CONVERTIBLE SUBORDINATED PROMISSORY NOTE

 

The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees:

 

1.                                        Definitions .  As used in this Note, the following terms, unless the context otherwise requires, have the following meanings:

 

(a)                                   “Adjustment Event” has the meaning specified in Section 5.5(k).

 

(b)                                  “Affiliate” of any specified Person means any other Person that controls, is controlled by or is under common control with such specified Person.  For the purposes of this definition, “control”, when used with respect to any specified Person, means the actual power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlled by” and “under common control with” have meanings correlative to the foregoing.

 

(c)                                   “Board of Directors” means the Board of Directors of the Company or a committee of such Board duly authorized to act for it hereunder.

 

(d)                                  “Business Day” means  any day except a Saturday, Sunday or legal holiday on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to close.

 

(e)                                   “Closing Sale Price” of the shares of Common Stock or other equity securities on any date means the closing sale price per share (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) on such date as reported in composite transactions for the principal United States securities exchange on which shares of Common Stock or other equity securities are traded or, if the shares of Common Stock or other equity securities are not listed on a United States national or regional securities exchange, as reported by the Nasdaq or by the National Quotation Bureau Incorporated. In the absence of such quotations, the Company shall be entitled to determine the Closing Sale Price on the basis it considers appropriate, which pricing shall be consistent with any price determined under the outstanding 3½% Convertible Subordinated Notes due 2011 of the Company and in any case shall be determined by a method approved by the Holder (which approval shall not be unreasonably withheld). The Closing Sale Price shall be determined without reference to extended or after hours trading.

 

(f)                                     “Commission” means the United States Securities and Exchange Commission or any successor agency.

 

(g)                                  “Company” includes any corporation that shall succeed to or assume the obligations of the Company under this Note.

 

(h)                                  “Common Stock” means any stock of any class of the Company that has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that is not subject to

 

 

*** Confidential material redacted and filed separately with the Commission.

 

redemption by the Company.  Subject to the provisions of Section 5.6, however, shares issuable on conversion of Notes shall include only shares of the class designated as common stock of the Company at the date of the Purchase Agreement (namely, the Common Stock, $.001 par value) or shares of any class or classes resulting from any reclassification or reclassifications thereof and that have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that are not subject to redemption by the Company; provided, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable on conversion shall be substantially in the proportion that the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

 

(i)                                      “Conversion Notice” has the meaning specified in Section 5.2.

 

(j)                                      “Conversion Price” has the meaning specified in Section 5.4.

 

(k)                                   “Current Market Price” has the meaning specified in Section 5.5(g).

 

(l)                                      “Designated Event” means that any of the following has occurred:

 

(i)                                      any Person or group that is a *** becomes the beneficial owner, directly or indirectly, of fifty percent (50%) or more of the outstanding Voting Securities or voting power over Voting Securities of (x) the Company or (y) any one or more Persons which are direct or indirect parent holding companies of the Company or  Affiliates controlling the Company (the Company, together with the Persons described in clause (y), each hereinafter referred to, individually, as an “Incyte Group Company” and, collectively, as the “Incyte Group Companies”); or

 

(ii)                                   any Incyte Group Company enters into an agreement with any Person or group that is a *** providing for the sale or disposition of all or substantially all of the assets of the Incyte Group Companies, on a consolidated basis; or

 

(iii)                                any Incyte Group Company enters into an agreement with any Person or group providing for a merger, reorganization, consolidation or other similar transaction (or series of related transactions) of any Incyte Group Company with such Person or any Affiliate of such Person, in each case, that is a *** (other than with any of the Incyte Group Company’s Wholly-Owned Subsidiaries) or with such group that contains a ***, that results in the stockholders of the applicable Incyte Group Company immediately before the occurrence of such transaction (or series of transactions) beneficially owning less than a majority of the outstanding Voting Securities or voting power over Voting Securities of the surviving or newly-created entity in such transaction (or series of transactions); or

 

(iv)                               any Incyte Group Company, or any Subsidiary thereof or Affiliate controlling any Incyte Group Company, purchases, repays, redeems or otherwise acquires, in each case for cash, at any time or from time to time on or after the date of the Purchase Agreement, beneficial ownership (or enters into any agreement to do the same) of any Indebtedness (other than (x) the 5.5% Convertible Subordinated Notes Due 2007

 

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*** Confidential material redacted and filed separately with the Commission.

