EXHIBIT 10.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: September ___, 2005
Original Conversion Price (subject to adjustment herein): $1.05
$                                        
AMORTIZING CONVERTIBLE DEBENTURE
     THIS AMORTIZING CONVERTIBLE DEBENTURE is one of a series of duly authorized
and issued Amortizing Convertible Debentures of Viragen, Inc., a Delaware
corporation, having a principal place of business at
                                                             (the “Company”),
designated as its Amortizing Convertible Debenture (this debenture, the
“Debenture” and collectively with the other such series of debentures, the
“Debentures”).
     FOR VALUE RECEIVED, the Company promises to pay to
                                                             or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the
principal sum of $                                         in full by September
___, 2008, or such earlier date as this Debenture is required or permitted to be
repaid as provided hereunder (the “Maturity Date”). This Debenture is subject to
the following additional provisions:
     Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and
(b) the following terms shall have the following meanings:
     “Alternate Consideration” shall have the meaning set forth in Section 5(d).
     “Base Conversion Price” shall have the meaning set forth in Section 5(b).

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     “Business Day” means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.
     “Buy-In” shall have the meaning set forth in Section 4(d)(v).
     “Change of Control Transaction” means the occurrence after the date hereof
of any of (i) an acquisition after the date hereof by an individual or legal
entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 33% of the voting securities of the Company, or (ii) the Company
merges into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction, the
stockholders of the Company immediately prior to such transaction own less than
66% of the aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers its assets, as an entirety
or substantially as an entirety, to another Person and the stockholders of the
Company immediately prior to such transaction own less than 66% of the aggregate
voting power of the acquiring entity immediately after the transaction, (iv) a
replacement at one time or within a three year period of more than one-half of
the members of the Company’s board of directors which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i) or (iv).
     “Common Stock” means the common stock, par value $0.01 per share, of the
Company and stock of any other class of securities into which such securities
may hereafter have been reclassified or changed into.
     “Conversion Date” shall have the meaning set forth in Section 4(a).
     “Conversion Price” shall have the meaning set forth in Section 4(b).
     “Conversion Shares” means the shares of Common Stock issuable upon
conversion of this Debenture in accordance with the terms.
     “Debenture Register” shall have the meaning set forth in Section 2(c).
     “Dilutive Issuance” shall have the meaning set forth in Section 5(b).
     “Dilutive Issuance Notice” shall have the meaning set forth in
Section 5(b).

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     “Effectiveness Period” shall have the meaning given to such term in the
Registration Rights Agreement.
     “Equity Conditions” shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled to
occur or occurring by virtue of one or more Notice of Conversions of the Holder,
if any, (ii) all liquidated damages and other amounts owing to the Holder in
respect of this Debenture shall have been paid; (iii) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv) the
Common Stock is trading on the Trading Market and all of the shares issuable
pursuant to the Transaction Documents are listed for trading on a Trading Market
(and the Company believes, in good faith, that trading of the Common Stock on a
Trading Market will continue uninterrupted for the foreseeable future),
(v) there is a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock for the issuance of all of the shares issuable
pursuant to the Transaction Documents, (vi) there is then existing no Event of
Default or event which, with the passage of time or the giving of notice, would
constitute an Event of Default, (vii) the issuance of the shares in question
[(or, in the case of a redemption, the shares issuable upon conversion in full
of the redemption amount) to the Holder would not violate the limitations set
forth in [Section 4(c)(i) and Section 4(c)(ii) and (viii) no public announcement
of a pending or proposed Fundamental Transaction, Change of Control Transaction
or acquisition transaction has occurred that has not been consummated.
     “Event of Default” shall have the meaning set forth in Section 8.
     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
     “Forced Conversion” shall have the meaning set forth in Section 6(c).
     “Forced Conversion Notice” shall have the meaning set forth in
Section 6(c).
     “Forced Conversion Notice Date” shall have the meaning set forth in Section
6(c).
     “Fundamental Transaction” shall have the meaning set forth in Section 5(d).
     “Mandatory Default Amount” shall equal the sum of (i) the greater of:
(A) 130% of the principal amount of this Debenture to be prepaid or (B) the
principal amount of this Debenture to be prepaid divided by the Conversion Price
on (x) the date the Mandatory Default Amount is demanded or otherwise due or
(y) the date the Mandatory Default Amount is paid in full, whichever is less,
multiplied by the VWAP on (x) the date the Mandatory Default Amount is demanded
or otherwise due or (y) the date the Mandatory Default Amount is paid in full,
whichever is greater, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of this Debenture.

