Exhibit 10.3

 

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: December 31, 2012       

 

$1,267,219       

 

AMORTIZING SENIOR SECURED CONVERTIBLE DEBENTURE       

 

THIS AMORTIZING DEBENTURE is one of a series of duly authorized and issued
Amortizing Senior Secured Convertible Debentures of Advanced Cell Technology,
Inc., a Delaware corporation, having a principal place of business at 1510 111th
Street Ste # 202, Santa Monica, CA 90401 (the “Company”), designated as its
Amortizing Senior Secured Convertible Debentures due June 30, 2015 (the
“Debentures”).       

 

FOR VALUE RECEIVED, the Company promises to pay to CAMHZN Master LDC or its
registered assigns (the “Holder”), or shall have paid pursuant to the terms
hereunder, the principal sum of $1,267,219 by June 30, 2015, 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 shall have the meanings given to such terms in the Settlement Agreement,
and (b) the following terms shall have the following meanings:       

 

“Alternate Consideration” shall have the meaning set forth in Section
5(d).       

 

“Business Day” means any day except any Saturday, any Sunday and any day which
shall be a federal legal holiday in the United States or any 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 $0.001 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(b).       

 

“Deferred Redemption” shall mean the redemption of this Debenture pursuant to
Section 6(b)(ii) hereof.       

 

 “Deferred Redemption Amount” shall mean, as to a Deferred Redemption, the
applicable Quarterly Redemption Amount.       

 

“Deferred Redemption Date” means the date the Holder requests the Deferred
Redemption.       

 

“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) either (A) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares in question, or issuable
pursuant to the portion of this Debenture in question (and the Company is not
aware of any information that would cause it to believe such use would be
interrupted), or (B) the shares in question, or the shares issuable pursuant to
the portion of this Debenture in question, may be immediately resold pursuant to
Rule 144,  (iv) the Common Stock is trading on the Trading Market are listed for
trading on a Trading Market (and the Company is not aware of any information
that would cause it to believe trading would be interrupted), (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 upon the conversion
of the Debenture, (vi) there is then existing no 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 limitation set forth in Section 4(c), (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, (ix) the Holder is not in possession of any information provided by
the Company that constitutes, or may constitute, material non-public information
and (x) in a period of 20 consecutive Trading Days prior to the applicable date
in question, the average daily trading volume for the Common Stock on the
principal Trading Market exceeds 1,000,000 shares.       

 

2

 

“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.       

 

“Exempt Redemptions” means redemption of shares by the Company solely as a
result of a redemption of a de minimus number of shares from employees, officers
or directors of the Company pursuant to termination of employment or resolution
of employment disputes with any such Persons, which issuances are approved by
the Board of Directors.       

 

“Fundamental Transaction” shall have the meaning set forth in Section
5(d).       

 

“Interest Payment Date” shall have the meaning set forth in Section 2(a).       

 

“Late Fee” shall have the meaning set forth in Section 2(c).       

 

“Mandatory Default Amount” shall equal the sum of (i) the greater of: (A) 120%
of the principal amount of this Debenture to be prepaid plus 100% of the accrued
and unpaid interest hereon, 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 Closing 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 greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of this
Debenture.       

 

“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).       

 

“Optional Redemption” shall have the meaning set forth in Section 6(a).       

 

“Optional Redemption Amount” shall mean the sum of (i) 100% of the principal
amount of the Debenture then outstanding and (ii) all liquidated damages and
other amounts due in respect of the Debenture.       

 

“Optional Redemption Notice” shall have the meaning set forth in Section
6(a).       

 

“Optional Redemption Notice Date” shall have the meaning set forth in Section
6(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.       

 

3

 

“Permitted Indebtedness” shall mean trade payables, indebtedness consisting of
capitalized lease obligations and purchase money indebtedness incurred in
connection with acquisition of capital assets and obligations under
sale-leaseback arrangements with respect to newly acquired or leased assets;
provided, however, that in each case such obligations are not secured by liens
on any assets of the Company or its Subsidiaries existing as of the Original
Issue Date and may only be secured by the assets so acquired or leased
thereafter. Notwithstanding anything to the contrary, the Company shall be
entitled to incur debt whether through financing or through a bank loan in the
aggregate amount of up to ten million dollars ($10,000,000) (the “Financing
Debt”) so long as 25% of the net cash proceeds received by the Company upon
issuance of such Financing Debt (other than purchase money indebtedness incurred
in connection with the acquisition of capital assets so long as such
indebtedness is only secured by the assets so purchased and is not in an amount
in excess of the amount of the assets so purchased) shall be used to repay the
Debentures and such debt will deemed Permitted Indebtedness for purposes of this
Debenture.       

