THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE NOTE UNDER APPLICABLE
SECURITIES LAWS OR UNLESS OFFERED, SOLD, PLEDGED, HYPOTHECATED OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS. THE COMPANY SHALL BE
ENTITLED TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO THE EXTENT THAT
AN OPINION IS REQUIRED PURSUANT TO THE AGREEMENT UNDER WHICH THE
NOTE WAS ISSUED.
THE RIGHT OF THE HOLDER OF THIS CONVERTIBLE SUBORDINATED NOTE TO
RECEIVE PAYMENT HEREUNDER IS SUBJECT AND SUBORDINATED IN PAYMENT TO
THE SENIOR DEBT TO THE EXTENT AND IN THE MANNER SET FORTH IN
PARAGRAPH 3 OF THIS NOTE.
Columbia Laboratories, Inc.
CONVERTIBLE SUBORDINATED
NOTE
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Issuance Date:
December 22, 2006
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$
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For
value received, Columbia Laboratories, Inc., a Delaware corporation
(the “ Company ”), hereby promises to pay
to
, or its registered assigns (“ Holder ”),
the principal amount of $
together with interest thereon from the date set out above as the
Issuance Date (the “ Issuance Date ”)
until the date such amount becomes due and payable in accordance
with the provisions of this Note.
This
Note was issued pursuant to a Securities Purchase Agreement, dated
as of December 21, 2006 (as amended and modified from time to
time, the “ Purchase Agreement ”),
between the Company and certain investors, This Convertible
Subordinated Note (including all Convertible Subordinated Notes
issued in exchange, transfer or replacement hereof, this “
Note ”) is one of an issue of Convertible
Subordinated Notes issued pursuant to the Purchase Agreement on the
Issuance Date (collectively, the “ Notes
” and such other Convertible Subordinated Notes, the “
Other Notes ”). The Purchase Agreement contains
terms governing the rights of the Holder, and all provisions of the
Purchase Agreement are hereby incorporated herein in full by
reference. Except as defined in paragraph 9 or unless otherwise
indicated herein, capitalized terms used in this Note have the same
meanings set forth in the Purchase Agreement.
1.
Payment of Interest . Except as otherwise expressly provided
in paragraph 4(b), interest shall accrue at the Interest Rate
computed on the basis of a 360 day year of twelve thirty day
months on the unpaid principal amount of this Note, outstanding
from time to time and to the extent permitted by applicable law, on
any interest which has not been paid on the date on which it is due
and payable, or (if less) at the highest rate then permitted under
applicable law. Subject to paragraph 3, the Company shall pay to
the Holder in cash all accrued and unpaid interest in arrears for
each calendar quarter on the first day of each April, July, October
and January, beginning April 1, 2007. Any accrued interest
which for any reason has not theretofore been paid shall be paid in
full on the date on which the final principal payment on this Note
is made.
2.
Payment of Principal on Note .
Maturity . The Company shall pay the principal amount then
outstanding of this Note to the Holder on December 31, 2011,
together with all accrued and unpaid interest. This Note shall not
be prepaid except with the express written consent of the holders
of the Senior Debt; provided that nothing herein shall affect the
right of the Holders to convert at any time in accordance with
paragraph 5.
(a)
Extent of Subordination . All amounts (including all
principal, interest, premiums and other payments) payable by the
Company under the Notes (the “ Subordinated
Debt ”) are and shall be subordinate and junior in
right of payment to the prior payment in full of the Senior Debt
(as defined below) to the extent and in the manner set forth in
this paragraph 3. Each holder of the Senior Debt, whether now
outstanding or hereafter incurred, shall be deemed to have acquired
the Senior Debt in reliance upon the provisions contained in this
paragraph 3. This paragraph 3 shall constitute a continuing offer
to all persons who become holders of, or continue to hold, the
Senior Debt, and the provisions herein are made for the benefit of
the holders of the Senior Debt, and such holders are made obligees
hereunder and any one or more of them may enforce such
provisions.