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     “Monthly Conversion Period” shall have the meaning set forth in Section
6(a) hereof.
     “Monthly Conversion Price” shall have the meaning set forth in Section 6(a)
hereof.
     “Monthly Redemption” shall mean the redemption of this Debenture pursuant
to Section 6(a) hereof.
     “Monthly Redemption Amount” shall mean, as to a Monthly Redemption, $___1.
     “Monthly Redemption Date” means the 1st of each month, commencing on
January 1, 2006 and ending upon the full redemption of this Debenture.
     “Monthly Redemption Notice” shall have the meaning set forth in Section
[6(a) hereof.
     “Monthly Redemption Period” shall have the meaning set forth in Section
[6(a) hereof.
     “Monthly Redemption Share Amount” shall have the meaning set forth in
Section [6(a) hereof.
     “New York Courts” shall have the meaning set forth in Section 9(d).
     “Notice of Conversion” shall have the meaning set forth in Section 4(a).
     “Original Issue Date” shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
     “Permitted Indebtedness” means:
     (a) indebtedness outstanding on the Original Issued Date prior to issuance
of this Debenture; and
     (b) indebtedness evidenced by this Debenture and the other Debentures;
     (c) indebtedness incurred after the Original Issue Date in an aggregate
amount not to exceed $1 million at any one time outstanding so long as (x) such
 

1   1/32nd of the original Principal Amount of this Debenture.

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indebtedness is incurred for the purpose of acquiring equipment owned or used or
to be owned or used by the Company or any Subsidiaries (or for the purpose of
acquiring the capital stock or similar equity interests of a Subsidiary that is
formed for the limited purpose of owning same and does not own or hold any other
material assets) and does not exceed the purchase price of the equipment,
capital stock or other equity interest so acquired plus reasonable transaction
expenses and (y) such indebtedness, if secured, is secured solely by the
interest of the Company or one of its Subsidiaries in the equipment so acquired
and rights related thereto;
     (d) indebtedness incurred after the Original Issue Date that is secured
solely by raw materials, works in progress and finished goods inventory and
accounts receivable in a financing by a bank, finance company or other
institutional lender providing receivables or inventory financing;
     (e) endorsements for collection or deposit in the ordinary course of
business; and
     (f) in the case of any Subsidiary, indebtedness owed by such Subsidiary to
the Company.
     “Permitted Lien” mean (a) Liens with respect to the payment of taxes or
governmental charges in all cases which are not yet due or which are subject to
a good faith contest; (b) any Liens incurred in connection with Permitted Debt
provided that such liens are not secured by assets of the Company or its
Subsidiaries other than the assets so acquired or leased; and (c) statutory
Liens of landlords or equipment lessors against any property of the Company or
its Subsidiaries existing as of the date of the Purchase Agreement in favor of
suppliers, mechanics, carriers, materialmen, warehousemen or workmen.
     “Person” means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
     “Pre-Redemption Conversion Shares” shall have the meaning set forth in
Section 6(a) hereof.
     “Purchase Agreement” means the Securities Purchase Agreement, dated as of
September ___, 2005, to which the Company and the original Holder are parties,
as amended, modified or supplemented from time to time in accordance with its
terms.
     “Registration Rights Agreement” means the Registration Rights Agreement,
dated as of the date of the Purchase Agreement, to which the Company and the
original Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.

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     “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Conversion Shares and naming the Holder as a
“selling stockholder” thereunder.
     “Securities Act” means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
     “Shareholder Approval” shall have the meaning given to such term in the
Purchase Agreement.
     “Subsidiary” shall have the meaning given to such term in the Purchase
Agreement.
     “Threshold Period” shall have the meaning given to such term in
Section 6(c).
     “Trading Day” means a day on which the Common Stock is traded on a Trading
Market.
     “Trading Market” means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the
Nasdaq National Market.
     “Transaction Documents” shall have the meaning set forth in the Purchase
Agreement.
     “VWAP” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg Financial L.P.
(based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
listed or quoted on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.
     Section 2. No Prepayment. Except as otherwise set forth in this Debenture,
the Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.