 

“Permitted Lien” shall 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
Indebtedness provided that such liens are not secured by assets of the Company
or its Subsidiaries other than the assets so acquired or leased, except with
respect to Financing Debt, in which case such Liens may not be senior to any
Liens securing this Debenture; (c) statutory Liens of landlords or equipment
lessors against any property of the Company or its Subsidiaries existing as of
the Original Issue Date in favor of suppliers, mechanics, carriers, materialmen,
warehousemen or workmen; and (d) Liens created under the Security
Agreement.       

 

“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(b)(i) hereof.       

 

“Quarterly Conversion Period” shall have the meaning set forth in Section
6(b)(i) hereof.       

 

“Quarterly Conversion Price” shall have the meaning set forth in Section 6(b)(i)
hereof.       

 

“Quarterly Redemption” shall mean the redemption of this Debenture pursuant to
Section 6(b)(i) hereof.       

 

“Quarterly Redemption Amount” shall mean, as to a Quarterly Redemption,
$126,722.        

 

“Quarterly Redemption Date” means each of March 31, June 30, September 30 and
December 31, commencing on March 31, 2013 and ending upon the full redemption of
this Debenture.       

 

“Quarterly Redemption Notice” shall have the meaning set forth in Section
6(b)(i) hereof.       

 

“Quarterly Redemption Period” shall have the meaning set forth in Section
6(b)(i) hereof.       

 

“Quarterly Redemption Share Amount” shall have the meaning set forth in Section
6(b)(i) hereof.       

 

4

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the Original Issue Date, 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 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.       

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule H of
the Security Agreement and shall, where applicable, include any direct or
indirect subsidiary of the Company formed or acquired after the date
hereof.       

 

“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, the
Nasdaq National Market or the OTC Bulletin Board.       

 

“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 primary 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. EST to 4:02 p.m. Eastern Time) using
the VAP function; (b) if the Common Stock is not then listed or quoted on the
Trading Market 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 a nationally
recognized-independent appraiser selected in good faith by Holder.       

 

Section 2.       Interest.       

 

a)       Payment of Interest in Cash. The Company shall pay interest to the
Holder on the aggregate and then outstanding principal amount of this Debenture
at the rate of 8% per annum from the Original Issue Date, payable monthly in
arrears beginning on January 31, 2013 and on each monthly anniversary date
thereafter and on the Maturity Date (except that, if any such date is not a
Business Day, then such payment shall be due on the next succeeding Business
Day) (each such date, an “Interest Payment Date”).  

b)       Interest Calculations. Interest shall be calculated on the basis of a
360-day year and shall accrue daily commencing on the Original Issue Date until
payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Interest hereunder will be paid to the Person in whose name this Debenture is
registered on the records of the Company regarding registration and transfers of
Debenture (the “Debenture Register”).        

 

       

 

5

 

       

 

c)       Late Fee. All overdue accrued and unpaid interest to be paid hereunder
shall entail a late fee at the rate of 12% per annum (or such lower maximum
amount of interest permitted to be charged under applicable law) (“Late Fee”)
which will accrue daily, from the date such interest is due hereunder through
and including the date of payment.       

 

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)         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 80% of the VWAP of the 10 consecutive Trading Days prior
to the Conversion Date (subject to adjustment herein) (the “Conversion
Price”).       

 

6

 

c)       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, 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 person or entity acting as
a group together with the Holder or any of the Holder’s Affiliates) 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 shall include the
number of shares of Common Stock issuable upon conversion of this Debenture with
respect to which such determination is being made, but shall exclude the number
of shares of Common Stock which are issuable upon (A) conversion of the
remaining, unconverted principal amount of this Debenture beneficially owned by
the Holder or any of its Affiliates and (B) 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 Debentures or
warrants) 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),
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 4(c) applies, the
determination of whether this Debenture is convertible (in relation to other
securities owned by the Holder together with any Affiliates) and of which
principal amount of this Debenture is 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 this Debenture may be
converted (in relation to other securities owned by the Holder together with any
Affiliates) and which principal amount of this Debenture is 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 4(c), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as stated in the most
recent of the following: (A) the Company’s most recent Form 10-Q or Form 10-K,
as the case may be; (B) a more recent public announcement by the Company; or (C)
a more recent 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 “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
this Debenture held by the Holder.  The Beneficial Ownership Limitation
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, to change
the Beneficial Ownership Limitation to 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 this Debenture held by the Holder and
the provisions of this Section 4(c) shall continue to apply.  Upon such a change
by the Holder of the Beneficial Ownership Limitation from such 4.99% limitation
to such 9.99% limitation, the Beneficial Ownership Limitation may not be further
waived by the Holder.  The provisions of this paragraph shall be construed and
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 Beneficial Ownership Limitation
herein contained 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 this Debenture.       