(i) The
Holder shall, at all times, be entitled to receive payments on
account of the Subordinated Debt in accordance with the terms of
this Note; provided, however, that, if and so long as a Senior
Default (as defined below) has occurred and is continuing, and
written notice thereof (the “ Senior Default
Notice ”) has been delivered by the holders of the
Senior Debt to the holders of the Subordinated Debt and the Company
referencing the provisions of this paragraph 3 and demanding a
suspension of payments during the period of such continuance in
accordance with this subparagraph (b) (such period of time being
referred to as the “ Payment Suspension Period
”), then, except as otherwise set forth below, the Company
shall not make, and the holders of the Subordinated Debt shall not
accept or receive from the Company, directly or indirectly, in cash
or other property or by set-off or in any other manner (including,
without limitation, from or by way of any collateral or redemption
or sale), payment of all or any part of the Subordinated Debt
unless and until the earlier of (A) the Senior Debt has been
paid in full or (B) the Senior Default has been cured by the
Company or waived by the holders of the Senior Debt or the holders
of the outstanding principal amount of the Senior Debt have
terminated the Payment Suspension Period, in each case in
accordance with the terms of the relevant agreements governing such
Senior Debt.
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(ii) “
Senior Default ” means (i) the occurrence
and continuance (after any applicable grace period) of a default in
payment of all or any part of the Senior Debt, or (ii) the
breach or default by the Company of any term of this Note if the
effect of such breach or default it to cause an amount exceeding
$500,000 to become due prior to its stated maturity or to permit
the Holder of this Note to cause an amount exceeding $500,000 to
become due prior to its stated maturity, or (iii) the
occurrence of any event that provides the Holder of this Note with
cash redemption rights prior to its stated maturity.
(c)
Liquidation, Winding Up, etc. Upon any distribution of
assets of the Company or upon any dissolution, winding up,
liquidation or reorganization of the Company, whether in any
bankruptcy, insolvency, reorganization or receivership proceeding
or upon an assignment for the benefit of creditors or any other
marshalling of the assets and liabilities of the
Company:
(i) the
holders of all Senior Debt shall be entitled to receive payment in
full of the principal thereof, the interest due thereon and any
premium or other payment obligation with respect thereto before the
holders of the Subordinated Debt are entitled to receive any
payment upon the Subordinated Debt; and
(ii) any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, by set-off or
otherwise, to which the holders of the Subordinated Debt would be
entitled but for the provisions of this paragraph 3 shall be paid
by the liquidating trustee or agent or other Person making such
payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly to the
holders of Senior Debt or their agents or representatives or to the
trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Debt may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of
the principal of, interest on and any premium or other amounts
payable with respect to the Senior Debt held or represented by each
such holder, to the extent necessary to make payment in full of all
Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of the Senior
Debt.
The consolidation of the Company with, or the merger of the Company
into, another entity shall not be deemed a dissolution, winding up,
liquidation or reorganization of the Company for the purposes of
this paragraph 3(c) if such other entity is organized in the United
States and such entity, as a part of such consolidation or merger,
succeeds to the Company’s property and business and assumes
the Company’s obligations (including the Senior Debt and the
Subordinated Debt).
(d)
Payment Held in Trust . All payments or distributions by the
Company upon or with respect to the Subordinated Debt which are
received by the holders thereof in violation of or contrary to the
provisions of subparagraph (b) or (c) above shall be
received in trust for the benefit of the holders of the Senior Debt
and shall be paid over upon demand to such holders in the same form
as so received (with all necessary endorsements) to be applied to
the payment of the Senior Debt.
(e)
Subrogation . Upon receipt by the holders of the Senior Debt
of amounts sufficient to pay all Senior Debt in full, to the extent
any amounts which are otherwise payable with respect to the
Subordinated Debt but for the provisions of this paragraph 3 have
been paid over to the holders of the Senior Debt, the holders of
the Subordinated Debt shall be subrogated to the rights of the
holders of Senior Debt to receive payments or distributions of
cash, property
- 3 -
or securities of the Company applicable to Senior Debt until the
Subordinated Debt is paid in full, and no such payments or
distributions to the holders of the Senior Debt of cash, property
or securities otherwise distributable to the holders of
Subordinated Debt shall, as between the Company, its creditors
(other than the holders of Senior Debt) and the holders of the
Subordinated Debt, be deemed to be payment by the Company to the
holders of the Senior Debt. Upon any payment or distribution of
assets of the Company referred to in this paragraph 3, the holders
of the Subordinated Debt shall be entitled to rely upon a
certificate of the liquidating trustee or agent or other Person
making any distribution to the holders of the Subordinated Debt for
the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of Senior Debt and other
indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this paragraph 3. The provisions of
this paragraph 3 shall continue to be effective or be reinstated,
as the case may be, if at any time any payment of any of the Senior
Debt is rescinded or must otherwise be returned by the holders of
the Senior Debt for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of the
Company) all as though such payment had not been made. Subject to
the foregoing, the subordination provisions in this paragraph 3
shall terminate when all the Senior Debt has been indefeasibly and
irrevocably paid in full.
