
(a) The Debentures shall be secured to the extent and in the manner
provided in the Security Agreement.
(b) The Company acknowledges and agrees that all amounts deposited in the Cash
Collateral Account (a) shall constitute Collateral for all obligations of the
Company under the Debentures (the "Obligations"). At any time during the
continuance of an Event of Default, the Agent may require the Cash Collateral
Account Bank to transfer all amounts held in the Cash Collateral Account to the
Agent for application to the Obligations pursuant to the terms of the
Debentures.
(c) In the event that the Company desires to enter into the Qualified Mortgage
Financing, the holder, by its acceptance of this Debenture, agrees to cause the
Agent to enter into a written agreement, reasonably satisfactory to the Agent,
providing that, upon the consummation of the Qualified Mortgage Financing and
the Company making the deposit into the Cash Collateral Account of not less than
$1,500,000 in cash in accordance with Sections 25(g)(i)(G) and 25(g)(ii), the
Agent shall release its Lien on the Acquisition Buildings and shall execute and
deliver to the Company or to the provider of such financing or the purchaser of
the Acquisition Buildings such release or reconveyance instruments and such
other documents as shall be reasonably necessary to release the Lien of the
Agent on the Acquisition Buildings pursuant to the Mortgages, in each case at
the sole cost and expense of the Company and without any warranty or
representation by, or recourse to, the Agent or the holder of this Debenture.
(d) In the event that the Company desires to enter into the Qualified Inventory
Financing, the holder, by its acceptance of this Debenture, agrees to cause the
Agent to enter into a written agreement, reasonably satisfactory to the Agent,
providing that, upon the consummation of the Qualified Inventory Financing and
the deposit into the Cash Collateral Account of not less than $2,000,000 in cash
in accordance with Sections 25(g)(i)(F) and 25(g)(ii), the Agent shall release
its Lien on the Inventory and shall execute and deliver to the Company or to the
provider of such financing such UCC3 Amendments (or authorizations to file the
same) and such other documents as shall be reasonably necessary to release the
Lien of the Agent on the Inventory pursuant to the Security Agreement, in each
case at the sole cost and expense of the Company and without any warranty or
representation by, or recourse to, the Agent or the holder of this Debenture.
(e) If at any time the Company shall have deposited into the Cash Collateral
Account an amount equal to the entire Outstanding Principal Amount and accrued
and unpaid interest on all Debentures pursuant to Section 25(g), the holder, by
its acceptance of this Debenture, agrees to release, or cause the Agent to
release, its Lien on all Collateral, other than the Cash Collateral Account, and
shall execute and deliver to the Company (or cause the Agent to execute and
deliver to the Company) such release or reconveyance instruments and such other
documents as shall be reasonably necessary to release the Liens on the
Collateral (other than the Cash Collateral Account) in each case at the sole
cost and expense of the Company and without any warranty or representation by,
or recourse to, the Agent or the holder of this Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
Dated: October 6, 2005
HEMISPHERX BIOPHARMA, INC.
By: s/
--------------------
Name:
Title:
Print Address:
Telephone:
Facsimile:
ATTEST
- ------------------------------
Name:
Title:
EXHIBIT I
(To be Executed by Registered Holder
in order to Convert Debenture)
CONVERSION NOTICE
FOR
7% SENIOR SECURED CONVERTIBLE DEBENTURE DUE JUNE 30, 2007
The undersigned, as Holder of the 7% Senior Secured Convertible Debenture Due
June 30, 2007 of HEMISPHERX BIOPHARMA, INC. (the "Company"), No. _, in the
outstanding principal amount of $_______ (the "Debenture"), hereby elects to
convert $_______ of the outstanding principal amount of the Debenture (as well
as accrued and unpaid interest) into shares of Common Stock, par value $0.001
per share (the "Common Stock"), of the Company according to the conditions of
the Debenture, as of the date written below.