 

of the Company currently outstanding or (y) Senior Indebtedness) in an aggregate cumulative principal amount equal to or greater than $188,000,000; or

 

(v)                                  any Incyte Group Company enters into an agreement with any Person providing for the matters described in subsection (i) or (ii) above; or

 

(vi)                               the Common Stock (or other common stock into which this Note is then convertible) is neither listed for trading on a United States national or regional securities exchange nor approved for trading on the Nasdaq National Market.

 

For purposes of this Section 1(l) only: (A) references to any Incyte Group Company shall be deemed to include all successors in any merger, consolidation, reorganization or similar transaction (or series of related transactions) preceding any transaction (or series of related transactions) described above; (B) ”beneficial ownership” (and other correlative terms) means beneficial ownership as defined in Rule 13d-3 under the United States Securities and Exchange Act of 1934, as amended; it being understood and agreed that “beneficial ownership” shall also include any securities which any Person or any of such Person’s Affiliates has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; (C) ”group” means group as defined in the Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof; (D) ”control” (including, with correlative meanings, “controlled by”, “controlling” and “under common control with”) of an entity means possession, direct or indirect, of  (I) the power to direct or cause direction of the management and policies of such entity (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), or (II) at least fifty percent (50%) of the Voting Securities (whether directly or pursuant to any option, warrant or other similar arrangement) or other comparable equity interests of such entity; and (E) ”***” means (x) any *** that had ***, (y) any one or more Persons that are direct or indirect parent holding companies of subsidiaries of the *** described in clause (x) above, or (z) any Affiliate of the *** described in clause (x) above.

 

(m)                                “Designated Event Expiration Time” has the meaning specified in Section 4.3(b).

 

(n)                                  “Designated Event Notice” has the meaning specified in Section 4.3(b).

 

(o)                                  “Designated Event Prepayment Amount” has the meaning specified in Section 4.3(a).

 

(p)                                  “Designated Event Prepayment Date” has the meaning specified in Section 4.3(a).

 

(q)                                  “Designated Event Prepayment Notice” has the meaning specified in Section 4.3(a).

 

(r)                                     “Determination Date” has the meaning specified in Section 5.5(k)

 

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(s)                                   “Distributed Property” has the meaning specified in Section 5.5(d).

 

(t)                                     “Ex-Dividend Date” has the meaning specified in Section 5.5(d).

 

(u)                                  “Expiration Time” has the meaning specified in Section 5.5(f).

 

(v)                                  “Fair Market Value” has the meaning specified in Section 5.5(g).

 

(w)                                “FTC” has the meaning specified in Section 5.10.

 

(x)                                    “Governmental Authority” means any court, agency, department or other instrumentality of any foreign, federal, state, county, city or other political subdivision.

 

(y)                                  “HSR Act” has the meaning specified in Section 5.10.

 

(z)                                    “Holder” has the meaning specified in the preamble of this Note.

 

(aa)                             “Indebtedness” means, with respect to any Person, and without duplication, (i) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of the Person in respect of overdrafts, foreign exchange contracts, commodity contracts, currency exchange agreements, interest rate protection agreements and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), other than any account payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services; (ii) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers’ acceptances; (iii) all obligations and liabilities (contingent or otherwise) in respect of leases of such Person required, in conformity with generally accepted accounting principles, to be accounted for as capital lease obligations on the balance sheet of such Person and all obligations and other liabilities (contingent or otherwise) under any lease or related document (including a purchase agreement) in connection with the lease of real property or personal property or assets which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property or assets and thereby guarantee a minimum residual value of the leased property or assets to the lessor and the obligations of such Person under such lease or related document to purchase or to cause a third party to purchase such leased property or assets; (iv) all obligations of such Person (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreement or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement; (v) all direct or indirect guarantees or similar agreements by such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of another Person of the kind described in clauses (i) through (iv); (vi) any indebtedness or other obligations described in clauses (i) through (v) secured by any mortgage, pledge, lien or other encumbrance existing on property that is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person; and (vii) any and all deferrals, renewals,

 

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extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind or type described in clauses (i) through (vi).