 

7

 

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 representing the number of shares of Common Stock being acquired
upon the conversion of this Debenture. 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 the 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
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 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, 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 the 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 the 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 the 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.       

 

8

 

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 the 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 the 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 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 the 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 the
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 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, 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 Debentures), not less than such number of shares
of the Common Stock as shall 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 registered for public sale.       

 

9

 

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 Closing Price 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 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 Rights Offerings.  If the Company, at any time while the
Debenture is outstanding, shall issue rights, options or warrants to all holders
of Common Stock (and not to Holders) entitling them to subscribe for or purchase
shares of Common Stock at a price per share that is lower than the VWAP on the
record date referenced below, then the Conversion Price shall be multiplied by a
fraction of which the denominator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered (assuming delivery to the Company in full of all consideration
payable upon exercise of such rights, options or warrants) would purchase at
such VWAP.  Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.       

 

10

 

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 Closing Price
determined as of the record date mentioned above, and of which the numerator
shall be such Closing Price 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 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.       

 

11

 

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.
.       

 

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 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.       Redemption.       

 

a)       Optional Redemption at Election of Company.  Subject to the provisions
of this Section 6 the Company may deliver a notice to the Holder (an “Optional
Redemption Notice” and the date such notice is deemed delivered hereunder, the
“Optional Redemption Notice Date”) of its irrevocable election to redeem some or
all of the then outstanding Debentures, for an amount, in cash, equal to the
Optional Redemption Amount on the 10th Trading Day following the Optional
Redemption Notice Date (such date, the “Optional Redemption Date” and such
redemption, the “Optional Redemption”).  The Optional Redemption Amount is due
in full on the Optional Redemption Date.  The Company may only effect an
Optional Redemption if during the period commencing on the Optional Redemption
Notice Date through to the Optional Redemption Date and through and including
the date such Optional Redemption Amount is paid to the Holder, each of the
Equity Conditions shall have been met.  If any of the Equity Conditions shall
cease to be satisfied at any time during the required period, then the Holder
may elect to nullify the Optional Redemption Notice by notice to the Company
within 3 Trading Days after the first day, the Holder has received proper notice
from the Company that any such Equity Condition has not been met in which case
the Optional Redemption Notice shall be null and void, ab initio.  The Company
covenants and agrees that it will honor all Notices of Conversions tendered from
the time of delivery of the Optional Redemption Notice through the date all
amounts owing thereon are due and paid in full.       

 

12

 

b)       Quarterly Redemption.       

 

i.       On each Quarterly Redemption Date, the Company shall redeem the
Quarterly Redemption Amount, the sum of all liquidated damages and any other
amounts then owing to the Holder in respect of this Debenture (the “Quarterly
Redemption”). The Quarterly Redemption Amount due on each Quarterly Redemption
Date shall be paid in cash; provided, however, as to any Quarterly Redemption
and upon 20 Trading Days’ prior written irrevocable notice (the “Quarterly
Redemption Notice” and the 20 Trading Day period immediately following the
Quarterly Redemption Notice, the “Quarterly Redemption Period”), in lieu of a
cash redemption payment the Company may elect to pay all or part of a Quarterly
Redemption Amount in Conversion Shares (such dollar amount to be paid on a
Quarterly Redemption Date in Conversion Shares, the “Quarterly Redemption Share
Amount”) based on a conversion price equal to the lesser of (i) the then
Conversion Price (for the period ending on or prior to the Quarterly Redemption
Date) and (ii) 80% of the average of the 10 closing prices immediately prior to
the applicable Quarterly Redemption Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock during such 10 Trading Day period) (the price calculated during the
10 Trading Day period immediately prior to the Quarterly Redemption Date, the
“Quarterly Conversion Price” and such period, the “Quarterly Conversion
Period”); provided, further, that the Company may not pay the Quarterly
Redemption Amount in Conversion Shares unless, (y) from the date the Holder
receives the duly delivered Quarterly Redemption Notice through and until the
date such Quarterly Redemption is paid in full, the Equity Conditions, unless
waived in writing by the Holder, have been satisfied and (z) as to such
Quarterly Redemption, prior to such Quarterly Redemption Period (but not more
than 5 Trading Days prior to the commencement of the Quarterly 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 Quarterly Redemption Share Amount equal to the quotient of (x) the
applicable Quarterly Redemption Share Amount divided by (y) the lesser of (1)
the then Conversion Price and (2) the Quarterly Conversion Price assuming for
such purposes that the Quarterly Conversion Period ends 5 Trading Days prior to
the actual Quarterly Redemption Period  (the “Pre-Redemption Conversion
Shares”).  The Holder may convert, pursuant to Section 4(a), any principal
amount of this Debenture subject to a Quarterly Redemption at any time prior to
the date that the Quarterly Redemption Amount and all amounts owing thereon are
due and paid in full.  Any principal amount of this Debenture converted during
the applicable Quarterly Redemption Period until the date the Quarterly
Redemption Amount is paid in full shall be applied to the principal amount
subject to the Quarterly Redemption Amount payable in cash and then to the
Quarterly Redemption Share Amount.  Any principal amount of this Debenture
converted during the applicable Quarterly Redemption Period in excess of the
Quarterly 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
Quarterly Redemption Amount, the Pre-Redemption Conversion Shares, if any were
issued in connection with such Quarterly 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.         