Date of Conversion:
--------------------------------------------------
Principal Amount of Debentures to be converted:
Accrued Interest to be converted:
------------------------------------
Installment Date to which the amount to be converted relates:
Tax ID Number (If applicable):
--------------------------------------
Please confirm the following information:
Conversion Price:
----------------------------------------------------
Number of shares of Common Stock to be issued:
-----------------------
Is the Variable Price being relied on pursuant to Section 6(c) of the
Debenture? (check one) YES No
------ ------
Please issue the Common Stock into which the Debentures are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
-----------------------------------------------
2557:
Address:
-------------------------------------------------
Telephone Number:
---------------------------------------
Facsimile Number:
---------------------------------------
Authorization:
------------------------------------------
By:
-----------------------------------------------------
Title:
--------------------------------------------------
Dated:
Account Number (if electronic book entry transfer):
Transaction Code Number (if electronic book entry transfer):
[NOTE TO HOLDER -- THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and
hereby directs Continental Stock Transfer & Trust Company to issue the above
indicated number of shares of Common Stock in accordance with the Irrevocable
Transfer Agent Instructions dated January 26, 2004 (as amended on October 24,
2005) from the Company and acknowledged and agreed to by Continental Stock
Transfer & Trust Company.
HEMISPHERX BIOPHARMA, INC.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Account Control Agreement...................................................3
Acquiring Entity............................................................16
Act.........................................................................3
Agent.......................................................................3
Approved Stock Plan.........................................................3
ASE.........................................................................3
Bloomberg...................................................................3
Business Day................................................................3
Cap Allocation Amount.......................................................42
Cash Collateral Account.....................................................3
Cash Collateral Account Bank................................................3
Cash Collateral Certificate.................................................41
Cash Interest Payment.......................................................1
Cash Transaction...........................................................3,18
Change of Control...........................................................17
Change of Control Redemption Price..........................................17
Closing Sale Price..........................................................4,7
Collateral..................................................................4
Common Stock...............................................................4,48
Common Stock Deemed Outstanding.............................................4
Company.................................................................1,48,57
Conversion Date.............................................................9
Conversion Failure..........................................................4
Conversion Notice...........................................................9
Conversion Price............................................................4
Conversion Rate.............................................................8
Convertible Securities......................................................4
Debenture..................................................................1,48
Debenture Delivery Date.....................................................9
Debenture Register..........................................................2
Debentures..................................................................1
Default Conversion Price....................................................5
Default Interest............................................................2
Dilutive Issuance...........................................................12
DTC.........................................................................9
Events of Default...........................................................20
Exchange Act................................................................26
Exchange Cap................................................................42
Fixed Conversion Price......................................................5
Holder......................................................................1
Indebtedness................................................................21
Intellectual Property.......................................................5
Interest Payment Date.......................................................1
Interest Payments...........................................................1
Interferon Acquisition......................................................5
Letters of Credit...........................................................5
Mandatory Conversion........................................................8
Mandatory Conversion Date...................................................8
Mandatory Conversion Measuring Period.......................................7
Mandatory Conversion Notice.................................................7
Maturity Date...............................................................1
Maturity Date Mandatory Redemption..........................................11
Maturity Date Redemption Price..............................................11
Mortgage....................................................................5
NASDAQ......................................................................5
New Securities Issuance Price...............................................12
Notice of Change of Control.................................................17
Notice of Redemption Upon Change of Control.................................17
NYSE........................................................................5
Options.....................................................................5
Organic Change..............................................................16
Original Issuance Date......................................................5
Outstanding Principal Amount................................................5
Person......................................................................5
Principal Market............................................................5
Quarterly Period............................................................6
Registration Rights Agreement...............................................6
Rule 144....................................................................26
SEC.........................................................................6
Securities Agreement........................................................6
Securities Purchase Agreement...............................................6
Share Delivery Date.........................................................9
Strategic Financing.........................................................6
Transaction Documents.......................................................6
Transfer Agent..............................................................9
Valuation Event.............................................................14
Warrants....................................................................6
Weighted Average Price......................................................6,7
EXHIBIT A
Subordination Provisions
Section 1. Definitions. As used herein, the following terms shall have the
following meanings:
"Borrower" shall mean [Hemispherx][applicable Subsidiary of Hemispherx].
"Hemispherx" shall mean Hemispherx Biopharma, Inc., a corporation duly
organized and existing under the laws of the State of Delaware.
"Loan Documents" shall mean any agreement executed in connection with
the issuance of the Senior Debt, in each case as amended, supplemented
or otherwise modified from time to time.
"Obligations" shall mean the obligations of the Borrower now or
hereafter existing in favor of the holders of the Senior Debt, whether
for principal, interest (including interest accruing subsequent to the
filing of any petition initiating any bankruptcy, insolvency,
arrangement, reorganization or receivership proceedings relating to
the Borrower), fees, expenses or otherwise.
"Senior Debt" shall mean the Borrower's 7% Senior Secured Convertible
Debentures due
"Subordinated Creditor" shall mean .
----------------
"Subordinated Debt" shall mean all indebtedness of the Borrower now or hereafter
existing in favor of the Subordinated Creditor, whether created directly or
acquired by assignment or otherwise, all interest thereon and all fees, premiums
and other amounts payable in respect thereof.
"Subordinated Loan Documents" shall mean the instruments and
agreements to which the Borrower is a party evidencing or relating to
any Subordinated Debt.
Section 2. Agreement to Subordinate. Each of the Subordinated
Creditor, Hemispherx and the Borrower agrees that the Subordinated Debt is and
shall be subordinate, to the extent and in the manner hereinafter set forth, in
right of payment to the prior payment in full of the Obligations.
Section 3. Restrictions on Payment of the Subordinated Debt.
(a) The Subordinated Creditor may receive, and the Borrower
may pay, interest on the Subordinated Debt evidenced by the Subordinated Loan
Documents, in the stated amounts and on the stated dates of payment thereof as
set forth in the Subordinated Loan Documents, provided, however, that no such
payments shall be received or made at any time during which an Event of Default
(as defined in the Senior Debt) shall have occurred and be continuing on any
Senior Debt.
(b) In the event of any dissolution, winding up, liquidation,
arrangement or reorganization relating to Hemispherx or the Borrower, in any
bankruptcy, insolvency, arrangement, reorganization or receivership proceedings
or upon an assignment for the benefit of creditors or any other marshalling of
the assets and liabilities of Hemispherx or the Borrower, any payment or
distribution of any kind (whether in cash, securities or other property) which
otherwise would be payable or deliverable upon or with respect to the
Subordinated Debt shall be paid or delivered directly to the holders of the
Senior Debt for application (in the case of cash) to, or as collateral (in the
case of securities or other non-cash property) for, the payment or prepayment of
the Obligations until the Obligations shall have been paid in full.
(c) All payments or distributions upon or with respect to the
Subordinated Debt which are received by the Subordinated Creditor contrary to
these subordination provisions shall be received in trust for the benefit of the
holders of the Senior Debt for the ratable benefit of such holders, shall be
segregated from other funds and property held by the Subordinated Creditor and
shall be forthwith paid over to the holders of the Senior Debt for the ratable
benefit of such holders in the same form as so received (with any necessary
endorsement) to be applied (in the case of cash) to or held as collateral (in
the case of securities or other non-cash property) for the payment or prepayment
of the Obligations until the Obligations shall have been paid in full.
Section 4. Obligations Unconditional.
(a) All rights and interests of the holders of the Senior Debt
hereunder, and all agreements and obligations of the Subordinated Creditor,
Hemispherx and the Borrower hereunder, shall remain in full force and effect
irrespective of: (i) any lack of validity or enforceability of any Loan Document
or any other agreement or instrument relating thereto, (ii) any change in the
time, manner or place of payment of, or in any other term in respect of, all or
any of the Obligations, or any other amendment or waiver of or any consent to
departure from any Loan Document, (iii) any exchange or release of, or
non-perfection of any lien on or security interest in, any collateral, or any
release or amendment or waiver of or consent to departure from any guaranty, for
all or any of the Obligations, or (iv) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, Hemispherx or
the Borrower in respect of the Obligations or the Subordinated Creditor,
Hemispherx or the Borrower in respect of these subordination provisions.
(b) These subordination provisions shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
of any of the Obligations is rescinded or must otherwise be returned by the
holders of the Senior Debt upon the insolvency, bankruptcy or reorganization of
Hemispherx or the Borrower or otherwise, all as though such payment had not been
made.
Section 5. Waivers. Each of the Subordinated Creditor,
Hemispherx and the Borrower waives (i) promptness and diligence, (ii) notice of
acceptance and notice of the incurrence of any Obligation by Hemispherx or the
Borrower, (iii) notice of any actions taken by the holders of the Senior Debt,
Hemispherx or the Borrower under any Loan Document or any other agreement or
instrument relating thereto, (iv) all other notices, demands and protests, and
all other formalities of every kind in connection with the enforcement of the
Obligations or of the obligations of the Subordinated Creditor, Hemispherx and
the Borrower under these subordination provisions, the omission of or delay in
which, but for the provisions of this Section 5, might constitute grounds for
relieving the Subordinated Creditor, Hemispherx or the Borrower of its
obligations under these subordination provisions and (v) any requirement that
the holders of the Senior Debt protect, secure, perfect or insure any security
interest or other lien or any property subject thereto or exhaust any right to
take any action against Hemispherx or the Borrower or any other person.
Section 6. Subrogation. No payment or distribution to the
holders of the Senior Debt pursuant to these subordination provisions shall
entitle the Subordinated Creditor to exercise any rights of subrogation in
respect thereof until the Obligations shall have been satisfied in full.
Section 7. Miscellaneous.
(a) Each of the Subordinated Creditor, Hemispherx and the
Borrower will, at its expense and at any time and from time to time, promptly
execute and deliver all further instruments and other documents, and take all
further action that the holders of the Senior Debt may reasonably request in
order to reflect the subordination provisions set forth herein.
(b) These subordination provisions shall be governed by and
construed in accordance with the law of the State of New York without regard to
principles of conflicts of law or choice of law (other than section 5-1401 of
the New York General Obligations Law). The parties hereto hereby agree that all
actions or proceedings arising directly or indirectly from or in connection with
these subordination provisions shall be litigated only in the Supreme Court of
the State of New York or the United States District Court for the Southern
District of New York located in New York County, New York. The parties hereto
consent to the jurisdiction and venue of the foregoing courts and consent that
any process or notice of motion or other application to either of said courts or
a judge thereof may be served inside or outside the State of New York or the
Southern District of New York by registered mail, return receipt requested,
directed as provided in (and service so made shall be deemed complete five (5)
days after the same has been posted as aforesaid) or by personal service or in
such other manner as may be permissible under the rules of said courts. The
parties hereto hereby waive any right to a jury trial in connection with any
litigation pursuant to these subordination provisions.
EXHIBIT B
Inventory
EXHIBIT C
FORM OF CASH COLLATERAL CERTIFICATE
IN NO EVENT SHALL THIS CERTIFICATE BE DELIVERED BY OR ON BEHALF OF THE COMPANY
TO ANY HOLDER OF DEBENTURES WITHOUT THE EXPRESS PRIOR WRITTEN CONSENT OF SUCH
HOLDER.
CERTIFICATE TO BE DELIVERED ONLY TO THE RECIPIENT DESIGNATED BELOW.
To:
Eleazer Klein, Esq.
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
The undersigned, the duly elected [Chief Executive Officer/Chief Financial
Officer] of HEMISPHERX BIOPHARMA, INC. (the "Company"), hereby certifies to the
holders of the 7% Senior Secured Convertible Debentures Due June 30, 2007 of the
Company (the "Debentures") pursuant to Section 25(g)(v) of the Debentures, that
the following information is true and correct in all respects (capitalized terms
used in this certificate and not defined herein shall have the meanings ascribed
to them in the Debentures):
Cash Collateral Date : .
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Qualified Inventory Financing Date (if applicable): .
----------------
Qualified Mortgage Financing Date (if applicable): .
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Amount of Cash Collateral Payment: $ .
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Amount of Cash Collateral Payment Made in Cash: $ .
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Aggregate Dollar Value of Cash Collateral Payments Made in Repayment
Shares (if applicable): $ .
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Aggregate Number of Repayment Shares Issued (if applicable): .
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Equity Collateral Conversion Rate (if applicable): .
-----------------
Company Consolidated Revenues for the relevant period (if applicable):
$ .
- --------------
Aggregate Amount of Cash Collateral Payments Made Prior to this Cash
Collateral Date:$ .
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IN WITNESS WHEREOF, the undersigned has executed this certificate as of
this day of , 200 .
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HEMISPHERX BIOPHARMA, INC.
By:
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Name:
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Title:
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