(f)
Rights Not Subordinated . The provisions of this paragraph 3
are for the purpose of defining the relative rights of the holders
of Senior Debt on the one hand and the holders of Subordinated Debt
on the other hand, and nothing herein shall impair (as between the
Company, the holders of the Subordinated Debt) the Company’s
obligation to the holders of the Subordinated Debt to pay to such
holders the full amount of the Subordinated Debt in accordance with
the terms of the Purchase Agreement and the Notes. No provision of
this paragraph 3 shall be construed to prevent the holders of the
Subordinated Debt from exercising all rights and remedies available
under the Notes, the Purchase Agreement or under applicable law
upon the occurrence of an Event of Default or otherwise, subject to
the rights of the holders of the Senior Debt as set forth above to
receive payments otherwise payable to the holders of the
Subordinated Debt, and no provision of this paragraph 3 shall be
deemed to subordinate, to any extent, any claim or right of any
holder of the Subordinated Debt to any claim against the Company by
any creditor or any other Person except to the extent expressly
provided herein.
(g)
Continuing Conversion Rights . Nothing in this paragraph 3
shall affect the right of the Holder to convert at any time, in
accordance with paragraph 5, including, without limitation, during
a Senior Default or the insolvency, bankruptcy or reorganization of
the Company.
(h)
Amendment . The provisions of this paragraph 3 may not be
amended or modified without the written consent of the holders of
all the Senior Debt.
(a)
Definition . For purposes of this Note, an Event of Default
shall be deemed to have occurred if:
(i) the
Company fails to pay when due and payable (whether at maturity or
otherwise) any principal, interest or other payment on the Note,
and such failure to pay any such amount, other than the principal,
is not cured within 30 days after the occurrence
thereof;
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(ii) the
Company breaches any covenant or other term or condition in any
Transaction Document (excluding Article 6 of the Purchase
Agreement and the Events of Default set forth in this paragraph 4),
and such breach is not cured within 30 days from the
Company’s knowledge thereof;
(iii) the
representations and warranties contained in the Purchase Agreement
were not true and correct at the Issuance Date (except to the
extent expressly made as of an earlier date, in which case, as of
such earlier date) and such failure, individually or in the
aggregate, results in a material adverse effect on the business,
results of operations or financial condition of the Company and its
Subsidiaries taken as a whole;
(iv) the
Company or any Subsidiary makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is
entered adjudicating the Company or any Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Company or
any Subsidiary is entered under the Federal Bankruptcy Code; or the
Company or any Subsidiary petitions or applies to any tribunal for
the appointment of a custodian, trustee, receiver or liquidator of
the Company or any Subsidiary, or of any substantial part of the
assets of the Company or any Subsidiary, or commences any
proceeding (other than a proceeding for the voluntary liquidation
and dissolution of any Subsidiary) relating to the Company or any
Subsidiary under any bankruptcy reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or any such petition or application is filed, or
any such proceeding is commenced, against the Company or any
Subsidiary and either (A) the Company or any such Subsidiary
by any act indicates its approval thereof, consent thereto or
acquiescence therein or (B) such petition, application or
proceeding is not dismissed within 60 days;
(v) a
judgment, to the extent not covered under an insurance policy, in
excess of $1,000,000 is rendered against the Company or any
Subsidiary and, within 60 days after entry thereof, such
judgment is not discharged in full or execution thereof stayed
pending appeal, or within 60 days after the expiration of any
such stay, such judgment is not discharged in full; or
(vi) the
Company or any Subsidiary defaults in the performance of any
obligation if the effect of such default is to cause an amount
exceeding $500,000 to become due prior to its stated maturity or to
permit the holder or holders of such obligation to cause an amount
exceeding $500,000 to become due prior to its stated
maturity.
The
foregoing shall constitute Events of Default whatever the reason or
cause for any such Event of Default and whether it is voluntary or
involuntary or is effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body and
regardless of the effects of any subordination
provisions.
(b)
Consequences of Events of Default .
(i) Upon
the occurrence of an Event of Default the Interest Rate on the
Notes shall increase immediately by an increment of four percentage
point(s) per annum to the extent permitted by law. Any
increase of the Interest Rate resulting from the operation of this
subparagraph shall terminate as of the close of business on the
date on which no Events of Default exist (subject to subsequent
increases pursuant to this subparagraph).
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(ii) If
an Event of Default of the type described in subparagraph 4(a)(iv)
has occurred, the aggregate principal amount of the Notes (together
with all accrued interest thereon and all other amounts due and
payable with respect thereto) shall become immediately due and
payable without any action on the part of any Holder, and the
Company shall immediately pay to the holders of the Notes all
amounts due and payable with respect to the Notes.
(iii) If
any Event of Default (other than under subparagraph 4(a)(iv)) has
occurred and is continuing, the holder or holders of Notes
representing at least 25% of the aggregate principal amount of
Notes then outstanding may declare all or any portion of the
outstanding principal amount of the Notes (together with all
accrued interest thereon and all other amounts due and payable with
respect thereto) to be immediately due and payable and may demand
immediate payment of all or any portion of the outstanding
principal amount of the Notes (together with all such other amounts
then due and payable) owned by such holder or holders. The Company
shall give prompt written notice of any such demand to the other
holders of Notes, each of which may demand immediate payment of all
or any portion of such holder’s Note. If any holder or
holders of the Notes demand immediate payment of all or any portion
of the Notes, the Company shall immediately pay to such holder or
holders all amounts due and payable with respect to such
Notes.
(iv) Each
Holder shall also have any other rights which such Holder may have
pursuant to applicable law.
(v) The
Company hereby waives diligence, presentment, protest and demand
and notice of protest and demand, dishonor and nonpayment of this
Note and expressly agrees that this Note, or any payment hereunder,
may be extended from time to time and that the holder hereof may
accept security for this Note or release security for this Note,
all without in any way affecting the liability of the Company
hereunder.
This
Note shall be convertible into shares of Common Stock on the terms
and conditions set forth in this paragraph 5.
(a)
Conversion Procedure .
(i) The
Holder may convert all or any portion of the outstanding principal
amount of this Note into a number of shares of the Conversion Stock
(excluding any fractional share) determined by dividing the
principal amount designated by such Holder to be converted by the
Conversion Price then in effect.
(ii)
To convert any principal amount into shares of Conversion Stock on
any date (a “ Conversion Date ”), the
Holder shall (A) transmit by facsimile (or otherwise deliver),
for receipt on or prior to 11:59 p.m., New York Time, on such
date, a copy of an executed notice of conversion in the form
attached hereto as Annex A (the “ Conversion
Notice ”) to the Company and (B) if required by
paragraph 5(a)(iv), surrender this Note to a nationally recognized
overnight delivery service for delivery to the Company (or an
indemnification undertaking with respect to this Note in the case
of its loss, theft or destruction). On or before the first Business
Day following the date of receipt of a Conversion Notice, the
Company shall transmit by facsimile a confirmation of receipt of
such Conversion Notice to the Holder and the Company’s
transfer agent (the “ Transfer Agent ”).
On or before the third
- 6 -
Business Day following the date of receipt of a Conversion Notice
(the “ Share Delivery Date ”), the
Company shall (1) (X) if legends are not required to be placed
on certificates of Conversion Stock pursuant to the Purchase
Agreement and provided that the Transfer Agent is participating in
the Depository Trust Company’s (“ DTC
”) Fast Automated Securities Transfer Program, credit such
aggregate number of shares of Conversion Stock to which the Holder
shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal Agent
Commission system or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer
Program, 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 Conversion
Stock to which the Holder shall be entitled which certificates
shall not bear any restrictive legends unless required pursuant to
Section 3.6 of the Purchase Agreement. The Person or Persons
entitled to receive the shares of Conversion Stock issuable upon a
conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Conversion Stock on the
Conversion Date. On the date that the Conversion Stock is delivered
to the Holder, the Company shall also deliver to the Holder a
payment in an amount equal to the sum of all accrued interest with
respect to the principal amount converted, which has not been paid
prior thereto.
(iii) If
within three Trading Days after the Company’s receipt of the
facsimile copy of a Conversion Notice the Company shall fail to
issue and deliver a certificate to the Holder or credit the
Holder’s balance account with DTC for the number of shares of
Conversion Stock to which the Holder is entitled upon such
holder’s conversion of any principal amount (a “
Conversion Failure ”), and if on or after such
Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the
Holder of Conversion Stock issuable upon such conversion that the
Holder anticipated receiving from the Company (a “
Buy-In ”), then the Company shall, within three
Business Days after the Holder’s request and in the
Holder’s discretion, either (i) pay cash to the Holder
in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out of pocket expenses,
if any) for the shares of Common Stock so purchased (the “
Buy-In Price ”), at which point the
Company’s obligation to deliver such certificate (and to
issue such Conversion Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or
certificates representing such Conversion Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common
Stock, times (B) the Closing Bid Price on the Conversion
Date.
(iv) The
Company shall maintain a register (the “
Register ”) for the recordation of the names
and addresses of the holders of each Note and the principal amount
of the Notes held by such holders (the “ Registered
Notes ”). The entries in the Register shall be
conclusive and binding for all purposes absent manifest error. The
Company and the holders of the Notes shall treat each Person whose
name is recorded in the Register as the owner of a Note for all
purposes, including, without limitation, the right to receive
payments of Principal and Interest hereunder, notwithstanding
notice to the contrary. A Registered Note may be assigned or sold
in whole or in part only by registration of such assignment or sale
on the Register. Upon its receipt of a request to assign or sell
all or part of any Registered Note by a Holder, the Company shall
record the information contained therein in the Register and issue
one or more new Registered Notes in the same aggregate principal
amount as the principal amount of the surrendered Registered Note
to the designated assignee or transferee pursuant to paragraph 13.
Notwithstanding anything to the contrary set forth herein, upon
conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender
this Note to the Company unless (A) the full principal amount
represented by this Note is being converted or (B) the Holder
has provided the Company with prior written notice
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(which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note. The
Holder and the Company shall maintain records showing the principal
converted and the dates of such conversions or shall use such other
method, reasonably satisfactory to the Holder and the Company, so
as not to require physical surrender of this Note upon
conversion.
(v) If
any fractional share of Conversion Stock would, except for the
provisions hereof, be deliverable upon conversion of this Note, the
Company, in lieu of delivering such fractional share, shall pay an
amount equal to the Market Price of such fractional share as of the
date of such conversion.
(vi) All
certificates evidencing the Conversion Shares to be issued to the
Holder may bear a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR
UNLESS OFFERED, SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS. THE COMPANY SHALL BE ENTITLED TO REQUIRE AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED TO THE EXTENT THAT AN OPINION IS REQUIRED PURSUANT TO THE
AGREEMENT UNDER WHICH THE SECURITIES WERE ISSUED.
(vii) The
issuance of certificates for shares of Conversion Stock upon
conversion of this Note shall be made without charge to the Holder
for any issuance tax in respect thereof or other cost incurred by
the Company in connection with such conversion and the related
issuance of shares of Conversion Stock. Upon conversion of this
Note, the Company shall take all such actions as are necessary in
order to ensure that the Conversion Stock issuable with respect to
such conversion shall be validly issued, fully paid and
nonassessable.
(viii) The
Company shall not close its books against the transfer of
Conversion Stock issued or issuable upon conversion of this Note in
any manner which interferes with the timely conversion of this
Note. The Company shall assist and cooperate with any Holder
required to make any governmental filings or obtain any
governmental approval prior to or in connection with the conversion
of this Note (including, without limitation, making any filings
required to be made by the Company).
(b)
Conversion Price . The initial Conversion Price shall be
$5.25, subject to adjustment as set forth in this Note.
(c)
Limitations on Conversions .
(i)
Beneficial Ownership . The Company shall not effect any
conversion of this Note or otherwise issue shares of Common Stock
pursuant to paragraphs
- 8 -
5(e) and 5(h) hereof, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to paragraph
5(a), to the extent that after giving effect to such conversion,
the Holder (together with the Holder’s affiliates) would
beneficially own in excess of 9.99% (the “ Maximum
Percentage ”) 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 the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon
conversion of this Note 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, non-converted portion of this Note beneficially
owned by the Holder or any of its affiliates and (B) exercise
or conversion of the unexercised or non-converted portion of any
other securities of the Company (including, without limitation, any
Other Notes or warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth
in the preceding sentence, for purposes of this paragraph 5(c),
beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this paragraph 5(c), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in
(x) the Company’s most recent Form 10-K, Form 10-Q or
Form 8-K, as the case may be (y) a more recent public
announcement by the Company or (z) any other notice by the
Company or the Transfer Agent setting forth the number of shares of
Common Stock outstanding. For any reason at any time, upon the
written request of the Holder, the Company shall within one
Business Day 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 the conversion or exercise of securities of the Company,
including this Note, by the Holder or its affiliates since the date
as of which such number of outstanding shares of Common Stock was
reported.
(ii)
Principal Market Regulation . The Company shall not be
obligated to issue any shares of Common Stock upon conversion of
this Note, and the Holder of this Note shall not have the right to
receive upon conversion of this Note any shares of Common Stock, if
the issuance of such shares of Common Stock would exceed the
aggregate number of shares of Common Stock which the Company may
issue upon conversion or exercise, as applicable, of the Notes and
Warrants without breaching the Company’s obligations under
the rules or regulations of the applicable Principal Market (the
number of shares which may be issued without violating such rules
and regulations, the " Exchange Cap ”), except
that such limitation shall not apply in the event that the Company
(A) obtains the approval of its stockholders as required by the
applicable rules of such Principal Market for issuances of Common
Stock in excess of such amount or (B) obtains a written
opinion from outside counsel to the Company that such approval is
not required, which opinion shall be reasonably satisfactory to the
Holders. Unless and until such approval or written opinion is
obtained, no purchaser of the Notes pursuant to the Purchase
Agreement (the “ Purchasers ”) shall be
issued in the aggregate, upon conversion or exercise or otherwise,
as applicable, of Notes or Warrants, shares of Common Stock in an
amount greater than the product of the Exchange Cap multiplied by a
fraction, the numerator of which is the principal amount of Notes
issued to such Purchasers pursuant to the Purchase Agreement on the
Closing Date and the denominator of which is the aggregate
principal amount of all Notes issued to the Purchasers pursuant to
the Securities Purchase Agreement on the Closing Date (with respect
to each Purchaser, the “ Exchange Cap
Allocation ”). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser’s Notes, the
transferee shall be allocated a pro rata portion of such
Purchaser’s Exchange Cap Allocation, and the restrictions of
the prior sentence shall apply to such transferee with respect to
the portion of the Exchange Cap Allocation allocated to
such
- 9 -
transferee. In the event that any holder of Notes shall convert all
of such holder’s Notes into a number of shares of Common
Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such
holder’s Exchange Cap Allocation and the number of shares of
Common Stock actually issued to such holder shall be allocated to
the respective Exchange Cap Allocations of the remaining holders of
Notes on a pro rata basis in proportion to the aggregate principal
amount of the Notes then held by each such holder.
(d)
Subdivision or Combination of Common Stock . If the Company
at any time subdivides (by any stock split, stock dividend or
otherwise) one or more classes of its outstanding shares of Common
Stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be
proportionately reduced, and if the Company at any time combines
(by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares,
the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
(e)
Rights Upon Fundamental Transaction and Change of Control
.
(i)
Assumption . The Company shall not enter into or be party to
a Fundamental Transaction unless (i) the Successor Entity
assumes in writing all of the obligations of the Company under this
Note and the other Transaction Documents in accordance with the
provisions of this paragraph 5(e) pursuant to written agreements in
form and substance reasonably satisfactory to the Holders and
approved by the Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Notes in exchange
for such Notes a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to
the Notes, including, without limitation, having a principal amount
and interest rate equal to the principal amounts and the interest
rates of the Notes then outstanding held by such holder, having
similar conversion rights and having similar ranking to the Notes,
and reasonably satisfactory to the Holders and (ii) the
Successor Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading
on an Eligible Market (a “ Public Successor
Entity ”). Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note referring to
the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Note
with the same effect as if such Successor Entity had been named as
the Company herein. Upon consummation of the Fundamental
Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion of this
Note at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Common Stock (or other
se
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