 

(bb)                           “Maturity Date” has the meaning specified in the preamble of this Note.

 

(cc)                             “Non-Payment Default” has the meaning specified in Section 3.2(a).

 

(dd)                           “Notes” means this Note and any other note issued pursuant to the Purchase Agreement and held by the Holder or one of its Affiliates or permitted assignees thereunder.

 

(ee)                             “Payment Blockage Notice” has the meaning specified in Section 3.2(a).

 

(ff)                                 “Payment Default” has the meaning specified in Section 3.2(a).

 

(gg)                           “Person” means a corporation, an association, a partnership, a limited liability company, an individual, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political subdivision thereof.

 

(hh)                           “Prepayment Election Amount” has the meaning specified in Section 4.2.

 

(ii)                                   “Prepayment Election Date” has the meaning specified in Section 4.2.

 

(jj)                                   “Prepayment Election Notice” has the meaning specified in Section 4.2.

 

(kk)                             “Purchase Agreement” has the meaning specified in the preamble of this Note.

 

(ll)                                   “Purchased Shares” has the meaning specified in Section 5.5(f).

 

(mm)                       “Record Date” has the meaning specified in Section 5.5(g).

 

(nn)                           “Representative” means (i) the indenture trustee or other trustee, agent or representative for holders of Senior Indebtedness or (ii) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (A) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior Indebtedness and (B) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness.

 

(oo)                           “Rights” has the meaning specified in Section 5.5(d).

 

(pp)                           “Rights Plan” has the meaning specified in Section 5.5(d).

 

(qq)                           “Senior Indebtedness” means (i) the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding), and rent payable on or in connection with, and all fees, costs, enforcement expenses, collateral protection expenses and other reimbursement or indemnity obligations in respect of all of the Indebtedness or obligations of the Company to any Person for money

 

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borrowed that is evidenced by a note, bond, debenture, loan agreement, or similar instrument or agreement; (ii) commitment or standby fees due and payable to lending institutions with respect to credit facilities available to the Company; (iii) all of the Company’s noncontingent obligations (A) for the reimbursement of any obligator on any letter of credit, banker’s acceptance, or similar credit transaction, (B) under interest rate swaps, caps, collars, options and similar arrangements, and (C) under any foreign exchange contract, currency swap arrangement, futures contract, currency option contract, or other foreign currency hedge; (iv) all of the obligations of the Company for the payment of money relating to capital lease obligations; (v) any liabilities of others described in clauses (i) through (iv) that the Company has guaranteed or which are otherwise the Company’s legal liability; and (vi) renewals, extensions, refundings, refinancings, restructurings, amendments, and modifications of any such indebtedness or guarantee, other than indebtedness or other obligation of the Company that by its terms is not superior in rights to the payment to this Note; provided that Senior Indebtedness shall not include (1) the Notes, (2) any Indebtedness the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness is “ pari passu ” with or “junior” to the Notes, (3) any obligation of the Company to any Subsidiary, (4) the outstanding 5.5% Convertible Subordinated Notes Due 2007 of the Company and all obligations thereunder, and (5) the outstanding 3½% Convertible Subordinated Notes due 2011 of the Company and all obligations thereunder.

 

(rr)                                 “Subsidiary” means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock or other equity interest entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person (or a combination thereof) and (ii) any partnership (A) the sole general partner or managing general partner of which is such Person or a subsidiary of such Person or (B) the only general partners of which are such Person or of one or more subsidiaries of such Person (or any combination thereof).

 

(ss)                             “Trading Day” has the meaning specified in Section 5.5(g).