 

        

 

13

 

       

 

ii.       Notwithstanding anything to the contrary in Section 6(b)(i), the
Holder shall have the right to defer up to 3 Quarterly Redemptions in any 12
month period until a future date determined at the Holder’s sole discretion
(each a “Deferred Redemption”). Such Deferred Redemption shall be payable
pursuant to the procedures for payment under a Quarterly Redemption in Section
6(b)(i) on the Deferred Redemption Date. The Holder may convert, pursuant to
Section 4(a), any principal amount of this Debenture subject to a Deferred
Redemption at any time prior to the date that the Deferred Redemption Amount and
all amounts owing thereon are due and paid in full.  Any principal amount of
this Debenture converted during a Deferred Redemption Period until the date the
Deferred Redemption Amount is paid in full shall be applied to the principal
amount subject to the Deferred Redemption Amount payable in cash.  Any principal
amount of this Debenture converted during the applicable Deferred Redemption
Period in excess of the Deferred 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.  The Company covenants and agrees
that it will honor all Notice of Conversions tendered up until such amounts are
paid in full.  At any time a Holder delivers a Deferred Redemption Notice, the
Company shall, if required, file a prospectus supplement pursuant to Rule 424
disclosing such election.       

  

c)       Mandatory Redemption. The Company shall be required to redeem the
Debentures at 100% of the principal amount thereof plus accrued interest to the
date of redemption with 25% of the net cash proceeds received by the Company
from the sale of Financing Debt. Such redemption shall be on the date of closing
of the sale of the Financing Debt.      

 

d)       Redemption Procedure.  The payment of cash pursuant to the Quarterly
Redemption, an Optional Redemption or a Deferred Redemption, shall be made on
the Quarterly Redemption Date, the Optional Redemption Date or the Deferred
Redemption Date, as applicable.  If any portion of the cash payment for a
Quarterly Redemption, an Optional Redemption or a Deferred Redemption, as
applicable 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 Quarterly
Redemption Amount, the Optional Redemption Amount or the Deferred Redemption
Amount, as applicable, plus all amounts owing thereon is paid in full. 
Alternatively, if any portion of the Quarterly Redemption Amount, the Optional
Redemption Amount or the Deferred Redemption Amount, as applicable, remains
unpaid after such date, the Holder may elect, by written notice to the Company
given at any time thereafter, to invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary, and, with respect the
failure to honor the Optional Redemption as applicable, the Company shall have
no further right to exercise such Optional Redemption.  The Holder may elect to
convert the outstanding principal amount of the Debenture pursuant to Section 4
prior to actual payment in cash for any redemption under this Section 6 by fax
or email delivery of a Notice of Conversion to the Company.       