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     Section 3. Registration of Transfers and Exchanges.
     a) Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
     b) Investment Representations. This Debenture has been issued subject to
certain investment representations of the original Holder set forth in the
Purchase Agreement and may be transferred or exchanged only in compliance with
the Purchase Agreement and applicable federal and state securities laws and
regulations.
     c) Reliance on Debenture Register. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
     Section 4. Conversion.
     a) Voluntary Conversion. At any time after the Original Issue Date until
this Debenture is no longer outstanding, this Debenture shall be convertible
into shares of Common Stock at the option of the Holder, in whole or in part at
any time and from time to time (subject to the limitations on conversion set
forth in Section 4(c) hereof). The Holder shall effect conversions by delivering
to the Company the form of Notice of Conversion attached hereto as Annex A (a
“Notice of Conversion”), specifying therein the principal amount of this
Debenture to be converted and the date on which such conversion is to be
effected (a “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 provided hereunder. To effect conversions hereunder, the Holder
shall not be required to physically surrender this Debenture to the Company
unless the entire principal amount of this Debenture has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the
principal amount converted and the date of such conversions. The Company shall
deliver any objection to any Notice of Conversion within 1 Business Day of
receipt of such notice. In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Debenture, acknowledge
and agree that, by reason of the provisions of this paragraph, following
conversion of a portion of this Debenture, the unpaid and unconverted principal
amount of this Debenture may be less than the amount stated on the face hereof.
     b) Conversion Price. The conversion price in effect on any Conversion Date
shall be equal to $1.05 (subject to adjustment herein)(the “Conversion Price”).

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     c) Conversion Limitations.
     i. Trading Market Limitations. Notwithstanding anything herein to the
contrary, if the Company has not obtained Shareholder Approval, then the Company
may not issue upon conversion of this Debenture, a number of shares of Common
Stock which, when aggregated with any shares of Common Stock issued prior to
such Conversion Date (A) pursuant to any Debentures issued pursuant to the
Purchase Agreement and (B) pursuant to any Warrants issued pursuant to the
Purchase Agreement, would exceed the lesser of the number of shares of Common
Stock authorized under the Company’s Certificate of Incorporation, as amended,
or 19.999% of the number of shares of Common Stock outstanding on the Trading
Day immediately preceding the Original Issue Date (such number of shares, the
“Issuable Maximum”). Each Holder shall be entitled to a portion of the Issuable
Maximum equal to the quotient obtained by dividing (x) the aggregate principal
amount of the Debenture(s) issued and sold to such Holder on the Original Issue
Date by (y) the aggregate principal amount of all Debentures issued and sold by
the Company on the Original Issue Date. If any Holder shall no longer hold the
Debenture(s), then such Holder’s remaining portion of the Issuable Maximum shall
be allocated pro-rata among the remaining Holders. If on any Conversion Date:
(1) the applicable Conversion Price then in effect is such that the shares
issuable under this Debenture on any Conversion Date together with the aggregate
number of shares of Common Stock that would then be issuable upon conversion in
full of all then outstanding Debentures would exceed the Issuable Maximum, and
(2) Shareholder Approval has not been obtained and deemed effective (the
“Shareholder Approval”), then the Company shall issue to the Holder requesting a
conversion a number of shares of Common Stock equal to such Holder’s pro-rata
portion (which shall be calculated pursuant to the terms hereof) of the Issuable
Maximum and, with respect to the remainder of the aggregate principal amount of
the Debentures then held by such Holder for which a conversion in accordance
with the applicable conversion price would result in an issuance of shares of
Common Stock in excess of such Holder’s pro-rata portion (which shall be
calculated pursuant to the terms hereof) of the Issuable Maximum (the “Excess
Principal”), the Company shall be prohibited from converting such Excess
Principal, and shall notify the Holder of the reason therefor. This Debenture
shall thereafter be unconvertible to such extent until and unless Shareholder
Approval is subsequently obtained, but this Debenture shall otherwise remain in
full force and effect.
     ii. Holder’s Restriction on Conversion. The Company shall not effect any
conversion of this Debenture, and the Holder shall not have the right to convert
any portion of this Debenture, pursuant to Section 4(a) or otherwise, to the
extent that after giving effect to such conversion, the Holder (together with
the Holder’s affiliates), as set forth on the applicable Notice of Conversion,
would beneficially own in excess of 4.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to such conversion. For

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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 Debenture with respect
to which the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A) conversion of
the remaining, nonconverted portion of this Debenture beneficially owned by the
Holder or any of its affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any other Debentures or the 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 Section 4(c)(ii),
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 applies, the determination of
whether this Debenture is convertible (in relation to other securities owned by
the Holder) and of which a portion of this Debenture is convertible shall be in
the sole discretion of such Holder. 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 4(c)(ii), 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-Q or Form [10-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 Company’s Transfer Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of the Holder, the Company
shall within two Trading Days 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 this
Debenture, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. [The provisions of
this Section 4(c) may be waived by the Holder, at the election of the Holder,
upon not less than 61 days’ prior notice to the Company, and the provisions of
this Section 4(c) shall continue to apply until such 61st day (or such later
date, as determined by the Holder, as may be specified in such notice of
waiver). The provisions of this paragraph shall be implemented in a manner
otherwise than in strict conformity with the terms of this Section 4(c) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended 4.99% beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such 4.99% limitation. The limitations contained in this