 

(tt)                                 “Trigger Event” has the meaning specified in Section 5.5(d).

 

(uu)                           “Voting Securities” means securities of any class or series of a corporation, association or other entity, the holders of which are ordinarily, in the absence of contingencies, entitled to vote generally in matters put before the shareholders or members of such corporation, association or other entity.

 

(vv)                           “Wholly-Owned Subsidiary” means, with respect to any entity, a Subsidiary, all of the outstanding Voting Securities of which are owned, directly or indirectly, by such entity.

 

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2.                                        Default and Remedies . 

 

2.1                                  Events of Default .  An “Event of Default” shall occur if one of the following shall have occurred and be continuing:

 

(a)                                   default in the payment of the principal of this Note when the same shall become due and payable (either at maturity or in connection with any prepayment, by acceleration or otherwise), whether or not such payment is permitted under Section 3; or

 

(b)                                  default in the payment of the principal of any other Note when the same shall become due and payable (either at maturity or in connection with any prepayment, by acceleration or otherwise), whether or not such payment is permitted under Section 3; or

 

(c)                                   subject to Section 2.2(a), failure on the part of the Company to comply with any of its obligations in this Note or any other Note, in each case other than any obligation a default in whose performance or breach is elsewhere in this Section 2.1 specifically dealt with; or

 

(d)                                  subject to Section 2.2(b), failure on the part of the Company to comply (i) in any material respect under the Purchase Agreement, (ii) in any material respect under the License Agreement, or (iii) in any material respect under the Security Agreement; or

 

(e)                                   default in the Company’s obligation to provide a Designated Event Notice upon a Designated Event as provided in Section 4.3(b) or failure by the Company to deliver shares of Common Stock upon conversion of this Note within the time period specified in Section 5.2, and such failure continues for a period of five (5) days; or

 

(f)                                     default in payments or default in other obligations causing acceleration of Indebtedness (including without limitation the outstanding 5.5% Convertible Subordinated Notes Due 2007 of the Company and the outstanding 3½% Convertible Subordinated Notes due 2011  of the Company) prior to maturity, where the aggregate amount of principal, premium, if any, and accrued interest subject to such default is $10 million or more, unless such Indebtedness is discharged or such acceleration is withdrawn, cancelled or annulled within 10 days of such acceleration; or

 

(g)                                  the Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to the Company or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of the Company or any substantial part of the property of the Company, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against the Company, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or

 

(h)                                  an involuntary case or other proceeding shall be commenced against the Company seeking liquidation, reorganization or other relief with respect to the Company or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of the Company

 

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or any substantial part of the property of the Company, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) consecutive days.

 

2.2                                  Notice and Cure . 

 

(a)                                   A default under Section 2.1(c) above is not an Event of Default until the Holder notifies the Company in writing of the default and the Company does not cure the default within sixty (60) days after receipt of such notice.  The notice given pursuant to this Section 2.2 must specify the default, demand that it be remedied and state that the notice is a “Notice of Default.”

 

(b)                                  A default under Section 2.1(d) above is not an Event of Default until the Holder notifies the Company in writing of the default and the Company does not cure the default within thirty (30) days (or such other time period specifically provided for in the applicable agreement) after receipt of such notice.  The notice given pursuant to this Section 2.2 must specify the default, demand that it be remedied and state that the notice is a “Notice of Default.”

 

(c)                                   The Company shall promptly notify Holder upon becoming aware of any Event of Default.

 

2.3                                  Acceleration .  If an Event of Default (other than an Event of Default specified in Section 2.1(g) or (h)) occurs and is continuing, the Holder may, by notice in writing to the Company, declare all unpaid principal to the date of acceleration on this Note then outstanding (if not then due and payable) to be due and payable upon any such declaration, and the same shall become and be immediately due and payable.  If an Event of Default specified in Section 2.1(g) or (h) occurs, all unpaid principal of this Note then outstanding shall be immediately and automatically due and payable without necessity of further action.  The Holder may at any time, by notice to the Company, rescind an acceleration and its consequences.  No such rescission shall affect any subsequent default or impair any right consequent thereto.

 

2.4                                  Other Remedies .

 

(a)                                   Available Remedies .  If an Event of Default occurs and is continuing, the Holder may, but shall not be obligated to, pursue any available remedy by proceeding at law or in equity to collect the payment of the principal on this Note or to enforce the performance of any provision of this Note.

 

(b)                                  Remedies Not Exclusive .  A delay or omission by the Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default.  No remedy is exclusive of any other remedy.  All available remedies are cumulative to the extent permitted by law.

 

3.                                        Subordination .

 

3.1                                  Agreement of Subordination .

 

(a)                                   The Company covenants and agrees, and the Holder by its acceptance thereof likewise covenants and agrees, that this Note shall be issued subject to the provisions of this

 

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Section 3, and each Person holding this Note, whether upon original issue or upon registration of transfer, assignment or exchange thereof, accepts and agrees to be bound by such provisions.

 

(b)                                  The payment of the principal of this Note (including, but not limited to, the Prepayment Election Amount or the Designated Event Prepayment Amount) shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness, whether outstanding at the date of this Note or thereafter incurred.

 

(c)                                   No provision of this Section 3 shall prevent the occurrence of any default or Event of Default hereunder or have any effect on the rights of the Holder to accelerate the maturity of this Note.  Notwithstanding anything to the contrary contained herein, the provisions of this Section 3 shall only apply with respect to principal payments under this Note and, for the avoidance of doubt, shall not apply in any respect to any other payments by the Company or its Affiliates in any other manner or circumstance (whether under the License Agreement or otherwise).

 

3.2                                  No Payments to the Holder Upon Defaults Relating to Senior Indebtedness .

 

(a)                                   No payment shall be made with respect to the principal of this Note (including, but not limited to, the Prepayment Election Amount or the Designated Event Prepayment Amount or any other payment payable in respect of this Note), if:

 

(i)                                      a default in the payment of principal (including any letter of credit reimbursement obligations), premium, if any, interest, rent, commissions or other obligations in respect of Senior Indebtedness occurs and is continuing (or, in the case of Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Indebtedness) (a “Payment Default”); or

 

(ii)                                   a default, other than a Payment Default, on any Senior Indebtedness occurs and is continuing that permits holders of such Senior Indebtedness to accelerate its maturity without further notice (except such notice as may be required to effect such acceleration) (or in the case of any lease that is Senior Indebtedness, a default occurs and is continuing that permits the lessor to either terminate the lease or require the Company to make an irrevocable offer to terminate the lease following an event of default thereunder) and the Holder receives a notice of the default (a “Payment Blockage Notice”) from a holder of Senior Indebtedness or a Representative of Senior Indebtedness (a “Non-Payment Default”).

 

If the Holder receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section 3.2 unless and until at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice.  No Non-Payment Default that existed

 

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or was continuing on the date of delivery of any Payment Blockage Notice to the Holder shall be, or be made, the basis for a subsequent Payment Blockage Notice.

 

(b)                                  The Company may and shall resume payments on and distributions in respect of this Note (including, but not limited to, the Prepayment Election Amount or the Designated Event Prepayment Amount):

 

(i)                                      in the case of a Payment Default, the date upon which any such Payment Default is cured or waived or ceases to exist, or

 

(ii)                                   in the case of a Non-Payment Default, the earlier of (A) the date upon which such default is cured or waived or ceases to exist or (B) 179 days after the applicable Payment Blockage Notice is received by the Holder if the maturity of such Senior Indebtedness has not been accelerated and there is no Payment Default (or in the case of any lease, 179 days after notice is received if the Company and the Holder have not received notice that the lessor under such lease has exercised its right to terminate the lease or require the Company to make an irrevocable offer to terminate the lease following an event of default thereunder and there is no Payment Default), unless this Section 3 otherwise prohibits the payment or distribution at the time of such payment or distribution.

 

3.3                                  Payments Over To Senior Indebtedness Upon Dissolution .  Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full before any payment is made on account of the principal of  this Note, and upon any such dissolution or winding up or liquidation or reorganization of the Company or bankruptcy, insolvency, receivership or other similar proceeding, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holder would be entitled in respect of the principal of this Note, except for the provisions of this Section 3, shall (except as aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holder if received by it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, or as otherwise required by law or a court order) or their Representative or Representatives, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the Holder.

 

For purposes of this Section 3, the words, “Cash, Property or Securities” shall not be deemed to include shares of Common Stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Section 3 with respect to this Note to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the new corporation, if any,

 

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resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness (other than leases which are not assumed by the Company or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Section 6 shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 3.3 if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Section 6.

 

3.4                                  Prior Payment of Senior Indebtedness Upon Acceleration of Notes .  If the maturity of this Note has been accelerated because of an Event of Default, no payment or distribution shall be made to the Holder in respect of the principal of this Note (including, but not limited to, the Prepayment Election Amount or the Designated Event Prepayment Amount), until all Senior Indebtedness has been paid in full or such acceleration is rescinded in accordance with the terms of this Note.  If payment of this Note is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the acceleration.  The Company shall promptly notify the Holder of notice of acceleration received in respect of the repayment of any Senior Indebtedness or any other Indebtedness.

 

3.5                                  Payment Over To Senior Indebtedness .  In the event that, notwithstanding Sections 3.2, 3.3 or 3.4, any payment or distribution of assets of the Company of any kind or character in respect of the principal of this Note, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by Section 3.2, 3.3 or 3.4 shall be received by the Holder before all Senior Indebtedness is paid in full or provision is made for such payment thereof in accordance with its terms to the extent that the Holder has acquired notice, by whatever means, that all Senior Indebtedness has not been paid in full, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness or their Representative or Representatives, as their respective interests may appear, as calculated by the Company, for application to the payment of any Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness.

 

3.6                                  Subrogation .  Subject to the payment in full of all Senior Indebtedness, the rights of the Holder with respect to principal payments under this Note shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Section 3 (equally and ratably with the holders of all Indebtedness of the Company which by its express terms is subordinated to other Indebtedness of the Company to substantially the same extent as the Note is subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal of this Note shall be paid in full, and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holder would be entitled except for the provisions of this Section 3, and no payment pursuant to the provisions of this Section 3, to or for the benefit of the holders of

 

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Senior Indebtedness by Holder, shall, as among the Company, its creditors other than holders of Senior Indebtedness, and the Holder, be deemed to be a payment by the Company to or on account of the Senior Indebtedness, and no payments or distributions of cash, property or securities to or for the benefit of the Holder pursuant to the subrogation provisions of this Section 3, which would otherwise have been paid to the holders of Senior Indebtedness, shall, as among the Company and its creditors other than the Holder, be deemed to be a payment by the Company to or for the account of the Note. It is understood that the provisions of this Section 3 are intended solely for the purposes of defining the relative rights of the Holder, on the one hand, and the holders of the Senior Indebtedness, on the other hand. 

 

3.7                                  Payment Obligations Unconditional .  Nothing contained in this Section 3 or elsewhere in this Note is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the Holder, the obligation of the Company, which is absolute and unconditional, to pay to the Holder the principal of this Note as and when the same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the Holder and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein prevent the Holder from exercising all remedies otherwise permitted by applicable law upon default under this Note, subject to the rights, if any, under this Section 3 of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy.

 

3.8                                  No Impairment of Subordination .  No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Note, regardless of any knowledge thereof which any such holder may have or otherwise be charged with.  Senior Indebtedness may be created, renewed or extended and holders of Senior Indebtedness may exercise any rights under any instrument creating or evidencing such Senior Indebtedness, including, without limitation, any waiver of default thereunder, without any notice to or consent from the Holder.  No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liability or obligation under or in respect of the Senior Indebtedness or any terms or conditions of any instrument creating or evidencing such Senior Indebtedness shall in any way alter or affect any of the provisions of this Section 3 or the subordination of the Note provided hereby.

 

3.9                                  Certain Conversions Not Deem