 

14

 

Section 7.       Negative Covenants. So long as any portion of this Debenture is
outstanding, unless the Holder of the Debentures gives prior written consent,
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 (the “Charter Documents”) so as to materially and adversely affect any
rights of the Holder; provided, that the Company shall be entitled to amend the
Charter Documents without the prior written consent of the Holder (i) in
connection with a merger transaction or reorganization or (ii) to change the
authorized number of capital stock in connection with a financing transaction, a
recapitalization, stock-split, reverse stock-split or similar
transaction;       

 

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;       

 

e)       enter into any transaction with any Affiliate of the Company which
would be required to be disclosed in any public filing with the Commission,
unless such transaction is made on an arm’s-length basis and expressly approved
by a majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval);       

 

f)       pay cash dividends or distributions on any equity securities of the
Company;        

 

g)       transfer, pledge, hypothecate, encumber, license, sell or otherwise
dispose of any of the Collateral (except for sales, licenses, and dispositions
granted or made by the Company or its Subsidiaries in its ordinary course of
business); or       

 

h)       enter into any agreement with respect to any of the foregoing;
provided, that the Company shall be entitled to agree to any of the actions
otherwise prohibited by Section 7(g) in connection with any sale of the Company
or substantially all of its assets, or a merger or consolidation or other Change
of Control Transaction so long as it otherwise complies with the terms of this
Debenture applicable to any such transaction or, in the case of any such
transaction which results in an Event of Default, so long as the Debenture is
paid in full in accordance with the terms of the Debenture prior to or
simultaneously with the consummation of such transaction.       

 

15

 

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 (A) the principal amount of any
Debenture, or (B) other fees owing on 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) which default, solely in the case of defaults under clause (B) above,
is not cured, within 3 Trading Days;       

 

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) 30
Trading Days after notice of such default sent by the Holder or by any other
Holder and (B) 45 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 the Settlement Agreement;       

 

iv.       any representation or warranty made herein, in the Settlement
Agreement, 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 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; provided, however, in the event the Company
calls a meeting with the Holders to discuss any of the foregoing, such event
shall not be deemed to trigger this Event of Default;       

 

16

 

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, other than an Exempt
Redemption, 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.       the Company shall fail for any reason to deliver certificates to the
Holder prior to the third Trading Day after a 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;       

 

x.       any monetary judgment, writ or similar final process shall be entered
or filed against the Company, any subsidiary or any of their respective property
or other assets for more than $150,000, and such judgment, writ or similar final
process shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days;       

 

xi.       the Security Agreement shall no longer (a) provide the Holders with a
first priority security interest on the Company’s assets to the extent required
under the Security Agreement or (b) be in full force and effect, and such
failure under clause (a) or (b) shall continue for 30 calendar days;       

 

xii.       a Registration Statement shall not have been declared effective by
the Commission on or prior to the 180th calendar day after the Closing Date;
or       

 

xiii.       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 30 consecutive Trading Days or 60
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.       

 

17

 

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 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 or
email, sent by a nationally recognized overnight courier service, addressed to
the Company, at the address set forth above, email address:
grabin@advancedcell.com Attn: Gary Rabin, Chairman and CEO 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 the 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.       

 

Within thirty (30) days of obtaining knowledge thereof, the Company shall advise
the Holder promptly, in sufficient detail, of any material adverse change in the
Collateral, and of the occurrence of any event which would have a material
adverse effect on the value of the Collateral or on the Company’s or its
Subsidiaries security interest therein. The Company shall promptly notify the
Holder in sufficient detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Collateral and of any other
information received by the Company that may materially affect the value of the
Collateral, the security interest or the rights and remedies of the Holders
under the Security Agreement.        

 

18

 

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 debt obligation of the
Company.  This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein.       

 

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.       

 

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 hereby (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, 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)       Amendments and Waivers.  This Debenture, or any provisions hereof, may
be modified or amended or the provisions hereof waived with the prior written
consent of the Company and the Holder.  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.       

 

19

 

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 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, the Settlement Agreement and the Security
Agreement 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.       

 

j)       The Company shall at all times keep in full force and effect their
respective valid existence and good standing and any rights and franchises
material to its businesses.       

 

k)       Secured Obligation.  The obligations of the Company under this
Debenture are secured by all assets of the Company and each Subsidiary pursuant
to the Security Agreement, dated as of the date hereof, between the Company, the
Subsidiaries of the Company and the Secured Parties (as defined therein).       

 

*********************       

 

20

 

 

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.

 

  ADVANCED CELL TECHNOLOGY, INC.           By:     Name: Gary Rabin     Title:
Chief Executive Officer

        

 

 

 

 

 

 

 

 

[Senior Secured Convertible Debenture Signature Page - CAMHZN Master LDC]

 

 

 

 

 

ANNEX A       

 

NOTICE OF CONVERSION       

 

The undersigned hereby elects to convert principal under the Amortizing Senior
Secured Convertible Debenture of Advanced Cell Technology, Inc., a Delaware
corporation (the “Company”) into shares of common stock, par value $0.001 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: