Exhibit 10.3

 

Oncobiologics, Inc.
Second Note and Warrant Amendment and Waiver

 

This Second Note and Warrant Amendment and Waiver (this “Amendment”), dated
November 5, 2018 (the “Effective Date”), is with respect to those certain senior
secured promissory notes (each, a “Note” and collectively, the “Notes”) and
those certain common stock purchase warrants (each, a “Warrant” and
collectively, the “Warrants”, and together with the Notes, the “Securities”, in
each case as amended by the Note, Warrant and Registration Rights Amendment and
Waiver dated as of September 7, 2017 (the “September 2017 Amendment”)) issued to
Purchasers pursuant to that certain Note and Warrant Purchase Agreement, dated
as of December 22, 2016 (as amended by that certain First Amendment to Note and
Warrant Purchase Agreement, dated April 13, 2017, and as further amended by the
September 2017 Amendment, the “NWPA”), and is entered into by and among
Oncobiologics, Inc., a Delaware corporation (the “Company”), and the Purchasers
identified on the signature pages to this Amendment. Capitalized terms used in
this Amendment and not otherwise defined in this Amendment have the respective
meanings ascribed to them in the NWPA.

 

Recitals

 

A.          The Company and the Purchasers are parties to the NWPA.

 

B.          The Company intends to enter into a transaction pursuant to a
Purchase Agreement dated on or about the date hereof in substantially the form
attached hereto as Exhibit A (the “Purchase Agreement”) by and between the
Company and BioLexis Pte. Ltd., a Singapore private limited company (formerly
known as GMS Tenshi Holdings Pte. Limited “BioLexis”) for the private placement
of $20,000,000 of shares of the Company’s common stock, par value $0.01 per
share (the “Common Stock”).

 

C.          It is a condition to consummation of the transactions contemplated
by the Purchase Agreement that the Company and Purchasers amend certain terms in
the Notes and the Warrants.

 

D.          It is a condition to the effectiveness of this Amendment that the
Company and BioLexis execute and deliver the Purchase Agreement.

 

E.          Subject to Section 9 of each of the Notes, Section 7 of the NWPA
provides that any provision of the NWPA or the Securities may be amended and any
provision thereof waived only by the written consent of the Company and the
Majority Holders. Section 9 of each of the Notes each provide that any amendment
to any Note that changes the fixed maturity of any Loan or Note will not be
effective without the consent of each Purchaser.

 

F.          The undersigned Purchasers represent all of the Purchasers as of the
Effective Date.

 

G.         As of the Effective Date, the aggregate outstanding principal of the
Notes is $13,500,000 and the accrued and unpaid interest on the Notes is
$1,210,296.

 

 

 

 

H.         The Purchasers are Holders of the Warrants to acquire 3,792,500
shares of Common Stock, and have requested that the Company modify the Exercise
Price and Termination Date (in each case as such terms are defined in the
Warrants) of such Warrants as set forth herein and the Company is in agreement
with such request.

 

I.           Section 5(l) of the Warrants provides that the Warrant may be
modified or amended with the written consent of the Company and the Holder (as
defined in the Warrants).

 

Agreement

 

In consideration of the mutual covenants and agreements set forth herein and for
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

 

1.         This Amendment will be effective as of the Effective Date upon the
satisfaction of the following conditions:

 

(a)            The Purchase Agreement shall have been executed and delivered by
the Company and BioLexis in substantially the form attached as Exhibit A.

 

(b)            Purchasers holding 100% of the outstanding principal amount of
the Notes and the Company shall have executed and delivered a counterpart to
this Amendment.

 

2.          Each of the Notes is hereby amended as follows:

 

(a)            The first paragraph of each Note is amended by replacing the
phrase “in lawful money of the United States of America and in immediately
available funds” in the first sentence thereof with the phrase “in lawful money
of the United States of America and in immediately available funds (except in
connection with any conversion of this Note as contemplated by Section 1 below
or the Second Amendment)”.