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paragraph shall apply to a successor holder of this Debenture. The holders of
Common Stock of the Company shall be third party beneficiaries of this Section
4(c) and the Company may not waive this Section 4(c) without the consent of
holders of a majority of its Common Stock.
     d) Mechanics of Conversion
     i. Conversion Shares Issuable Upon Conversion of Principal Amount. The
number of shares of Common Stock issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion Price.
     ii. Delivery of Certificate Upon Conversion. Not later than three Trading
Days after any Conversion Date, the Company will deliver or cause to be
delivered to the Holder a certificate or certificates representing the
Conversion Shares which shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the conversion of this
Debenture, or in lieu thereof electronic delivery via DWAC. The Company shall,
if available and if allowed under applicable securities laws, use its best
efforts to deliver any certificate or certificates required to be delivered by
the Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions.
     iii. Failure to Deliver Certificates. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed
by the applicable Holder by the third Trading Day after a Conversion Date, the
Holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the principal amount of this Debenture tendered for
conversion.
     iv. Obligation Absolute; Partial Liquidated Damages. If the Company fails
for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date,
the Company shall pay to such Holder, in cash, as liquidated damages and not as
a penalty, for each $1000 of principal amount being converted, $10 per Trading
Day (increasing to $20 per Trading Day after 5 Trading Days after such damages
begin to accrue) for each Trading Day after such third Trading Day until such
certificates are delivered. The Company’s obligations to issue and deliver the
Conversion Shares upon conversion of this Debenture 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

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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, 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 this Debenture 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 any one
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, restraining and or enjoining conversion of all or part of this Debenture
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 principal amount of this
Debenture outstanding, which is subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder to the extent it
obtains judgment. In the absence of an injunction precluding the same, the
Company shall issue Conversion Shares or, if applicable, cash, upon a properly
noticed conversion. Nothing herein shall limit a Holder’s right to pursue actual
damages or declare an Event of Default pursuant to Section 8 herein for the
Company’s failure to deliver Conversion Shares within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it 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.
     v. Compensation for Buy-In on Failure to Timely Deliver Certificates 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 certificate or
certificates pursuant to Section 4(d)(ii) by the third Trading Day after the
Conversion Date, and if after such third Trading Day the Holder is required by
its brokerage firm to purchase (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by such Holder of the
Conversion Shares which the Holder anticipated receiving upon such conversion (a
“Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to
any remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the actual sale price of the Common Stock
at the time of the sale (including brokerage commissions, if any) giving rise to
such purchase obligation and (B) at the option of the Holder, either reissue (if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that

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would have been issued had the Company timely complied with its delivery
requirements under Section 4(d)(ii). 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 this Debenture with respect to which the actual sale
price of the Conversion Shares at the time of the sale (including brokerage
commissions, if any) 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. Notwithstanding anything contained herein to the contrary, if a Holder
requires the Company to make payment in respect of a Buy-In for the failure to
timely deliver certificates hereunder and the Company timely pays in full such
payment, the Company shall not be required to pay such Holder liquidated damages
under Section 4(d)(iv) in respect of the certificates resulting in such Buy-In.
     vi. Reservation of Shares Issuable Upon Conversion. The Company covenants
that, subject to the receipt of Shareholder Approval for all amounts in excess
of the Issuable Maximum, it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of this Debenture free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holder (and
the other holders of the Debentures), not less than such number of shares of the
Common Stock as shall (subject to the terms and conditions set forth in the
Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding principal
amount of this Debenture. The Company covenants that all shares of Common Stock
that shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid, nonassessable and, if the Registration Statement is then
effective under the Securities Act, registered for public sale in accordance
with such Registration Statement.
     vii. Fractional Shares. Upon a conversion hereunder the Company shall not
be required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the VWAP at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
     viii. Transfer Taxes. The issuance of certificates for shares of the Common
Stock on conversion of this Debenture 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 certificate, provided that the Company shall
not be required to pay any tax that may be payable in respect of any transfer

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involved in the issuance and delivery of any such certificate upon conversion in
a name other than that of the Holder of this Debenture so converted and the
Company shall not be required to issue or deliver such certificates 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.
     Section 5. Certain Adjustments.
     a) Stock Dividends and Stock Splits. If the Company, at any time while this
Debenture is outstanding: (A) pays a stock dividend or otherwise makes a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company pursuant to this Debenture), (B) subdivides outstanding shares of Common
Stock into a larger number of shares, (C) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares,
or (D) issues by 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 treasury shares, if any) 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.
     b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as
applicable, at any time while this Debenture is outstanding, shall offer, sell,
grant any option to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale, grant
or any option to purchase or other disposition) any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock, at an
effective price per share less than the then Conversion Price (such lower price,
the “Base Conversion Price” and such issuances collectively, a “Dilutive
Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common
Stock Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares of Common
Stock at an effective price per share which is less than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion
Price on such date of the Dilutive Issuance), then the Conversion Price shall be
reduced to equal the Base Conversion Price. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustment will be made under this Section
5(b) in respect of an Exempt Issuance. The Company shall notify the

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Holder in writing, no later than the Business Day following the issuance of any
Common Stock or Common Stock Equivalents subject to this section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms (such notice the “Dilutive
Issuance Notice”). For purposes of clarification, whether or not the Company
provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the
occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance
the Holder is entitled to receive a number of Conversion Shares based upon the
Base Conversion Price regardless of whether the Holder accurately refers to the
Base Conversion Price in the Notice of Conversion.
     c) Pro Rata Distributions. If the Company, at any time while this Debenture
is outstanding, shall distribute to all holders of Common Stock (and not to the
holders of the Debenture) evidences of its indebtedness or assets (including
cash and cash dividends) or rights or warrants to subscribe for or purchase any
security, then in each such case the Conversion Price shall be adjusted by
multiplying such Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described in a
statement provided to the Holder of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.
     d) Fundamental Transaction. If, at any time while this Debenture is
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(C) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification 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 (in any such case, a
“Fundamental Transaction”), then upon any subsequent conversion of this
Debenture, 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, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of one share of Common Stock (the
“Alternate Consideration”). 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

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respect of one 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 this Debenture following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new debenture consistent with the
foregoing provisions and evidencing the Holder’s right to convert such debenture
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(d) and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
     e) Calculations. All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes
of this Section 5, 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 treasury shares, if any) issued and outstanding.
     f) Notice to the Holder.
     i. Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any of this Section 5, the Company shall promptly mail 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. If
the Company issues a variable rate security, despite the prohibition thereon in
the Purchase Agreement, the Company shall be deemed to have issued Common Stock
or Common Stock Equivalents at the lowest possible conversion or exercise price
at which such securities may be converted or exercised in the case of a Variable
Rate Transaction (as defined in the Purchase Agreement).
     ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare
a dividend (or any other distribution) 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 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, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or

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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 this Debenture, and shall
cause to be mailed to the Holder at its last addresses as it shall appear upon
the stock books of the Company, at least 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 mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day period commencing the date of such notice to the effective date of the
event triggering such notice.
     Section 6. Monthly Redemption and Forced Conversion.
     a) Monthly Redemption. On each Monthly Redemption Date, the Company shall
redeem in cash the Monthly Redemption Amount plus a 10% premium (which premium
shall not be applied to the reduction of the principal amount of this Debenture)
on such Monthly Redemption Amount, the sum of all liquidated damages and any
other amounts then owing to such Holder in respect of this Debenture (the
“Monthly Redemption”). The amount due on each Monthly Redemption Date shall be
paid in cash; provided, however, as to any Monthly Redemption and upon 22
Trading Days’ prior written irrevocable notice (the “Monthly Redemption Notice”
and the 22 Trading Day period immediately following the Monthly Redemption
Notice, the “Monthly Redemption Period”), in lieu of a cash redemption payment
the Company may elect to pay all or part of such amount in Conversion Shares
(such dollar amount to be paid on a Monthly Redemption Date in Conversion
Shares, the “Monthly Redemption Share Amount”) based on a conversion price equal
to 95% of the average of the 5 VWAPs immediately prior to the applicable Monthly
Redemption Date (subject to adjustment for any stock dividend, stock split,
stock combination or other similar event affecting the Common Stock during such
5 Trading Day period) (the price calculated during the 5 Trading Day period
immediately prior to the Monthly Redemption Date, the “Monthly Conversion Price”
and such period, the “Monthly Conversion Period”); provided, further, that the
Company may not pay the Monthly Redemption Amount in Conversion Shares unless,
(x) from the date the Holder receives the duly delivered Monthly Redemption
Notice through and until the date such Monthly Redemption is paid in full, the
Equity Conditions, unless waived in writing by the Holder, have been satisfied,
(y) unless

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waived in writing to the Holder by the Company prior to the applicable Monthly
Redemption Period, the Monthly Conversion Price is equal to or greater than
$0.50, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the date of this Amendment and (z) as to such Monthly
Redemption, prior to such Monthly Redemption Period (but not more than 5 Trading
Days prior to the commencement of the Monthly Redemption Period), the Company
shall have delivered to the Holder’s account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Monthly Redemption
Share Amount equal to the quotient of (x) the applicable Monthly Redemption
Share Amount divided by (y) the then Conversion Price (the “Pre-Redemption
Conversion Shares”). The Holder may convert, pursuant to Section 4(a), any
principal amount of this Debenture subject to a Monthly Redemption at any time
prior to the date that the Monthly Redemption Amount and all amounts owing
thereon are due and paid in full. Unless otherwise indicated by the Holder in
the applicable Notice of Conversion, any principal amount of this Debenture
converted during the applicable Monthly Redemption Period until the date the
Monthly Redemption Amount is paid in full shall be first applied to the
principal amount subject to the Monthly Redemption Amount payable in cash and
then to the Monthly Redemption Share Amount. Any principal amount of this
Debenture converted during the applicable Monthly Redemption Period in excess of
the Monthly Redemption Amount shall be applied against the last principal amount
of this Debenture scheduled to be redeemed hereunder, in reverse time order from
the Maturity Date; provided, however, if any such conversion is applied to such
Monthly Redemption Amount, the Pre-Redemption Conversion Shares, if any were
issued in connection with such Monthly Redemption or were not already applied to
such conversions, shall be first applied against such conversion. The Company
covenants and agrees that it will honor all Notice of Conversions tendered up
until such amounts are paid in full. The Company’s determination to pay a
Monthly Redemption in cash, shares of Common Stock or a combination thereof
shall be applied ratably to all of the holders of the Debentures based on their
(or their predecessor’s) initial purchases of Debentures pursuant to the
Purchase Agreement. At any time the Company delivers a notice to the Holder of
its election to pay the Monthly Redemption Amount in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing such
election.
     b) Redemption Procedure. The payment of cash pursuant to the Monthly
Redemption shall be made on the Monthly Redemption Date. If any portion of the
cash payment for a Monthly Redemption shall not be paid by the Company by the
respective due date, interest shall accrue thereon at the rate of 18% per annum
(or the maximum rate permitted by applicable law, whichever is less) until the
payment of the Monthly Redemption Amount plus all amounts owing thereon is paid
in full. Alternatively, if any portion of the Monthly Redemption Amount remains
unpaid after such date, the Holders subject to such redemption may elect, by
written notice to the Company given at any time thereafter, to invalidate ab
initio such redemption. The Holder may elect to convert the outstanding
principal amount of the Debenture pursuant to Section 4 prior to actual

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payment in cash for any redemption under this Section 6 by fax delivery of a
Notice of Conversion to the Company.
     c) Forced Conversion. Notwithstanding anything herein to the contrary, if
after the later of the date that Shareholder Approval is obtained and deemed
effective and the Effective Date, each of the VWAPs for any 20 consecutive
Trading Days (such period commencing only after the later of the date
Shareholder Approval is obtained and deemed effective and the Effective Date,
such period the “Threshold Period”)) exceeds $2.00 (subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the Original Issue
Date), the Company may, within 1 Trading Day of the end of any such period,
deliver a notice to the Holder (a “Forced Conversion Notice” and the date such
notice is received by the Holder, the “Forced Conversion Notice Date”) to cause
the Holder to immediately convert all or part of the then outstanding principal
amount of Debentures pursuant to Section 4. The Company may only effect a Forced
Conversion Notice if all of the Equity Conditions are met through the applicable
Threshold Period until the date of the applicable Forced Conversion and through
and including the date such shares of Common Stock are issued to the Holder. Any
Forced Conversion shall be applied ratably to all Holders based on their initial
purchases of Debentures pursuant to the Purchase Agreement. For purposes of
clarification, a Forced Conversion shall be subject to all of the provisions of
Section 4, including, without limitation, the provision requiring payment of
liquidated damages and limitations on conversions.
     Section 7. Negative Covenants. Commencing on the date hereof, and
continuing for so long as any portion of this Debenture is outstanding, the
Company will not and will not permit any of its Subsidiaries to directly or
indirectly:
     a) except for Permitted Indebtedness, enter into, create, incur, assume,
guarantee or suffer to exist any indebtedness for borrowed money of any kind,
including but not limited to, a guarantee, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein or
any income or profits therefrom;
     b) except for Permitted Liens, enter into, create, incur, assume or suffer
to exist any liens of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or
profits therefrom;
     c) amend its certificate of incorporation, bylaws or other charter
documents so as to materially and adversely affect any rights of the Holder;
     d) repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of shares of its Common Stock or Common Stock
Equivalents other than as to the Conversion Shares to the extent permitted or
required under the Transaction Documents or as otherwise permitted by the
Transaction Documents;
     e) enter into any agreement with respect to any of the foregoing; or

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     f) pay cash dividends or distributions on any equity securities of the
Company.
     Section 8. Events of Default.
     a) “Event of Default”, wherever used herein, means any one of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
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):
     i. any default in the payment of the principal amount of any Debenture or
liquidated damages in respect of, any Debenture, as and when the same shall
become due and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise);
     ii. the Company shall fail to observe or perform any other covenant or
agreement contained in this Debenture or any other Debenture (other than a
breach by the Company of its obligations to deliver shares of Common Stock to
the Holder upon conversion which breach is addressed in clause [(xi) below)
which failure is not cured, if possible to cure, within the earlier to occur of
(A) 5 Trading Days after notice of such default sent by the Holder or by any
other Holder and (B)10 Trading Days after the Company shall become or should
have become aware of such failure;
     iii. a default or event of default (subject to any grace or cure period
provided for in the applicable agreement, document or instrument) shall occur
under (A) any of the Transaction Documents, or (B) any other material agreement,
lease, document or instrument to which the Company or any Subsidiary is bound;
     iv. any representation or warranty made herein, in any other Transaction
Documents, in any written statement pursuant hereto or thereto, or in any other
report, financial statement or certificate made or delivered to the Holder or
any other holder of Debentures shall be untrue or incorrect in any material
respect as of the date when made or deemed made;
     v. (i) the Company or any of its Subsidiaries shall commence a case, as
debtor, a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Company or any Subsidiary thereof or (ii) there is commenced a case against the
Company or any Subsidiary thereof, under any applicable bankruptcy or

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insolvency laws, as now or hereafter in effect or any successor thereto which
remains undismissed for a period of 60 days; or (iii) the Company or any
Subsidiary thereof is adjudicated by a court of competent jurisdiction insolvent
or bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of 60 days; or
(v) the Company or any Subsidiary thereof makes a general assignment for the
benefit of creditors; or (vi) the Company shall fail to pay, or shall state that
it is unable to pay, or shall be unable to pay, its debts generally as they
become due; or (vii) the Company or any Subsidiary thereof shall call a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (viii) the Company or any Subsidiary thereof
shall by any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or (ix) any corporate or other
action is taken by the Company or any Subsidiary thereof for the purpose of
effecting any of the foregoing;
     vi. the Company or any Subsidiary shall default in any of its obligations
under any mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued, or by
which there may be secured or evidenced any indebtedness for borrowed money or
money due under any long term leasing or factoring arrangement of the Company in
an amount exceeding $150,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable;
     vii. the Common Stock shall not be eligible for quotation on or quoted for
trading on a Trading Market and shall not again be eligible for and quoted or
listed for trading thereon within five Trading Days;
     viii. the Company shall be a party to any Change of Control Transaction or
Fundamental Transaction, shall agree to sell or dispose of all or in excess of
33% of its assets in one or more transactions (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem or repurchase more
than a de minimis number of its outstanding shares of Common Stock or other
equity securities of the Company (other than redemptions of Conversion Shares
and repurchases of shares of Common Stock or other equity securities of
departing officers and directors of the Company; provided such repurchases shall
not exceed $100,000, in the aggregate, for all officers and directors during the
term of this Debenture);
     ix. a Registration Statement shall not have been declared effective by the
Commission on or prior to the 180th calendar day after the Closing Date;

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     x. if, during the Effectiveness Period (as defined in the Registration
Rights Agreement), the effectiveness of the Registration Statement lapses for
any reason or the Holder shall not be permitted to resell Registrable Securities
(as defined in the Registration Rights Agreement) under the Registration
Statement, in either case, for more than 10 consecutive Trading Days or 15
non-consecutive Trading Days during any 12 month period; provided, however, that
in the event that the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets or a similar
transaction and in the written opinion of counsel to the Company, the
Registration Statement would be required to be amended to include information
concerning such transactions or the parties thereto that is not available or may
not be publicly disclosed at the time, the Company shall be permitted an
additional 10 consecutive Trading Days during any 12 month period relating to
such an event;
     xi. the Company shall fail for any reason to deliver certificates to a
Holder prior to the third Trading Day after a Conversion Date [or any Forced
Conversion Date] pursuant to and in accordance with Section 4(d) or the Company
shall provide notice to the Holder, including by way of public announcement, at
any time, of its intention not to comply with requests for conversions of any
Debentures in accordance with the terms hereof;
     xii. the Company shall have failed to increase the authorized capital of
the Company on or before November 30, 2005; or
     xiii. any Person shall breach the agreements delivered to the initial
Holders pursuant to Section 2.2(a)(iv) of the Purchase Agreement and the Company
does not obtain Shareholder Approval.
     b) Remedies Upon Event of Default. If any Event of Default occurs, the full
principal amount of this Debenture, together with other amounts owing in respect
thereof, to the date of acceleration shall become, at the Holder’s election,
immediately due and payable in cash. The aggregate amount payable upon an Event
of Default shall be equal to the Mandatory Default Amount. Commencing 5 days
after the occurrence of any Event of Default that results in the eventual
acceleration of this Debenture, the interest rate on this Debenture shall accrue
at the rate of 18% per annum, or such lower maximum amount of interest permitted
to be charged under applicable law. Upon the payment in full of the Mandatory
Default Amount on this entire Debenture the Holder shall promptly surrender this
Debenture to or as directed by the Company. The Holder need not provide and the
Company hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such declaration may be rescinded and
annulled by Holder at any time prior to payment hereunder and the Holder shall
have all rights as a Debenture holder until such time, if any, as the full
payment under this Section shall have been

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received by it. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon.
     Section 9. Miscellaneous.
     a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Notice of
Conversion, shall be in writing and delivered personally, by facsimile, sent by
a nationally recognized overnight courier service, addressed to the Company, at
the address set forth above, facsimile number
                                        , Attn:
                                                                                
or such other address or facsimile number as the Company may specify for such
purposes by notice to the Holder delivered in accordance with this Section. Any
and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service addressed to each
Holder at the facsimile telephone number or address of such Holder appearing on
the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:30 p.m. (New York City time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 5:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the second Business Day following the date of mailing, if sent
by nationally recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.
     b) Absolute Obligation. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and liquidated damages (if
any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Company. This Debenture ranks pari passu with all other Debentures, now or
hereafter issued under the terms set forth herein, and $20 million principal
amount of convertible notes of the Company due 2006, now or hereafter issued
under the terms set forth therein.
     c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.

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     d) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Debenture or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
     e) Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
     f) Severability. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or

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take the benefit or advantage of, any stay, extension or usury law or other law
which would prohibit or forgive the Company from paying all or any portion of
the principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
     g) Next Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
     h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Debenture and shall not be deemed to limit or affect
any of the provisions hereof.
     i) Assumption. Any successor to the Company or surviving entity in a
Fundamental Transaction shall (i) assume in writing all of the obligations of
the Company under this Debenture and the other Transaction Documents pursuant to
written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) prior to such Fundamental
Transaction and (ii) to issue to the Holder a new debenture of such successor
entity evidenced by a written instrument substantially similar in form and
substance to this Debenture, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Debentures held by the Holder and having similar ranking to this
Debenture, and satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 9(i) shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations of this Debenture.
*********************

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     IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.

            VIRAGEN, INC.
      By:           Name:           Title:      

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ANNEX A
NOTICE OF CONVERSION
     The undersigned hereby elects to convert principal under the Amortizing
Convertible Debenture of Viragen, Inc., a Delaware corporation (the “Company”),
into shares of common stock, par value $0.01 per share (the “Common Stock”), of
the Company according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
     By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4 of this Debenture.
     The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.

         
Conversion calculations:
       
 
       
 
      Date to Effect Conversion:
 
       
 
      Principal Amount of Debenture to be Converted:
 
       
 
      Number of shares of Common Stock to be issued:
 
       
 
      Signature:
 
       
 
      Name:
 
       
 
      Address:

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Schedule 1
CONVERSION SCHEDULE
The Amortizing Convertible Debentures in the aggregate principal amount of
$                                         issued by Viragen, Inc. This
Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.
Dated:

                      Aggregate             Principal             Amount        
    Remaining             Subsequent to     Date of Conversion       Conversion
    (or for first entry, Original       (or original     Issue Date)   Amount of
Conversion   Principal Amount)   Company Attest
 
                         
 
                         
 
                         
 
                         
 
                         
 
                         
 
                         
 
                         
 
                         
 
           

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