 

(b)            Section 1 of each of the Notes are hereby amended and restated as
follows:

 

“1.            Principal Repayment; Conversion. (a) Unless earlier converted
into Common Stock in accordance with clause 1(b) below, the outstanding
principal amount of this Note, and all accrued and unpaid interest thereon,
shall be due and payable on December 22, 2018 (the “Maturity Date”); provided
that if the Company shall pay in cash to the Purchasers on a pro rata basis each
of the principal and interest payments set forth Section 7(a) through (c) of
that certain Second Note and Warrant Amendment and Waiver, dated as of November
5, 2018, by and among the Purchasers, the Company and the other parties thereto
(the “Second Amendment”), then the Maturity Date shall be automatically extended
to June 30, 2019 (if extended, the “Maturity Date”); provided further that if
(x) the Company shall pay in cash to the Purchasers on a pro rata basis the
principal and interest payment set forth in Section 7(e) of the Second Amendment
and (y) not less than $20,000,000 of additional equity capital (in addition to
the $20,000,000 of capital raised pursuant to the Purchase Agreement) shall be
invested in the Company on or before June 30, 2019, then the Maturity Date shall
be automatically extended to December 22, 2019 (if further extended, the
“Maturity Date”). Notwithstanding anything to the contrary contained in this
paragraph or the Purchase Agreement (as amended), in the event that (i) BioLexis
shall fail to fund all or any portion of its committed investment (for any
reason whatsoever) under the Purchase Agreement (as such Purchase Agreement
provides as of the date hereof, without any amendment, modification or waiver
thereof) on the dates set forth therein or (ii) the Company shall fail to pay on
the date(s) set forth in Section 7 (a) through (d) of the Second Amendment all
or any portion of any payment of principal and interest due and payable on such
date(s), then any of the foregoing clauses (i) or (ii) shall be an “Event of
Default” under this Note and the Maturity Date shall be automatically (and
without further action by any Purchaser) accelerated to the date that is five
(5) business days after such event.

 

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(b) Subject to the following provisions, Purchaser shall have right, at
Purchaser’s option to convert the outstanding principal amount of this Note and
all accrued and unpaid interest on this Note at any time on or prior to the
Maturity Date at a conversion price equal to 120% of the price paid by BioLexis
for the shares of Common Stock pursuant to the Purchase Agreement, otherwise
subject to the terms and conditions set forth in Annex A attached hereto.

 

(c) To convert this Note, Purchaser shall deliver to the Company a completed and
executed notice of conversion substantially in the form attached hereto as
Exhibit C (“Notice of Conversion”).

 

(d) Notwithstanding anything in this Note or the Second Amendment to the
contrary, in the event the Company makes a payment of principal or interest
under this Note after the Effective Date (a “Non-Scheduled Payment”), other than
any payment of principal or interest contemplated by the second proviso to
Section 1(a) above or pursuant to clauses (a) through (e) of Section 7 of the
Second Amendment (any such contemplated payment of principal or interest, a
“Scheduled Payment”) the aggregate amount of principal or interest, as the case
may be, attributable to the Scheduled Payments shall be reduced ratably by the
aggregate amount of principal or interest, as the case may be, paid in
connection with such Non-Scheduled Payments.”

 

(c)            Section 2 of each of the Notes are hereby amended and restated as
follows:

 

“2.            Interest. The Company further promises to pay interest on the
outstanding principal amount hereof from the date hereof, until payment in full,
which interest shall be payable at the rate of five percent (5.0%) per annum
(the “Stated Interest Rate”) or the maximum rate permissible by law (which under
the laws of the State of New York shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less. Interest
shall accrue daily and be due and payable on the Maturity Date (unless paid
sooner), and shall be calculated on the basis of a 365-day year for the actual
number of days elapsed. Upon the occurrence and during the continuance of an
Event of Default, all amounts owing hereunder shall bear interest at the Stated
Interest Rate plus two percent (2%) per annum.”

 

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(d)            Section 4 of each of the Notes is hereby amended and restated as
follows:

 

“4.            Application of Payments. Except as set forth in the Second
Amendment, payment on this Note shall be applied first to accrued interest and
thereafter to the outstanding principal balance hereof. This Note may be prepaid
in whole or in part at any time without penalty or premium. Except as otherwise
provided in this Note, the Purchase Agreement or the Second Amendment, any
interest accrued on or prior to the date of any prepayment of this Note shall be
paid on the Maturity Date as provided in Section 2 of this Note.”

 

(e)            Clauses (d) and (e) of Section 5 of each of the Notes are hereby
amended by replacing each instance of the phrase “Indebtedness listed under the
heading ‘Investor Notes’ on Schedule II to the Purchase Agreement” with the
phrase “Indebtedness listed under the heading ‘Investor Notes’ on Schedule II to
the Purchase Agreement (including to the extent any such Indebtedness has been
amended, modified or otherwise transferred, sold or assigned to another
individual and/or entity)”.

 

(f)           Clause (h) of Section 5 of each of the Notes are hereby amended by
adding at the end thereof the phrase “(in each case, other than with respect to
any of the Indebtedness listed under the heading ‘Investor Notes’ on Schedule II
to the Purchase Agreement (including to the extent any such Indebtedness has
been amended, modified, or otherwise transferred, sold or assigned to another
individual and/or entity).

 

3.          Section 2(b) of each Warrant held by a Purchaser signatory hereto is
hereby amended and restated as follows:

 

“b)           Exercise Price. The exercise price per share of the Common Stock
under this Warrant shall be $1.50 subject to adjustment hereunder (the “Exercise
Price”).”

 

4.          The Termination Date in the introductory paragraph of each Warrant
held by a Purchaser signatory hereto is hereby amended, such that the Warrants
must be exercised on or prior to the close of business on the eight year
anniversary of the Initial Exercise Date and the phrase “Termination Date” in
each such Warrant shall mean such eighth year anniversary.

 

5.          Each Purchaser hereby waives any requirement that the Company
provide notice of the adjustment to the Exercise Price to it, as a Holder (as
such term is defined in the Warrants) provided for in this Amendment as
contemplated by Section 3(g) of the Warrants.

 

6.          Schedule II of the NWPA is hereby amended and restated by Schedule
II attached hereto as Exhibit B.

 

7.          In consideration for each Purchaser’s agreement to enter into this
Amendment, subject to clause 7(g) below, the Company agrees to make the
following payments with respect to each Note in the amounts and on the dates set
forth in this Section 7:

 

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(a)            On the Initial Closing Date under the Purchase Agreement (the
“Initial Closing Date”), a principal payment of $150 for each $1,000 in
principal on each Note (with such principal amount measured as of the Effective
Date but without giving effect to any principal payments on the Notes made on
the Initial Closing Date) plus a pro rata portion of accrued interest (i.e.
$180,990 in the aggregate) such that the aggregate amount of principal and
interest paid on the Notes pursuant to this clause (a) is equal to $2,205,990.

 

(b)            On or prior to December 7, 2018, a principal payment of $80 for
each $1,000 in principal on each Note (with such principal amount measured as of
the Effective Date but without giving effect to any principal payments on the
Notes made on the Initial Closing Date) plus a pro rata portion of accrued
interest (i.e. $86,549 in the aggregate) such that the aggregate amount of
principal and interest paid on the Notes pursuant to this clause (b) is equal to
$1,166,549.

 

(c)            On or prior to December 22, 2018, a pro rata portion of accrued
interest on all of the Notes in an aggregate amount equal to $1,027,072.

 

(d)            On or prior to February 15, 2019, an additional principal payment
of $110 for each $1,000 in principal on each Note (with such principal amount
measured as of the Effective Date but without giving effect to any principal
payments on the Notes made on the Initial Closing Date) plus a pro rata portion
of accrued interest (i.e. $15,000 in the aggregate) such that the aggregate
amount of principal and interest paid on the Notes pursuant to this clause (d)
is equal to $1,500,000.

 

(e)            If, on or prior to June 30, 2019, not less than $20,000,000 of
additional equity capital (in addition to the $20,000,000 of capital raised
pursuant to the Purchase Agreement) has been invested in the Company, the
Company shall make an additional principal payment of $222 for each $1,000 in
principal on each Note (with such principal amount measured as of the Effective
Date but without giving effect to any principal payments on the Notes made on
the Initial Closing Date) plus a pro rata portion of accrued interest of (i.e.
$3,000 in the aggregate) such that the aggregate amount of principal and
interest paid on the Notes pursuant to this clause (e) is equal to $3,000,000,

 

(f)             If, on or prior to June 30, 2019, not less than $20,000,000 of
additional equity capital (in addition to the $20,000,000 of capital raised
pursuant to the Purchase Agreement) has been invested in the Company and the
Company has made the principal and interest payment on the Notes pursuant to
clause (e) above required to extend the Maturity Date (as defined in the Notes)
to December 22, 2019, the Company shall make an additional principal payment of
$148 for each $1,000 in principal on each Note (with such principal amount
measured as of the Effective Date but without giving effect to any principal
payments on the Notes made on the Initial Closing Date) plus a pro rata portion
of accrued interest (i.e. $2,000 in the aggregate) such that the aggregate
amount of principal and interest paid on the Notes pursuant to this clause (f)
is equal to $2,000,000, which payment shall be due and payable as follows: (i)
50% of such payment shall be due and payable on or prior to July 31, 2019 and
(ii) 50% of such payment shall be due and payable on or prior to August 31,
2019.

 

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(g)            Notwithstanding anything in this Amendment or in any Note to the
contrary, in the event the Company makes a payment of principal or interest
under the Notes after the Effective Date (a “Non-Scheduled Payment”), other than
any payment of principal or interest contemplated by the second proviso to
Section 1(a) of the Notes or pursuant to clauses (a) through (f) of this Section
7 (any such contemplated payment of principal or interest, a “Scheduled
Payment”) the aggregate amount of principal or interest, as the case may be,
attributable to the Scheduled Payments shall be reduced ratably by the aggregate
amount of principal or interest, as the case may be, paid in connection with
such Non-Scheduled Payments.

 

The Company and Purchasers agree that a failure by the Company to make any of
the payments set forth in this Section 7 on the dates and in the amounts set
forth above (to the extent required) shall constitute a failure to make a
payment on each Note on the date due and payable thereunder for purposes of
Section 5(a) of each Note and shall be an “Event of Default”.

 

8.          All other terms and conditions of the Notes and the Warrants will be
unaffected hereby and remain in full force and effect. A copy of this Amendment
may be attached to each of the Notes as an allonge thereto and shall be deemed
to be an amendment to each of the Notes.

 

9.          Upon giving effect to this Amendment, each reference in the NWPA,
the Security Agreement or any Note or Warrant to “this Note”, “this Warrant” or
words of similar import referring to any Note or Warrant, as applicable, shall
be and mean, in each case, a reference to any Note or any Warrant, as
applicable, as amended by this Amendment. Any reference in the Notes to the
Purchase Agreement, shall be and mean a reference to the NWPA, as amended by
this Second Amendment.

 

10.        The Company undertakes to take all action as may be reasonably
necessary to reduce the exercise price of its issued and outstanding Series A
Warrants (Nasdaq: ONSIW; CUSIP number 68235M 113) to $1.50 per share, and
further extend the expiration date of such warrants to February 18, 2022.

 

11.        Wherever possible, each provision of this Amendment shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Amendment shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Amendment.

 

12.        This Amendment and all actions arising out of or in connection with
this Amendment shall be governed by and construed in accordance with the
internal laws of the State of New York, without regard to the conflicts of law
provisions. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Amendment and the transactions contemplated hereby. Each of the
parties hereto irrevocably consents to the jurisdiction of any such court in any
such suit, action or proceeding and to the laying of venue in such court. Each
party hereto irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY
RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS
AMENDMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.

 

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13.        This Amendment may only be amended, waived, supplemented or otherwise
varied by a document, in writing, of even or subsequent date of this Amendment,
executed by the Company and the Majority Holders; provided that, any amendment,
modification, supplement or waiver to the definition of “Maturity Date” (as
defined in the Notes) or that otherwise reduces the principal of any of the
Notes that has the effect of changing the fixed maturity of the Notes or reduces
the principal amount of the Notes or reduces the Conversion Rate (as defined in
the Notes) will be subject to the consent of the Majority Holders and each
affected Purchaser.

 

14.        The provisions of this Amendment shall inure to the benefit of, and
be binding upon, the parties to this Amendment, the Purchasers and their
respective successors, assigns, heirs, executors and administrators and other
legal representatives.

 

15.        The Company hereby acknowledges and confirms that the modifications
to the Note contained herein shall not in any way affect the rights set forth in
the Security Agreement and IP Security Agreement, each dated as of December 22,
2016 (as amended from time to time) and hereby reaffirms that the obligations of
the Company under the Notes (as amended) are secured by substantially all the
Company’s assets pursuant to such agreements.

 

16.        The Company agrees to reimburse the Purchasers for reasonable and
documented out-of-pocket costs and expenses incurred by the Purchasers in
connection with this Amendment up to an amount not to exceed $25,000.

 

17.        This Amendment may be executed in one or more counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same agreement. Facsimile copies or copies in “.pdf” format of signed
signature pages will be deemed binding originals.

 

[Signatures Follow]

 

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The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  Company:       Oncobiologics, Inc.       By: /s/ Lawrence A. Kenyon   Name:
Lawrence A. Kenyon   Title: Chief Executive Officer and Chief Financial Officer

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  Purchaser:       Advent Engineering       By: /s/ Albert Dyrness   Name:
Albert Dyrness   Title: Managing Director

 

[Second Note and Warrant Amendment and Waiver Signature Page]

  

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  Purchaser:       By: /s/ Dennis M. O’Donnell   Name: Dennis M. O’Donnell  
Title:  

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  Purchaser:       Trutek Corp.       By: /s/ Ashok Wahi   Name: Ashok Wahi  
Title: President

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

      Purchaser:       venBio Select Fund LLC         By: /s/ Scott Epstein  
Name: Scott Epstein   Title: CFO & CCO

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  Purchaser:       Steelmill Master Fund LP       By: /s/ Alfred J. Barbagallo  
Name: Alfred J. Barbagallo   Title: Managing Director & General Counsel

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  Purchaser:       Sabby Healthcare Master Fund, Ltd.         By: /s/ Robert
Grundstein   Name: Robert Grundstein   Title: COO of Investment Manager

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  Purchaser:       Sabby Volatility Warrant Master Fund, Ltd.       By: /s/
Robert Grundstein   Name: Robert Grundstein   Title: COO of Investment Manager

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  Purchaser:         By: /s/ Scott Canute   Name: Scott Canute   Title:  

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  PURCHASER:         By: /s/ Nailesh A. Bhatt   Name: Nailesh A. Bhatt   Title:
 

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  PURCHASER:         By: /s/ Arunkumar B. Vyas   Name: Arunkumar B. Vyas  
Title:  

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  PURCHASER:         By: /s/ Ajitesh Rai   Name: Ajitesh Rai   Title:  

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

The parties have executed this Second Note and Warrant Amendment and Waiver as
of the date first above written.

 

  PURCHASER:         By: /s/ Simon Woodhouse   Name: Simon Woodhouse   Title:  

 

[Second Note and Warrant Amendment and Waiver Signature Page]

 

 

 

Annex A

 

Terms of Conversion

 

1.         Voluntary Conversion. At any time until the Notes are no longer
outstanding, the Notes shall be convertible (“Conversion”), in whole or in part,
into shares of Common Stock at the option of the holder of the Note (the
“Holder”), at any time and from time to time (subject to the conversion
limitations set forth in Section 9 below. The Holder shall effect conversions by
delivering to the Company a Notice of Conversion, specifying therein the
principal amount of the Notes to be converted and the date on which such
conversion shall be effected (such date, the “Conversion Date”). If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the date that such Notice of Conversion is deemed delivered hereunder.
No ink-original Notice of Conversion shall be required, nor shall any medallion
guarantee (or other type of guarantee or notarization) of any Notice of
Conversion form be required. To effect conversions hereunder, the Holder shall
not be required to physically surrender the Notes to the Company unless the
entire principal amount of the Notes, plus all accrued and unpaid interest
thereon, has been so converted in which case the Holder shall surrender the
Notes as promptly as is reasonably practicable after such conversion without
delaying the Company’s obligation to deliver the shares on the Share Delivery
Date (as defined below). Conversions hereunder shall have the effect of lowering
the outstanding principal amount of the Notes in an amount equal to the
applicable conversion. The Holder and the Company shall maintain records showing
the principal amount(s) converted and the date of such conversion(s). The
Company may deliver an objection to any Notice of Conversion within one (1)
Business Day of delivery of such Notice of Conversion. The Holder, and any
assignee by acceptance of the Notes, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of a portion of the
Notes, the unpaid and unconverted principal amount of the Notes may be less than
the amount stated on the face hereof. For all purposes of this Annex A, all
references to “Notes” in this Annex A shall be a reference only to the Note(s)
held by the Holder.

 

2.          Delivery of Conversion Shares Upon Conversion. Not later than two
(2) Trading Days (as defined below) after each Conversion Date (the “Share
Delivery Date”), the Company shall deliver, or cause to be delivered, to the
Holder (A) the shares of Common Stock issuable upon conversion of the Notes (the
“Conversion Shares” which shall be free of restrictive legends and trading
restrictions representing the number of Conversion Shares being acquired upon
the conversion of the Notes. The Company shall deliver any Conversion Shares
required to be delivered by the Company under this Section 2 electronically
through the Depository Trust Company or another established clearing corporation
performing similar functions. “Trading Market” means any of the following
markets or exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the NYSE American, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange, OTCQB or OTCQX (or any successors to any of the foregoing). “Trading
Day” means a day on which the principal Trading Market is open for trading.

 

A-1

 

 

3.         Failure to Deliver Conversion Shares. If, in the case of any Notice
of Conversion, such Conversion Shares are not delivered to or as directed by the
Holder by the Share Delivery Date, the Holder shall be entitled to elect by
written notice to the Company at any time on or before its receipt of such
Conversion Shares, to rescind such Conversion, in which event the Company shall
promptly return to the Holder any original Note delivered to the Company and the
Holder shall promptly return to the Company the Conversion Shares issued to such
Holder pursuant to the rescinded Conversion Notice.

 

4.         Obligation Absolute; Partial Liquidated Damages. The Company’s
obligations to issue and deliver the Conversion Shares upon conversion of the
Notes in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company or any
violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of such
Conversion Shares; provided, however, that such delivery shall not operate as a
waiver by the Company of any such action the Company may have against the
Holder. In the event the Holder of the Notes shall elect to convert any or all
of the outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or anyone associated or affiliated
with the Holder has been engaged in any violation of law, agreement or for any
other reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of the Notes shall have
been sought and obtained, and the Company posts a surety bond for the benefit of
the Holder in the amount of 150% of the outstanding principal amount of the
Notes, which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the underlying dispute and the
proceeds of which shall be payable to the Holder to the extent it obtains
judgment. In the absence of such injunction, the Company shall issue Conversion
Shares or, if applicable, cash, upon a properly noticed conversion. If the
Company fails for any reason to deliver to the Holder such Conversion Shares
pursuant to Section 2 by the Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of
principal amount being converted, $10 per Trading Day (increasing to $20 per
Trading Day on the fifth (5th) Trading Day after such liquidated damages begin
to accrue) for each Trading Day after such Share Delivery Date until such
Conversion Shares are delivered or Holder rescinds such conversion. Nothing
herein shall limit a Holder’s right to pursue actual damages or declare an Event
of Default pursuant to Section 8 hereof for the Company’s failure to deliver
Conversion Shares within the period specified herein and the Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the Holder
from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.

 

A-2

 

 

5.         Compensation for Buy-In on Failure to Timely Deliver Conversion
Shares Upon Conversion. In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder such Conversion
Shares by the Share Delivery Date pursuant to Section 4(c)(ii), and if after
such Share Delivery Date the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise), or the Holder’s brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a “Buy-In”),
then the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount, if any, by which (x)
the Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that the Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue (if
surrendered) the Notes in a principal amount equal to the principal amount of
the attempted conversion (in which case such conversion shall be deemed
rescinded) or deliver to the Holder the number of shares of Common Stock that
would have been issued if the Company had timely complied with its delivery
requirements under Section 2. For example, if the Holder purchases Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of the Notes with respect to which the actual sale price of
the Conversion Shares (including any brokerage commissions) giving rise to such
purchase obligation was a total of $10,000 under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of the Company,
evidence of the amount of such loss. Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
Conversion Shares upon conversion of the Notes as required pursuant to the terms
hereof.

 

6.         Reservation of Shares Issuable Upon Conversion. The Company covenants
that it will at all times reserve and keep available out of its authorized and
unissued shares of Common Stock for the sole purpose of issuance upon conversion
of the Notes and payment of interest on the Notes, each as herein provided, free
from preemptive rights or any other actual contingent purchase rights of Persons
other than the Holder (and the other holders of the Notes), not less than such
aggregate number of shares of the Common Stock as shall be issuable upon the
conversion of the then outstanding principal amount of the Notes and payment of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable.

 

7.         Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of the Notes. As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such conversion, the Company shall at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Conversion Price or round up to the next whole share.

 

8.         Transfer Taxes and Expenses. The issuance of Conversion Shares on
conversion of the Notes shall be made without charge to the Holder hereof for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such Conversion Shares, provided that the Company shall not
be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such Conversion Shares upon
conversion in a name other than that of the Holder of the Notes so converted and
the Company shall not be required to issue or deliver such Conversion Shares
unless or until the Person or Persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Company shall pay
all transfer agent fees required for same-day processing of any Notice of
Conversion and all fees to the Depository Trust Company (or another established
clearing corporation performing similar functions) required for same-day
electronic delivery of the Conversion Shares.

 

A-3

 

 

9.         Holder’s Conversion Limitations. The Company shall not effect any
conversion of the Notes, and a Holder shall not have the right to convert any
portion of the Notes, to the extent that after giving effect to the conversion
set forth on the applicable Notice of Conversion, the Holder (together with the
Holder’s Affiliates, and any other Persons acting as a group together with the
Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”))
would beneficially own in excess of the Beneficial Ownership Limitation (as
defined below).  For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates and Attribution
Parties shall include the number of shares of Common Stock issuable upon
conversion of the Notes with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which are issuable upon
(i) conversion of the remaining, unconverted principal amount of the Notes
beneficially owned by the Holder or any of its Affiliates or Attribution Parties
and (ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company subject to a limitation on conversion or
exercise analogous to the limitation contained herein (including, without
limitation, any other Notes or the Warrants) beneficially owned by the Holder or
any of its Affiliates or Attribution Parties.  Except as set forth in the
preceding sentence, for purposes of this Section 9, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. To the extent that the limitation
contained in this Section 9 applies, the determination of whether the Notes are
convertible (in relation to other securities owned by the Holder together with
any Affiliates and Attribution Parties) and of which principal amount of the
Notes are convertible shall be in the sole discretion of the Holder, and the
submission of a Notice of Conversion shall be deemed to be the Holder’s
determination of whether the Notes may be converted (in relation to other
securities owned by the Holder together with any Affiliates or Attribution
Parties) and which principal amount of the Notes are convertible, in each case
subject to the Beneficial Ownership Limitation. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company each time it
delivers a Notice of Conversion that such Notice of Conversion has not violated
the restrictions set forth in this paragraph and the Company shall have no
obligation to verify or confirm the accuracy of such determination. In addition,
a determination as to any group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. For purposes of this Section 9, in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as stated in the most
recent of the following: (i) the Company’s most recent periodic or annual report
filed with the Commission, as the case may be, (ii) a more recent public
announcement by the Company, or (iii) a more recent written notice by the
Company or the Company’s transfer agent setting forth the number of shares of
Common Stock outstanding.  Upon the written or oral request of a Holder, the
Company shall within one Trading Day confirm orally and 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 the Notes, by
the Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of the Notes held by the Holder. The Holder, upon
notice to the Company, may increase or decrease the Beneficial Ownership
Limitation provisions of this Section 9, provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon conversion of the Notes held by the Holder and the Beneficial
Ownership Limitation provisions of this Section 9 shall continue to apply. Any
increase in the Beneficial Ownership Limitation will not be effective until the
61st day after such notice is delivered to the Company. The Beneficial Ownership
Limitation provisions of this paragraph shall be construed and implemented in a
manner otherwise than in strict conformity with the terms of this Section 9 to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation contained herein
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of the Notes.

 

A-4

 

 

10.       Stock Dividends and Stock Splits. If the Company, at any time while
the Notes are outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (as defined below) (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company upon conversion of, or payment of interest on, the Notes), (ii)
subdivides outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Company) outstanding immediately before such event, and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification. “Common Stock Equivalents” means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including, without limitation, any
debt, preferred stock, right, option, warrant or other instrument that is at any
time convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.

 

11.       Subsequent Rights Offerings. In addition to any adjustments pursuant
to Section 10 above, if at any time the Company grants, issues or sells any
Common Stock Equivalents or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete conversion of the Notes (without regard
to any limitations on exercise hereof, including without limitation, the
Beneficial Ownership Limitation) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, that, to the extent that the Holder’s right to participate
in any such Purchase Right would result in the Holder exceeding the Beneficial
Ownership Limitation, then the Holder shall not be entitled to participate in
such Purchase Right to such extent (or beneficial ownership of such shares of
Common Stock as a result of such Purchase Right to such extent) and such
Purchase Right to such extent shall be held in abeyance for the Holder until
such time, if ever, as its right thereto would not result in the Holder
exceeding the Beneficial Ownership Limitation).

 

A-5

 

 

12.       Pro Rata Distributions. During such time as the Notes are outstanding,
if the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “Distribution”), at any time after
the issuance of the Notes, then, in each such case, the Holder shall be entitled
to participate in such Distribution to the same extent that the Holder would
have participated therein if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of the Notes (without regard to any
limitations on conversion hereof, including without limitation, the Beneficial
Ownership Limitation) immediately before the date of which a record is taken for
such Distribution, or, if no such record is taken, the date as of which the
record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, that, to the extent that
the Holder's right to participate in any such Distribution would result in the
Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not
be entitled to participate in such Distribution to such extent (or in the
beneficial ownership of any shares of Common Stock as a result of such
Distribution to such extent) and the portion of such Distribution shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Beneficial Ownership
Limitation).

 

13.       Fundamental Transaction. If, at any time while the Notes are
outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into
another Person, (ii) the Company, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Company, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, or (v) the Company, directly
or indirectly, in one or more related transactions consummates a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent conversion of the Notes, the Holder
shall have the right to receive, for each Conversion Share that would have been
issuable upon such conversion immediately prior to the occurrence of such
Fundamental Transaction (without regard to any limitation in Section 9 on the
conversion of the Notes), the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate Consideration”) receivable as a
result of such Fundamental Transaction by a holder of the number of shares of
Common Stock for which the Notes are convertible immediately prior to such
Fundamental Transaction (without regard to any limitation in Section 9 on the
conversion of the Notes). For purposes of any such conversion, the determination
of the Conversion Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one (1) share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any conversion of the Notes
following such Fundamental Transaction. The Company shall cause any successor
entity in a Fundamental Transaction in which the Company is not the survivor
(the “Successor Entity”) to assume in writing all of the obligations of the
Company under the Notes and the other Transaction Documents (as defined in the
Purchase Agreement) in accordance with the provisions of this Section 13
pursuant to written agreements in form and substance reasonably satisfactory to
the Holder and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the holder of the Notes,
deliver to the Holder in exchange for the Notes a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to the Notes which is convertible for a corresponding number of shares
of capital stock of such Successor Entity (or its parent entity) equivalent to
the shares of Common Stock acquirable and receivable upon conversion of the
Notes (without regard to any limitations on the conversion of the Notes) prior
to such Fundamental Transaction, and with a conversion price which applies the
conversion price hereunder to such shares of capital stock (but taking into
account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such
number of shares of capital stock and such conversion price being for the
purpose of protecting the economic value of the Notes immediately prior to the
consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of any
such 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 the Notes and the other Transaction Documents
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 the Notes and the other Transaction Documents
with the same effect as if such Successor Entity had been named as the Company
herein.

 

A-6

 

 

14.       Calculations. All calculations under this Annex A shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Annex A, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Company) issued and
outstanding.

 

15.       Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any provision of this Annex A, the Company shall promptly
deliver to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

 

16.       Notice to Allow Conversion by Holder. If (A) the Company shall declare
a dividend (or any other distribution in whatever form) on the Common Stock, (B)
the Company shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Company shall authorize the granting to
all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of the
Notes, and shall cause to be delivered to the Holder at its last address as it
shall appear upon the Note Register, at least twenty (20) calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder shall remain entitled to convert the Notes during the
20-day period commencing on the date of such notice through the effective date
of the event triggering such notice except as may otherwise be expressly set
forth herein.

 

A-7

 

 

Exhibit A

 

Purchase Agreement

 

 

 

 

Exhibit B

 

Schedule of Indebtedness

 

 

 

 

Exhibit C

 

Notice of Conversion