-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NLxeg2SlDu8t4jmX8CF63oQpa3q2imUVbHbqIag5k295UWSMO3PpUbgTrafAUC1g z9JeBJVqS0hiwdqpkaBt5A== 0000899681-00-000058.txt : 20000223 0000899681-00-000058.hdr.sgml : 20000223 ACCESSION NUMBER: 0000899681-00-000058 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000211 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE PHARMACEUTICAL CORP CENTRAL INDEX KEY: 0000736994 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 141644018 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-12950 FILM NUMBER: 550747 BUSINESS ADDRESS: STREET 1: 3040 SCIENCE PARK RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 8584105200 MAIL ADDRESS: STREET 1: 3040 SCIENCE PARK ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: OTISVILLE BIOPHARM INC DATE OF NAME CHANGE: 19890310 FORMER COMPANY: FORMER CONFORMED NAME: OTISVILLE BIOTECH INC DATE OF NAME CHANGE: 19861216 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 February 11, 2000 ----------------------------------------------------------- Date of Report (Date of earliest event reported) ALLIANCE PHARMACEUTICAL CORP. ----------------------------------------------------------- (Exact name of registrant as specified in charter) New York 0-12950 14-1644018 ----------------------- ----------------------- ----------------------- (State or other (Commission File (IRS Employer jurisdiction of Number) Identification No.) incorporation) 6175 Lusk Boulevard San Diego, California 92121 ----------------------------------------------------------------------- (Address of principal executive offices) (858) 410-5200 ----------------------------------------------------------------------- Registrant's telephone number, including area code ITEM 5. OTHER EVENTS As of February 11, 2000, Alliance Pharmaceutical Corp. ("Alliance") sold $15 million principal amount four year subordinated convertible debentures to three shareholders. The debentures are convertible into Alliance common stock at a set price of $9.65 per share, subject to certain anti-dilution provisions. The conversion may occur at any time through February 2004 at the investors' option, and Alliance has certain rights to cause the debentures to convert into common stock. The investors have the option to purchase an additional $15 million of similar debentures that are convertible into Alliance common stock at $12.06 per share for four years after issuance. Alliance has certain rights to require the investors to purchase the additional debentures. Forms of the debenture and the related securities purchase agreement and registration rights agreement are set forth as Exhibits 4.1, 4.2 and 4.3 hereto. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Finanical Statements None. (b) Pro Forma Financial Statements None. (c) Exhibits 4.1 Form of debenture. 4.2 Form of the securities purchase agreement. 4.3 Form of registration rights agreement. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. ALLIANCE PHARMACEUTICAL CORP. By:/s/ Lloyd A. Rowland --------------------- Lloyd A. Rowland Vice President and General Counsel Dated: February 22, 2000 EXHIBIT INDEX Exhibit Description 4.1 Form of debenture. 4.2 Form of the securities purchase agreement. 4.3 Form of registration rights agreement. EX-4.1 2 Exhibit 4.1 FORM OF DEBENTURE 5% SUBORDINATED CONVERTIBLE DEBENTURES THE DEBENTURE REPRESENTED HEREBY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION 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. PAYMENTS ON ACCOUNT OF THE INDEBTEDNESS EVIDENCED BY THIS DEBENTURE AND THE EXERCISE OF REMEDIES HEREUNDER ARE SUBORDINATED TO SENIOR INDEBTEDNESS AS PROVIDED HEREIN. No. ___ $__________ ALLIANCE PHARMACEUTICAL CORP. 5% CONVERTIBLE DEBENTURES DUE FEBRUARY __, 2004 Alliance Pharmaceutical Corp., a New York corporation (the "COMPANY"), for value received hereby promises to pay to ______________________________ or its registered assigns ("HOLDER") the principal sum of Four Million Nine Hundred Thousand Dollars at the Company's office or agency for said purpose in New York, New York on February __, 2004 in such coin or currency (or, as provided herein, at the Holder's option in Common Stock) of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts at the last address of the Holder (as defined herein) last appearing on the Register (as defined herein). This Debenture is one of a duly authorized issue of 5% Convertible Debentures, due February __, 2004 of the Company (the "DEBENTURE") referred to in the Securities Purchase Agreement (the "PURCHASE Agreement"), dated as of February __, 2000, by and among the Company and the Purchasers listed on Schedule I thereto. The Debentures are subject to the terms and conditions of the Purchase Agreement. The Company agrees to issue from time to time replacement Debentures in the form hereof to facilitate any transfers and assignments. In addition, after delivery of an indemnity in form and substance reasonably satisfactory to the Company, receipt of evidence of destruction in accordance with Section 2.2 hereof, and, in the case of mutilated Debentures, the delivery to the Company of such Debentures, the Company also agrees to issue replacement Debentures for securities which have been lost, stolen, mutilated or destroyed. The Company shall keep at its principal office a register (the "REGISTER") in which shall be entered the names and addresses of the registered holders of the Debentures and particulars of the respective Debentures held by them and of all transfers of such Debentures. References to the "HOLDER" or "HOLDERS" shall mean the Person listed in the Register as the payee of any Debenture unless the payee shall have presented such Debenture to the Company for transfer and the transferee shall have been entered in the Register as a subsequent holder, in which case the term shall mean such subsequent holder. The ownership of the Debentures shall be proven by the Register, absent manifest error. For the purpose of paying interest and principal on the Debentures, the Company shall be entitled to rely on the names and addresses in the Register. No provision of this Debenture shall alter or impair the obligations of the Company, which are absolute and unconditional, to pay the principal of and interest on this Debenture at the place, times, rate, and in the currency, herein prescribed. The Company will pay interest in arrears from and including the Original Issue Date on the unpaid principal balance of this Debenture at the rate of 5% per annum (the "INTEREST RATE") in an amount equal to $_______ semi-annually on August __ and February __ of each year (an "Interest Payment Date"), commencing on February )__, 2000 to the Holder hereof until the principal amount is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid in cash, or, at the option of the Company (as provided herein), an equivalent value of the Company's Common Stock calculated based upon the Conversion Price (as defined herein), subject to certain conditions contained herein, to the Holder of the Debenture at the close of business on the Business Day immediately preceding the Interest Payment Date for the interest payable on such Interest Payment Date. Any amounts that have become due and payable hereunder and remain unpaid by the Company shall accrue interest thereafter until payment in full of such amount at the rate of twenty percent (20%) (the "DEFAULT RATE") per annum and shall be payable upon demand by the Holder. Interest, whether at the Interest Rate or the Default Rate, will be computed on the basis of a fraction, the denominator of which is 365 (or 366 for any leap year) and the numerator of which is the actual number of days elapsed from the date such interest begins to accrue, in the case of the Interest Rate, or becomes due and payable, in the case of the Default Rate. Each of the Interest Rate and the Default Rate (if otherwise applicable under the terms hereof) shall be effective both before and after any judgment may be rendered in a court of competent jurisdiction, PROVIDED, HOWEVER, that if either the Interest Rate or Default Rate is deemed to be in excess of the amount permitted to be charged by the Company under applicable laws, the Holder shall be entitled to collect an Interest Rate or Default Rate, as the case may be, only at the highest rate permitted by law, and any interest collected by the Holder in excess of such lawful amount shall be deemed a payment in reduction of the principal amount then outstanding under this Debenture and shall be so applied. The principal of, and any interest paid in cash on, this Debenture are payable in coin or currency of the United States of America as at the time of payment is legal tender for payment of public or private debts, at the last address of the Holder last appearing on the Register, except that interest due on the principal amount, if any (but not interest overdue for more than five (5) days), may, at the Company's option be paid in shares of Common Stock calculated based upon the Conversion Price on the date such interest was due. It shall be assumed that the Company shall elect to make all payments of interest in cash, unless the Company shall have given written notice to each Holder not less than one (1) calendar month prior to the applicable Interest Payment Date of its intention to pay such interest in Common Stock. Notwithstanding anything to the contrary contained herein, the Company may not issue shares of Common Stock in payment of the interest on principal if: (i) the number of shares of Common Stock at the time authorized, unissued and unreserved for all other purposes is insufficient to pay interest hereunder in shares of Common Stock or there is an insufficient number of authorized shares of Common Stock reserved (pursuant to Section 3.6(b) of the Purchase Agreement) for issue for full conversion of all of the Debentures issued pursuant to the Purchase Agreement; (ii) such shares are not either registered for resale pursuant to the Registration Statement (as defined in the Registration Rights Agreement (as defined herein)) or freely transferable pursuant to Rule 144 promulgated under the Act, as determined by counsel to the Company pursuant to a written opinion letter addressed and in form and substance acceptable to the Holder and the transfer agent for such shares, subject to receipt, if necessary for such opinion, from the Holder of a representation from such Holder that it is not an Affiliate (as defined herein) of the Company; (iii) such shares are not listed or quoted on the Nasdaq (as defined herein) or a Subsequent Market (as defined herein); (iv) the issuance of such shares would result in the recipient thereof beneficially owning more than 4.99% of the issued and outstanding shares of Common Stock as determined in accordance with Section 4.7 hereof; (v) an Event of Default has occurred and is continuing or an event that, with the passage of time or giving of notice or both would constitute an Event of Default, has occurred and is continuing; or (vi) the Company has issued the Issuable Maximum (as defined herein) upon conversion of or pursuant to the Debentures issued pursuant to the Purchase Agreement and the Shareholder Approval has not been obtained. The Holder may from time to time convert the principal amount of this Debenture, or any portion thereof, with any accrued but unpaid interest, into Common Stock, as more particularly set forth in Section 4.2. ARTICLE I DEFINITIONS 1.1 CERTAIN TERMS DEFINED. The following terms for all purposes of this Debenture shall have the respective meanings specified below. All accounting terms used herein and not expressly defined shall have the meanings given to them in accordance with generally accepted accounting principles (as defined herein). Capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Purchase Agreement. The terms defined in this Section 1.1 include the plural as well as the singular. "ACCELERATION NOTICE" has the meaning set forth in Section 3.1. "AFFILIATE" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "APPRAISER" shall mean a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing. "AUTHORIZATION DATE" has the meaning set forth in Section 4.9. "AVERAGE PRICE" on any date means (x) the sum of the Per Share Market Value for the ten (10) Trading Days immediately preceding such date minus (y) the highest and lowest Per Share Market Value during the ten (10) Trading Days immediately preceding such date, divided by (z) eight (8). "BOARD OF DIRECTORS" means either the Board of Directors of the Company or any committee of such Board duly authorized to act hereunder. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to close. "CAPITAL STOCK" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's capital stock whether now outstanding or issued after the Original Issue Date, including, without limitation, all Common Stock and all Preferred Stock. "CHANGE OF CONTROL" means the occurrence 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), other than the Purchasers or any of their Affiliates, of in excess of 33% of the voting securities of the Company, (ii) a replacement of more than one-half of the members of the Company's Board of Directors that is not approved by those individuals who are members of the Board of Directors on the date hereof, or successors on a continuing Board of Directors, in one or a series of related transactions, (iii) the merger of the Company with or into another entity where the shareholders of the Company own less than 50% of the outstanding voting power of the surviving corporation, (iv) the consolidation or sale of all or substantially all of the assets of the Company in one or a series of related transactions, 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), (ii), (iii) or (iv). "CLOSING DATE" has the meaning set forth in the Purchase Agreement "COMMON STOCK" means the common stock, par value $0.01 per share, of the Company, or the common stock of any successor to the Company following a Change in Control in which the Company's Common Stock is converted into the Common Stock of the successor corporation. "COMPANY" has the meaning set forth in the first paragraph hereof. "CONVERTIBLE SECURITIES" has the meaning set forth in Section 4.5(e)(i)(A). "CONVERSION DATE" has the meaning set forth in Section 4.4(a). "CONVERSION DEFAULT" has the meaning set forth in Section 4.9. "CONVERSION DEFAULT PAYMENTS" has the meaning set forth in Section 4.9. "CONVERSION NOTICE" has the meaning set forth in Section 6.1. "CONVERSION NOTICE DATE" has the meaning set forth in Section 6.2. "CONVERSION PRICE" has the meaning set forth in Section 4.2(a). "CONVERSION TRIGGER PRICE" has the meaning set forth in Section 6.1. "DEBT" of any Person means, at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or bankers' acceptance or other similar instruments (or reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred purchase price of property or services, (v) all obligations of such Person as lessee under capitalized leases, (vi) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, provided that for purposes of determining the amount of any Debt of the type described in this clause, if recourse with respect to such Debt is limited to such asset, the amount of such Debt shall be limited to the fair market value of such asset, (vii) all Debt of others guaranteed by such Person, and (viii) all redeemable stock valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends. "DEBENTURE" or "DEBENTURES" has the meaning set forth in the second paragraph hereof. "DEBENTURE SHARES" means the shares of Common Stock underlying the Debentures or shares issued upon conversion of the Debentures. "DEFAULT RATE" has the meaning set forth in the sixth paragraph hereof. "DETERMINATION DATE" has the meaning set forth in Section 4.6. "DTC" means the Depositary Trust Corporation. "EVENT OF DEFAULT" has the meaning set forth in Section 3.1. "EXCESS AMOUNT" has the meaning set forth in Section 4.9. "EXCESS PRINCIPAL" has the meaning set forth in Section 4.6. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FAST" has the meaning set forth in Section 4.4(c). "GAAP" or "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally accepted accounting principles in the United States. "HOLDER", "HOLDER OF DEBENTURES", "DEBENTUREHOLDER" or other similar terms means the registered holder of any Debenture. "INCURRENCE" means the incurrence, creation, assumption or in any other manner becoming liable with respect to, or the extension of the maturity of or becoming responsible for the payment of, any Debt. "Incur" shall have a comparable meaning. "INTEREST PAYMENT DATE" has the meaning set forth in the fifth paragraph hereof. "INTEREST RATE" has the meaning set forth in the fifth paragraph hereof. "ISSUABLE MAXIMUM" has the meaning set forth in Section 4.6. "MANDATORY PREPAYMENT AMOUNT" for any Debenture means the greater of (i) the sum of (x) 120% of the principal amount of the Debenture to be prepaid and (y) all other amounts, costs, interest, expenses and liquidated damages due in respect of such principal amount and (ii) the sum of (x) at the option of the Holder, either (I) the principal amount of the Debenture to be repaid, plus all accrued and unpaid interest thereon, divided by the Conversion Price on the date the Mandatory Prepayment Amount is demanded or otherwise due, multiplied by the Per Share Market Value on the date the Mandatory Prepayment Amount is demanded or otherwise due or (II) the principal amount of the Debenture to be prepaid, plus all accrued and unpaid interest thereon, divided by the lower of either the Conversion Price or the Average Price on the Trading Day immediately prior to the date the Mandatory Prepayment Amount is paid in full, multiplied by the Per Share Market Value on the Trading Day immediately prior to the date the Mandatory Prepayment Amount is paid in full, and (y) all other amounts, costs, interest, expenses and liquidated damages due in respect of such principal amount. "MATURITY DATE" means the date on which the principal of a Debenture becomes due and payable as herein provided, whether on the Stated Maturity Date or pursuant to acceleration upon an Event of Default. "NASDAQ" means the Nasdaq National Market. "NOTICE OF CONVERSION" has the meaning set forth in Section 4.2. "OPTIONAL CONVERSION" has the meaning set forth in Section 6.1. "OPTIONAL CONVERSION DATE" has the meaning set forth in Section 6.2. "OPTIONS" has the meaning set forth in Section 4.5(e)(i)(A). "ORIGINAL ISSUE DATE" of any Debenture (or portion thereof) means the earlier of (i) the date of such Debenture and (ii) the date of any Debenture (or portion thereof) for which such security was issued (directly or indirectly) on registration of transfer, exchange or substitution. "PAYMENT BLOCKAGE NOTICE" has the meaning set forth in Section 7.2(b). "PER SHARE MARKET VALUE" means (i) on any particular Trading Day the closing bid price per share of the Common Stock on such date (as reported by Bloomberg Information Services, Inc., or any successor reporting service) on Nasdaq or, if the Common Stock is not then quoted on Nasdaq, any Subsequent Market on which the Common Stock is then listed or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date (excluding bids posted by the Company, a Holder or an Affiliate of any such person), or (ii) if the Common Stock is not listed then on Nasdaq or any Subsequent Market, the closing bid price for a share of Common Stock in the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date (excluding bids posted by a Holder or an Affiliate of a Holder), or (iii) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Appraiser selected in good faith by the holder of this Debenture; provided, however, that the Company, after receipt of the determination by such Appraiser, shall have the right to select in good faith an additional Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period. "PERSON" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PREFERRED STOCK" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's preferred or preference stock whether now outstanding or issued after the date of this Debenture, and includes, without limitation, all classes and series of preferred or preference stock. "PROPERTY" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person under generally accepted accounting principles. "PURCHASE AGREEMENT" means that Securities Purchase Agreement dated as of February __, 2000 by and among the Company and the Purchasers. "PURCHASE PRICE" means, with respect to any Debenture, the purchase price paid to the Company upon issuance of such Debenture. "PURCHASERS" has the meaning ascribed thereto in the Purchase Agreement. "REGISTER" has the meaning set forth in the third paragraph hereof. "REGISTRATION RIGHTS AGREEMENT" means that Registration Rights Agreement dated as of February __, 2000 by and among the Company and the Purchasers. "RESERVED AMOUNT" has the meaning set forth in Section 4.9. "REVERSE STOCK SPLIT" has the meaning set forth in Section 4.5(a). "SENIOR INDEBTEDNESS" shall have the meaning set forth in Section 7.1. "SHAREHOLDER APPROVAL" has the meaning set forth in Section 4.6. "STATED MATURITY DATE" means February __, 2004. "STOCK OPTION PLAN" means any contract, plan or agreement which has been approved by the Board of Directors of the Company, pursuant to which the Company's securities may be issued to any employee, officer, director or consultant. "STRATEGIC PARTNER" means any established biotechnology or pharmaceutical company, with a minimum market capitalization of one billion dollars, with whom the Company executes a written agreement providing that the Company and such entity will be "partnered" in the development or distribution of one or more of the Company's chemical compounds. "SUBSIDIARY" means, with respect to any Person, any corporation or other entity of which a majority of the Capital Stock or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned or controlled by such Person. A Person shall not be deemed to directly or indirectly own a majority of the Capital Stock of another Person solely because of ownership of an unexercised warrant to acquire Capital Stock of such other Person if the warrant does not provide for voting control of the warrant shares prior to its exercise. "SUBSEQUENT MARKET" means the New York Stock Exchange, American Stock Exchange, Nasdaq Small Cap Market, London Stock Exchange or Tokyo Stock Exchange. "TRADING DAY" means (a) a day on which the Common Stock is traded on Nasdaq or, if the Common Stock is not then designated on Nasdaq, on such Subsequent Market on which the Common Stock is then listed or quoted or (b) if the Common Stock is not listed on Nasdaq or a Subsequent Market, a day on which the Common Stock is traded in the over-the-counter Market, as reported by the OTC Bulletin Board, or (c) if the Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions or reporting prices) provided, however that in any event that the Common Stock is not listed or quoted as set forth in (a), (b), or (c) hereof, then a Trading Day shall mean any Business Day. ARTICLE II PAYMENT; THE SECURITIES 2.1 PAYMENT OF PRINCIPAL AND INTEREST. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal, plus all accrued interest thereon, with respect to each of the Debentures at the place or places, at the respective times and in the manner provided in the Debentures. 2.2 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN DEBENTURES. In case any temporary or definitive Debenture shall become mutilated, defaced or be apparently destroyed, lost or stolen, the Company shall execute and deliver a new Debenture, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated or defaced Debenture. In every case the applicant for a substitute Debenture shall furnish to the Company such security or indemnity as it may reasonably require to indemnify and defend and to save it harmless and, in every case of destruction, loss or theft evidence to the Company's satisfaction of the apparent destruction, loss or theft of such Debenture and of the ownership thereof. Upon the issuance of any substitute Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Debenture which has matured or is about to mature, or has been called for conversion in full, or is being surrendered for conversion in full shall become mutilated or defaced or be apparently destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, with the holder's consent, pay or authorize the payment or conversion of the same (without surrender thereof except in the case of a mutilated or defaced Debenture), if the applicant for such payment shall furnish to the Company such security or indemnity as it may reasonably require to save it harmless from all risks, however remote, and, in every case of apparent destruction, loss or theft, the applicant shall also furnish to the Company evidence to the Company's reasonable satisfaction of the apparent destruction, loss or theft of such Debenture and of the ownership thereof, and in the case of mutilated Debentures, the applicant shall deliver to the Company such Debentures. Every substitute Debenture issued pursuant to the provisions of this Section by virtue of the fact that any Debenture is apparently destroyed, lost, stolen or mutilated shall constitute an additional contractual obligation of the Company, whether or not the apparently destroyed, lost, stolen or mutilated Debenture shall be at any time enforceable by anyone and shall be entitled to all the benefits of (but shall be subject to all the limitations of rights set forth in) this Debenture equally and proportionately with any and all other Debentures duly authenticated and delivered hereunder. All Debentures shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment or conversion of mutilated, defaced, or apparently destroyed, lost, stolen or mutilated Debentures and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. 2.3 CANCELLATION OF DEBENTURES; DESTRUCTION THEREOF. All Debentures surrendered for payment, conversion, registration of transfer or exchange shall be delivered to the Company for cancellation, and no Debentures shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Debenture. The Company shall destroy canceled Debentures held by it and deliver a certificate of destruction to the Holder, unless otherwise required. If the Company shall acquire any of the Debentures, such acquisition alone shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until such indebtedness is satisfied. ARTICLE III DEFAULTS 3.1 EVENT OF DEFAULT DEFINED; ACCELERATION OF MATURITY; WAIVER OF DEFAULT. In case one or more of the following events ("EVENTS OF DEFAULt") (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be 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) shall have occurred and be continuing: a. default in the payment in cash (or in Common Stock, as permitted herein), for a period of more than three (3) Business Days, of all or any part of the principal of and the entire accrued interest on any of the Debentures as and when the same shall become due and payable either at maturity, upon any conversion, by declaration or otherwise; or b. failure on the part of the Company to duly and materially observe or perform any covenants or agreements on the part of the Company (or the making by the Company of any announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) contained in this Debenture (including the failure to issue Common Stock upon conversion of this Debenture in accordance with the terms hereof) or the Purchase Agreement or the Registration Rights Agreement for a period of five (5) Business Days (other than with respect to an announcement, statement or threat) in the case of a failure due to circumstances within the Company's control, or thirty (30) Business Days in the case of a failure due to circumstances not within the Company's control, after the earlier of (x) the date on which any executive officer of the Company shall have obtained actual knowledge of such failure (or such announcement, statement or threat) or (y) the date on which written notice thereof has been given to the Company by the Holder; or c. there shall have occurred with respect to any particular issue of Debt of the Company and/or one or more Subsidiaries having an outstanding principal amount of $1,000,000 or more in the aggregate for all such issues of all such Persons, whether such Debt now exists or shall hereafter be created, an event of default which has entitled the holder thereof to declare such Debt to be due and payable in full prior to its stated maturity, and such Debt has not been discharged in full or such acceleration has not been stayed, rescinded or annulled within ten (10) Business Days of such acceleration; or d. a judgment or order (not covered by insurance) for the payment of money shall be rendered against the Company or any Subsidiary of the Company in excess of $500,000 in the aggregate for all such judgments or orders against all such Persons (treating any deductibles, self insurance or retention as not so covered) that shall not be discharged, and all such judgments and orders remain outstanding, and there shall be any period of thirty (30) consecutive days following entry of the judgment or order in excess of $500,000 or the judgment or order which causes the aggregate amount described above to exceed $500,000 during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or e. a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any of its subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any of its Subsidiaries or for any substantial part of the property of the Company or any of its Subsidiaries or ordering the winding up or liquidation of the affairs of the Company or any of its Subsidiaries, and such decree or order shall remain unstayed and in effect for a period of thirty (30) consecutive days; or f. the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of the property of the Company, or the Company shall make any general assignment for the benefit of creditors; or g. any representation, warranty or certification made by the Company in the Purchase Agreement or in any certificate, financial statement shall prove to have been incorrect in any material respect when made; or h. the Common Stock shall be delisted from Nasdaq or shall be suspended from trading on Nasdaq without resuming trading and/or being relisted thereon or on a Subsequent Market or having such suspension lifted, as the case may be, within five (5) Business Days (twenty (20) Business Days if the Company is in good faith contesting such delisting or suspension); or i. a Registration Statement (as defined in the Registration Rights Agreement) for the Debenture Shares shall not have been declared effective by the Securities and Exchange Commission on or prior to the 30th day after the Effectiveness Date (as defined in the Registration Rights Agreement) or after its initial effectiveness and prior to the expiration of the Company's obligation to keep the Registration Statement effective as required under the Registration Rights Agreement, such Registration Statement lapses in effect or sales of all of the Registrable Securities (as defined in the Registration Rights Agreement) otherwise cannot be made thereunder (whether by reason of the Company's failure to amend or supplement the prospectus included therein in accordance with the Registration Rights Agreement or otherwise) for more than fifteen (15) consecutive days or thirty (30) days in any twelve (12) month period; or j. the Company shall fail to issue shares of Common Stock, in accordance with the Purchase Agreement and this Debenture, within three (3) Trading Days after the Holder delivers a Notice of Conversion pursuant to Section 4.2 hereof; or k. an Event of Default has occurred and is continuing under any of the other Debentures issued pursuant to the Purchase Agreement; or l. Failure on the part of the Company to comply with its obligations to close the Second Closing (as defined in the Purchase Agreement) when requested by the Holders. Then, in each and every such case (other than an Event of Default specified in Section 3.1(e) or 3.1(f) hereof), unless the principal shall have already become due and payable, by notice in writing to the Company (the "Acceleration Notice"), the Holders of at least a majority of the then outstanding principal amount of the Debentures may declare the entire principal of and the entire accrued interest on the Debentures owned by such Holders to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. If an Event of Default specified in Section 3.1(e) or 3.1(f) occurs, the principal of and any accrued interest on the Debentures (and the aggregate amounts described below) shall become and be immediately due and payable without any declaration or other act on the part of any Debenture Holder. In the event that the Company shall not have promptly, but in any event within five (5) Business Days after receipt of an Acceleration Notice, shall have paid a Holder the amount specified below (if applicable, as so specified) the Conversion Price of such Holder's Debenture shall automatically be adjusted to equal the average Per Share Market Value of the Common Stock during the preceding thirty (30) consecutive Trading Days immediately preceding the date of the Acceleration Notice, if such Per Share Market Value is lower than the Conversion Price. The aggregate amount payable upon an Event of Default described in Section 3.1(a), (e), (f) and (i) to a Holder in respect of such Holder's Debenture shall be equal to the sum of (i) the Mandatory Prepayment Amount applicable to such Debenture plus (ii) at the option of the Holder, the Mandatory Prepayment Amount for the principal amount of the Debentures (the "Converted Debentures") that would then be held by such Holder had the principal amount of Debentures converted into Debenture Shares that are then held by the Holder not been so converted; provided, that the Holder shall not be entitled to a Mandatory Prepayment Amount with respect to Converted Debentures if both the following have occurred: (i) prior to the occurrence of an Event of Default, the Debenture Shares into which the Converted Debentures were converted had been held by the Holder for more than thirty (30) days and (ii) prior to the occurrence of the Event of Default and after receipt by the Holder of the Debenture Shares that are held by the Holder at the time of the occurrence of the Event of Default, the Registration Statement with respect to such Debenture Shares had been continuously effective, and the Common Stock has been quoted on Nasdaq, for more than thirty (30) days. The aggregate principal amount payable on each Event of Default other than as described in Section 3.1(a), (e), (f) and (i) shall be equal to the sum of (i) the Mandatory Prepayment Amount plus (ii) at the option of the Holder, the Mandatory Prepayment Amount for the Converted Debentures that would then be held by such Holder had the principal amount of Debentures converted into Debenture Shares (as defined herein) that are then held by the Holder not been so converted; provided, that the Holder shall not be entitled to a Mandatory Prepayment Amount with respect to Converted Debentures if prior to the occurrence of an Event of Default, the Debenture Shares into which the Converted Debentures were converted had been held by the Holder for more than three (3) Trading Days. For purposes of this Section 3.1, the principal amount of the Debentures is outstanding until such date as the Holder shall have been issued Debenture Shares upon a conversion (or attempted conversion) thereof. Interest shall accrue on the Mandatory Prepayment Amount hereunder from the day after such amount is due (being the date of an Event of Default) through the date of payment in full thereof at the rate of 20.0% per annum, accruing daily from the date of conversion until such amount, plus an interest thereon, if any, is paid in full. Payment of the Mandatory Prepayment Amount pursuant to this Section 3.1 shall be in addition to any other amounts that may be due to the Holder pursuant to this Debenture. Within five (5) Business Days of receipt by the Holder of payments of amounts due to the Holder, (i) the Holder shall return the Debentures to the Company and (ii) in the event the Mandatory Prepayment Amount relates to the Converted Debentures, the Holder shall return the Debenture Shares into which such Converted Debentures were converted. In the event of the occurrence of an Event of Default, 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. Any demand for payment may be rescinded and annulled by a Holder at any time prior to payment hereunder. If a majority of the Holders rescind and annul any such demand, then the remaining Holders shall be deemed to rescind and annul any such demand. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Upon delivery of any Acceleration Notice to the Company, the Company shall provide a copy of such notice to the other Holders, if any, within one (1) Business Day of the Company's receipt thereof. Failure to deliver such notice shall not affect the validity of the notice delivered by the Holders in accordance with the provisions referred to above. 3.2 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER OF DEFAULT. No right or remedy herein conferred upon or reserved to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. No delay or omission of the Holders to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and every power and remedy given by the Debentures or by law may be exercised from time to time, and as often as shall be deemed expedient, by the Holders. ARTICLE IV EXCHANGE; CONVERSION 4.1 RIGHT OF DEBENTUREHOLDERS TO EXCHANGE DEBENTURES. Subject to and upon compliance with the provisions of this Section, this Debenture is exchangeable for an equal 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. 4.2 RIGHT OF DEBENTUREHOLDERS TO CONVERT DEBENTURES INTO COMMON STOCK. a. CONVERSION PRICE. Subject to and upon compliance with the provisions of this Section, the Holder of any Debenture shall have the right, at the Holder's option, at any time prior to the close of business on the Maturity Date to convert the principal amount of this Debenture, or any portion thereof (and any accrued but unpaid interest thereon) into duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock at the conversion price of $9.65 per share subject to adjustment under the provisions of this Article IV (the "Conversion Price"). b. NOTICE OF CONVERSION. If an adjustment in the Conversion Price and, if applicable, a change in the securities or other property issuable upon conversion has taken place hereunder, then the conversion described in Section 4.2(a) shall be at the applicable Conversion Price and into such securities or other property as so adjusted. The Purchaser desiring to make a conversion shall deliver to the Company during usual business hours of the Company's office, or, at the Purchaser's option, to the transfer agent of the Company during usual business hours of the transfer agent, a written notice of election to convert, as provided in the form attached hereto as Exhibit A (a "Notice of Conversion"), accompanied, if required, by the Debenture or Debentures, representing at least the principal amount to be converted. 4.3 ADJUSTMENT FOR DIVIDENDS; INTEREST PAYMENT AFTER CONVERSION. No payment or adjustment will be made for dividends on any Common Stock except as provided herein. On conversion of a Debenture, that portion of interest accrued and unpaid attributable to the period from the Original Issue Date to the Conversion Date with respect to the converted Debenture shall not be canceled, extinguished or forfeited, but rather shall be paid in full to the Holder thereof by the payment of cash; provided, however, that the Company may elect to pay such amount in shares of Common Stock valued at the Conversion Price if it provides the Holder with not less than ten (10) days prior written notice of such intention. If the Holder converts more than one Debenture at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the total principal amount of the Debentures converted. 4.4 ISSUANCE OF SHARES UPON CONVERSION. a. As promptly as practicable, but in any event no later than two (2) Trading Days after delivery of a Notice of Conversion and, if required, the surrender, as herein provided, of any Debenture or Debentures for conversion, the Company shall deliver or cause to be delivered to the Holder of the Debenture or Debentures delivering such Notice of Conversion, or such Holder's designee, a certificate or certificates representing the number of duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock, into which such Debenture or Debentures may be converted in accordance with the provisions of this Article IV. Such conversion shall be deemed to have been made at the close of business on the date the Notice of Conversion is delivered to the Company, as long as, if required, the Debenture or Debentures being converted are promptly delivered to the Company and the rights of the Holder of such Debenture or Debentures as a Holder (subject to the Company's satisfaction of its obligations hereunder with respect to such conversion) shall cease at such time with respect to the Converted Debentures, the Person or Persons entitled to receive the shares of Common Stock, upon conversion of such Debenture or Debentures, shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time, and such conversion shall be at the Conversion Price in effect at such time (the "Conversion Date"). Subject to paragraph 4.4(b), if any Debenture is converted in part only, upon such conversion the Company shall execute and deliver to the Holder thereof, as requested by such Holder, a new Debenture or Debentures of authorized denominations in aggregate principal amount equal to the unconverted portion of such Debenture. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties hereto agree that if the Company fails to deliver the shares of Common Stock required to be issued upon the conversion of such Debenture or Debentures under this Section 4.4 within the two (2) Trading Day period referred above, the Company shall pay to the Holder upon demand an amount of cash (at the Holder's option) equal to: (i) the commissions, discounts and similar expenses charged to the Holder in purchasing a number of shares of Common Stock no greater than the number of shares of Common Stock required to be issued upon the conversion of the Debenture or Debentures, or (ii) the product of (w) the number of shares of Common Stock required to be issued upon the conversion of the Debenture or Debentures, (x) the Per Share Market Value of such shares on the Conversion Date, (y) the number of days after such two (2) day period that such shares are not delivered to the Holder, and (z) 0.005. b. Notwithstanding anything to the contrary set forth herein, upon conversion of a Debenture in accordance with the terms thereof, the Holder shall not be required to physically surrender the Debenture to the Company unless the entire unpaid principal amount of the Debenture is so converted. The Holder and the Company shall maintain records showing the principal amount already converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of the Debenture upon each such conversion. In the event of any dispute or discrepancy, such records of the Company shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of the Debenture is converted, the Holder may not transfer the Debenture unless the Holder first physically surrenders the Debenture to the Company, whereupon the Company shall promptly issue and deliver upon the order of the Holder a new Debenture of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of the Debenture. The Holder and any assignee, by acceptance of the Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of a Debenture, the unpaid and unconverted principal amount of such Debenture represented by such Debenture may be less than the amount stated on the face thereof. c. In lieu of delivering physical certificates representing the Debenture Shares, provided the shares of Common Stock issuable upon conversion of a Debenture may be sold pursuant to Rule 144(k) under the Act or under an effective Registration Statement and the Company's transfer agent is participating in the Depository Trust Company Fast Automated Securities Transfer ("FAST") program, upon request of the Holder and in compliance with the provisions of Sections 4.1, 4.2 and 4.4, the Company shall use its best efforts to cause its transfer agent to electronically transmit the shares of Common Stock issuable upon conversion of the Debenture to the Holder by crediting the account of the Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. The time period for delivery described in the immediately preceding paragraph shall apply to the electronic transmittals described herein. d. In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to Section 4.4(a), including for purposes hereof, any shares of Common Stock to be issued on the Conversion Date on account of accrued but unpaid interest hereunder, by the second (2nd) Trading Day after the Conversion Date, and if after such second (2nd) Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of the Debenture Shares which the Holder was entitled to receive 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 was entitled to receive from the conversion at issue multiplied by (2) the market price of the Common Stock at the time of the sale giving rise to such purchase obligation and (B) at the option of the Holder, either return the Debentures for which such conversion was not honored or deliver to such Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its conversion and delivery obligations under Section 4.4(a). 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 Debentures with respect to which the market price of the Debenture Shares on the date of conversion totaled $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. 4.5 ADJUSTMENT OF CONVERSION PRICE. In addition to any adjustment to the Conversion Price provided elsewhere in this Debenture, the Conversion Price in effect at any time shall be subject to adjustment from time to time upon the happening of certain events, as follows: a. COMMON STOCK DIVIDENDS; COMMON STOCK SPLITS; REVERSE COMMON STOCK SPLITS. If the Company, at any time while this Debenture is outstanding, (a) shall pay a stock dividend on its Common Stock, (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of Common Stock any shares of Capital Stock of the Company, the Conversion Price shall be multiplied by a fraction the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and the denominator of which shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this paragraph 4.5(a) 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. Notwithstanding the foregoing, if the Company shall combine outstanding shares of Common Stock into a smaller number of shares (a "Reverse Stock Split") at any time prior to the Maturity Date, then the Conversion Price in effect immediately prior to such reverse stock split shall not be adjusted and shall remain in effect after giving effect to such reverse stock split. b. RIGHTS; OPTIONS; WARRANTS OR OTHER SECURITIES. If the Company, at any time while this Debenture is outstanding, shall fix a record date for the issuance of rights, options, warrants or other securities to all of the holders of Common Stock entitling them to subscribe for or purchase, convert to, exchange for or otherwise acquire shares of Common Stock for no consideration or at a price per share less than the Conversion Price, the Conversion Price shall be multiplied by a fraction, the denominator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights, options, warrants or other securities plus the number of additional shares of Common Stock offered for subscription or purchase, and the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such rights, options, warrants or other securities plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at the Conversion Price. Such adjustment shall be made whenever such rights, options, warrants or other securities are issued, and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants. c. SUBSCRIPTION RIGHTS. If the Company, at any time while this Debenture is outstanding, shall fix a record date for the distribution to all of the holders of Common Stock evidence of its indebtedness or assets or rights, options, warrants or other securities entitling them to subscribe for, purchase, convert to, exchange for or to otherwise acquire any security (excluding those referred to in Sections 4.5(a) and (b) above), then in each such case the Conversion Price at which the Debenture shall thereafter be exercisable shall be determined by multiplying the Conversion Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction, the denominator of which shall be the Per Share Market Value of Common Stock determined as of the record date mentioned above, and the numerator of which shall be such Per Share Market Value of the Common Stock 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 Common Stock as determined by the Board of Directors in good faith; provided, however, that in the event of a distribution exceeding twenty percent (20%) of the net assets of the Company, such fair market value shall be determined by an Appraiser selected in good faith by the Holder; and provided, further, that the Company, after receipt of the determination by such Appraiser shall have the right to select an additional Appraiser meeting the same qualifications, in good faith, in which case the fair market value shall be equal to the average of the determinations by each such Appraiser. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. d. OTHER EVENTS. In case of (A) any reclassification of the Common Stock into other securities of the Company or (B) any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property (each of (A) or (B), an "Extraordinary Event"), the Holder shall have the right thereafter to convert the Debenture for shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such Extraordinary Event, that the Holder would have been entitled to receive had it converted the Debenture immediately prior to such Extraordinary Event (without taking into account any limitations or restrictions on the convertibility of the Debentures) would have been entitled. In the case of an Extraordinary Event, the terms of any such Extraordinary Event shall include such terms so as to continue to give to the Holder the right to receive the securities, cash or property set forth in this Section 4.5(d) upon any conversion following such Extraordinary Event. This provision shall similarly apply to successive Extraordinary Events. e. ADJUSTMENT TO CONVERSION PRICE FOR DILUTIVE ISSUANCES. If the Company, at any time while this Debenture is outstanding, takes any of the actions described in this Section 4.5(e), then, in order to prevent dilution of the rights granted under this Debenture, at any time prior to the Maturity Date, the Conversion Price will be subject to adjustment from time to time as provided in this Section 4.5(e). (i) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK. If at any time while this Debenture is outstanding the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to such issuance or sale, then immediately after such issuance or sale the Conversion Price then in effect shall be reduced to an amount equal to the consideration per share of Common Stock in such issuance or sale. For the purpose of determining the adjusted Conversion Price under this Section 4.5(e), the following shall be applicable: (A) ISSUANCE OF OPTIONS. If at any time while this Debenture is outstanding the Company in any manner grants, issues or sells any rights, options, warrants, or options to subscribe for or to purchase Common Stock or any stock or other securities convertible into or exchangeable for Common Stock (such rights, warrants or options, "Options," and such convertible or exchangeable stock or securities, "CONVERTIBLE SECURITIES") and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than the Conversion Price in effect immediately prior to such grant or issuance, then the Conversion Price then in effect shall be reduced to equal the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities. No adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Options. (B) ISSUANCE OF CONVERTIBLE SECURITIES. If at any time while this Debenture is outstanding the Company in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price in effect immediately prior to issuance or sale, then the Conversion Price then in effect shall be reduced to an amount equal to the price per share for which the Common Stock is issuable upon the conversion or exchange of such Convertible Securities. No adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (C) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. In the event that there is a change at any time in (i) the exercise price provided for in any Options, (ii) the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock, other than a change which results from events set for in Sections 4.5(a), (b) and (c) which also cause a relative change in the Conversion Price, then immediately after such change in option price, additional consideration or rate of conversion the Conversion Price in effect at the time of such change shall be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed exercise price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold; provided that no adjustment shall be made if such adjustment would result in an increase of the Conversion Price in effect prior to such adjustments. (D) EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of determining the adjusted Conversion Price under this Section 4.5(e)(i), the following shall be applicable: (I) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Average Price on the Trading Day immediately preceding the date of receipt. In case any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined in good faith by the Board of Directors of the Company. (II) INTEGRATED TRANSACTIONS. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for an aggregate consideration of $0.01. (III) TREASURY SHARES. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock. (IV) RECORD DATE. If the Company establishes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (E) CERTAIN EVENTS. If any event occurs of the type contemplated by the provisions of this Section 4.5(e) (subject to the exceptions stated therein) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder, or assigns, of this Debenture; provided, however, that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 4.5(e). Notwithstanding anything to the contrary contained in this Section 4.5(e) no adjustment shall be made to the Conversion Price in connection with the issuance, sale or grant of any of the following securities, whether or not at a price that is less than the Conversion Price: (i) shares of Common Stock issuable upon the exercise of any options or warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the Purchase Agreement; (ii) shares of Common Stock or options to acquire Common Stock issued or deemed to have been issued by the Company in connection with a stock option plan, 401(k) plan or employee stock purchase plan; and (iii) shares of Common Stock underlying the Debentures or shares issued upon the conversion of the Debentures. f. ROUNDING. All calculations under this Section 4.5 shall be made to the nearest cent or the nearest l/l00th of a share, as the case may be. g. NOTICE OF ADJUSTMENT. The Company shall give the Holder written notice of the occurrence of any of the events specified in Sections 4.5(a), (b), (c), (d) or (e) as soon as practicable, but in no event later than three (3) Business Days after such event, provided further, that if such notice contains material non-public information, the Company shall (i) publicly disclose such information prior to or concurrently with the giving of such notice or (ii) only disclose such information to the extent that the Holder shall not be in possession of material non-public information. Such notice shall contain at least: (A) a description of the event, (B) the adjusted Conversion Price with a reference to the applicable paragraph in Section 4.5 hereof, if calculable at the time, and (C) the date on which the adjusted Conversion Price is effective. 4.6 NASDAQ LIMITATION. If on any date (the "DETERMINATION DATE") (a) the Common Stock is listed for trading on Nasdaq, (b) the Conversion Price then in effect is such that the aggregate number of shares of Common Stock that would then be issuable upon conversion in full of the then outstanding principal amount of the Debentures as if all such Debentures were converted on such Determination Date (without regard to any limitations on conversions) and as payment of interest thereon, would equal or exceed 20% of the number of shares of the Common Stock outstanding immediately prior to the "CLOSING DATE" (the "ISSUABLE MAXIMUM"), and (c) the Company shall not have previously obtained the vote of the shareholders of the Company (the "SHAREHOLDER Approval"), if any, as may be required by the applicable rules and regulations of Nasdaq (or any successor entity) to approve the issuance of shares of Common Stock in excess of the Issuable Maximum in a private placement whereby shares of Common Stock are deemed to have been issued at a price that is less than the greater of book value or fair market value of the Common Stock, then with respect to the aggregate principal amount of the Debentures then held by the Holders for which a conversion in accordance with the Conversion Price would result in an issuance of shares of Common Stock in excess of such Holder's pro rata allocation (as described below) of the Issuable Maximum (the "EXCESS PRINCIPAL") the Company may elect to prepay cash to the Holders in an amount equal to the Mandatory Prepayment Amount. Any such election by the Company must be made in writing to the Holders within two (2) Trading Days after the first such Determination Date and the payment of such Mandatory Prepayment Amount applicable to such prepayment must be made in full to the Holders with ten (10) Business Days after the date such notice is delivered. If the Company does not deliver timely a notice of its election to prepay under this Section or shall, if it shall have delivered such a notice, fail to pay the prepayment amount hereunder within ten (10) Business Days thereafter, then each Holder shall have the option by written notice to the Company, to, if applicable, declare any such notice given by the Company, if given, to be null and void and require the Company to either: (i) use its best efforts to obtain the Shareholder Approval applicable to such issuance as soon as is possible, but in any event not later than the 60th day after such request unless the Company has previously used its best efforts to, but has failed to, obtain such approval (provided, that if the Company shall fail to obtain the Shareholder Approval during such 60-day period, the Holder may demand the cash payment set forth in Section 4.6(ii) herein) or (ii) pay cash to such Holder, within five (5) Business Days of such Holder's notice, in an amount equal to the Mandatory Prepayment Amount for such Holder's portion of the Excess Principal. The payment of the Mandatory Prepayment Amount to each Holder pursuant to this Section shall be determined on a pro rata basis upon the principal amount of the Debentures held by such Holder on the Determination Date which is in excess of the pro rata allocation of the Issuable Maximum. If the Company fails to pay the Mandatory Prepayment Amount in full pursuant to this Section within five (5) Business Days after the date payable, the Company will pay interest thereon at a rate of 20% per annum to the converting Holder, accruing interest daily from the date of conversion until such amount, plus all such interest thereon, if any, is paid in full. Until the Company has received the Shareholder Approval no Holder of the Debentures shall be issued, upon conversion of Debentures, shares of Common Stock in an amount greater than such Holder's allocated portion of the Issuable Maximum pursuant to Section 4.14. 4.7 RESTRICTION ON CONVERSION BY EITHER THE HOLDER OR THE COMPANY. Notwithstanding anything herein to the contrary, in no event shall any Holder or the Company have the right or be required to convert any or all of the aggregate principal amount and interest accrued thereon of this Debenture if as a result of such conversion the aggregate number of shares of Common Stock beneficially owned by such Holder and its Affiliates would exceed 4.99% of the outstanding shares of the Common Stock following such conversion. For purposes of this Section 4.7, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. The provisions of this Section 4.7 may be waived by a Holder as to itself (and solely as to itself) upon not less than 65 days prior written notice to the Company, and the provisions of this Section 4.7 shall continue to apply until such 65th day (or later, if stated in the notice of waiver). 4.8 OFFICER'S CERTIFICATE. Whenever the number of shares purchasable upon conversion shall be adjusted as required by the provisions of Section 4.5, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted number of shares determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officer's certificate shall be signed by the chairman, president or chief financial officer of the Company and by the secretary or any assistant secretary of the Company. Each such officer's certificate shall be made available at all reasonable times for inspection by any holder of the Debentures and the Company shall, forthwith after each such adjustment, deliver a copy of such certificate to the each of the Holders. 4.9 RESERVATION OF SHARES. The Company covenants that it will at all times reserve and keep available out of its authorized shares of Common Stock, free from preemptive rights, solely for the purpose of issue upon conversion of the Debentures as herein provided, such number of shares of the Common Stock as shall then be issuable upon the conversion of all outstanding Debentures into Common Stock in accordance with Section 3.6(b) of the Purchase Agreement (the "Reserved Amount"). The Company covenants that all shares of the Common Stock issued upon conversion of the Debenture which shall be so issuable shall, when issued, be duly and validly issued and fully paid and non-assessable. If, at any time a Holder of this Debenture submits a Notice of Conversion, and the Company does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in accordance with the provisions of this Article IV (a "CONVERSION DEFAULT"), subject to Section 4.14, the Company shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion. The portion of this Debenture which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the "EXCESS AMOUNT") shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder's option at any time after) the date additional shares of Common Stock are authorized by the Company to permit such conversion at which time the Conversion Price in respect thereof shall be the lesser of (i) the Per Share Market Value on the Conversion Default Date (as defined below) and (ii) the Per Share Market Value on the Conversion Date thereafter elected by the Holder in respect thereof. In addition, the Company shall pay to the Holder payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount of (x) the sum of (1) the then outstanding principal amount of this Debenture plus (2) accrued and unpaid interest on the unpaid principal amount of this Debenture through the Authorization Date (as defined below) plus (3) Default Interest, if any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y) .24, multiplied by (z) (N/365), where N equals the number of days from the day the holder submits a Notice of Conversion giving rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the Company authorizes a sufficient number of shares of Common Stock to effect conversion of the full outstanding principal balance of this Debenture. The Company shall use its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Company or that the Company otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default. The Company shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder's accrued Conversion Default Payments. The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock (at such time as there are sufficient authorized shares of Common Stock following the Authorization Date) at the applicable Conversion Price, at the Holder's option, as follows: (a) In the event Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth (5th) Business Day of the month following the month in which it has accrued; and (b) In the event Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the lesser of the Conversion Price (as in effect at the time of conversion) and the Per Share Market Value (on the fifth day of the month referred to below) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms of this Article IV (so long as there is then a sufficient number of authorized shares of Common Stock). The Holder's election shall be made in writing to the Company at any time prior to 8:00 p.m., New York City Time, on the third day of the month following the month in which Conversion Default payments have accrued. If no election is made, the Holder shall be deemed to have elected to receive cash. Nothing herein shall limit the Holder's right to pursue actual damages (to the extent in excess of the conversion Default Payments) for the Company's failure to maintain a sufficient number of authorized shares of Common Stock, and each Holder shall have the right to pursue all remedies available at law or in equity (including degree of specific performance and/or injunctive relief). 4.10 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company covenants that if any shares of Common Stock required to be reserved for purposes of conversion of Debentures hereunder require registration with or approval of any governmental authority under any Federal or state law, or any national securities exchange, before such shares may be issued upon conversion, the Company will use its best efforts to cause such shares to be duly registered or approved, as the case may be. 4.11 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 Per Share Market Value 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. 4.12 PAYMENT OF TAX UPON ISSUE OR TRANSFER. The issuance of certificates for shares of the Common Stock on conversion of the Debentures shall be made without charge to the Holders thereof 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 such Debentures 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. 4.13 NOTICES. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been received (a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct answer back received), telecopy or facsimile (with transmission confirmation report) at the address or number designated below (if received by 8:00 p.m. EST where such notice is to be received), or the first Business Day following such delivery (if received after 8:00 p.m. EST where such notice is to be received) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications are (i) if to the Company to Alliance Pharmaceutical Corp., 6175 Lusk Boulevard, San Diego, California 92121, Attention: President, facsimile number: (858) 410-5343 with a copy to Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, Attention: Melvin Epstein, facsimile number: (212) 896-6006 and (ii) if to any Holder to the address set forth on Schedule II to the Purchase Agreement with copies to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, Attention: James Kaye, fax no. (212) 872-1002, or such other address as may be designated in writing hereafter, in the same manner, by such Person. 4.14 ALLOCATIONS OF ISSUABLE MAXIMUM AND RESERVED AMOUNT. The Issuable Maximum and Reserved Amount shall be allocated pro rata among the Holders based on the principal amount of Debentures issued to each Holder. Each increase to the Issuable Maximum and Reserved Amount shall be allocated pro rata among the Holders based on the principal amount of Debentures held by each Holder at the time of the increase in the Issuable Maximum or Reserved Amount. In the event a Holder shall sell or otherwise transfer any of such Holder's Debentures, each transferee shall be allocated a pro rata portion of such transferor's Issuable Maximum and Reserved Amount. Any portion of the Issuable Maximum or Reserved Amount which remains allocated to any person or entity which does not hold any Debentures shall be allocated to the remaining Holders, pro rata, based on the principal amount of such Debentures then held by such Holders. ARTICLE V CONSOLIDATION, MERGER OR SALE OF COMPANY 5.1 CONSOLIDATION, MERGER OR SALE ONLY ON CERTAIN TERMS. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: a. in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust whose Common Stock is traded on the Nasdaq or a Subsequent Market, and shall expressly assume, by a Debenture supplemental hereto, executed and delivered to the Holders, in form satisfactory to the Holders of a majority of the then outstanding principal amount of the Debentures, the due and punctual payment of the principal of and interest on all the Debentures and the performance or observance of every covenant of this Debenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Section 5.3; and b. immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default shall have happened and be continuing. 5.2 SUCCESSOR SUBSTITUTED. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 5.1, the successor person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Debenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Debenture. 5.3 CONVERSION RIGHTS. In case of any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any sale or transfer of all or substantially all of the assets of the Company, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall in the supplemental Debenture provided pursuant to Section 5.1(a) provide that the Holder of each Debenture then outstanding shall have the right thereafter, during the period such Debenture shall be convertible as specified in Article IV, to convert such Debenture only into the kind and amount of securities, cash or other assets receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock of the Company into which such Debenture might have been converted immediately prior to such consolidation, merger, sale or transfer. The supplemental indenture also shall provide that if in connection with such consolidation, merger, sale or transfer, each holder of Common Stock is entitled to elect to receive either securities, cash or other assets receivable upon such consolidation, merger, sale or transfer, the Company or the surviving or transferee corporation shall provide each holder of securities with the right to elect to receive the securities, cash or other assets into which the Debentures held by such Holder shall be convertible after completion of such consolidation, merger, sale or transfer on the same terms and subject to the same conditions applicable to holders of Common Stock (including, without limitation, notice of the right to elect, limitations on the period in which such election shall be made and the effect of failing to exercise the election). Such supplemental Debenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental Debenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section shall similarly apply to successive consolidations, mergers, sales or transfers. ARTICLE VI OPTIONAL CONVERSION 6.1 OPTIONAL CONVERSION. a. The Debentures issued at the First Closing are convertible in whole at the option of the Company, from time to time, subject to the following condition, and subject also to the other conditions set forth in this Article VI (the "OPTIONAL CONVERSION"): (i) If, after nine (9) months following the Effectiveness Date (as defined in the Registration Rights Agreement), the Per Share Market Value has been greater than Nineteen Dollars and Thirty Cents ($19.30) subject to adjustment in the same manner in which the Conversion Price is adjusted as provided in Sections 4.5(a), (b), (c) and (d) (the "CONVERSION TRIGGER PRICE") for at least twenty five (25) out of thirty (30) consecutive Trading Days. b. Subject to the condition set forth in Section 5.1(a), so long as (i) no Event of Default (or any event that with the passage of time or giving of notice or both would constitute an Event of Default) shall have occurred and be continuing, (ii) any Registration Statement required to be filed and be effective pursuant to the Registration Rights Agreement is then in effect and has been in effect and sales of all of the Registrable Securities can be made thereunder for at least twenty (20) days prior to the Conversion Notice Date (as defined below) and (iii) the Company has a sufficient number of authorized shares of Common Stock reserved for issuance upon full conversion of the Debentures, upon ten (10) Business Days prior written notice to the Holder (a "CONVERSION NOTICE"), the entire principal amount of the Debenture may be converted by the Company, in whole into shares of Common Stock at the Conversion Price, and accrued interest may be converted into shares of Common Stock at the Conversion Price on the Business Day prior to conversion. 6.2 MECHANICS OF CONVERSION. The Company must exercise its right to cause an Optional Conversion hereunder by delivering Conversion Notice by facsimile and overnight courier to each Holder, no later than three (3) Business Days after the occurrence of a condition set forth in Section 6.1(a)(i) (such deadline the "Conversion Notice Date"). Such Conversion Notice shall indicate (a) the Conversion Price, (b) the number of shares of Common Stock that each Holder shall receive as a result of the Optional Conversion and (c) a confirmation of the date that the Company shall effect the Optional Conversion and issue shares of Common Stock to the Holders (the "Optional Conversion Date"), on the Optional Conversion Date, unless there is a disagreement as described below. The Company shall issue the Common Stock on the Optional Conversion Date unless the Holder notifies the Company within three (3) Business Days after receipt of the Conversion Notice from the Company that the Holder disagrees with the occurrence of the Optional Conversion or any other matter contained in the Conversion Notice. If the Holder and the Company fail to agree upon the occurrence of the Optional Conversion or any other matter contained in the Conversion Notice within one (1) Business Day after the Holder has given such notice, the matter shall be determined promptly by a securities firm (the fees and expenses of which shall be paid by the Company) acceptable to both the Holder and the Company, and such computation shall be final and binding. The Optional Conversion shall be subject to the provisions set forth in Section 4.4, mutatis mutandis. If the Company does not deliver the Conversion Notice by the Conversion Notice Date, then the Company shall not have the right to effect an Optional Conversion until a condition set forth in Section 6.1(a)(i) occurs again after such Conversion Notice Date. An example of how the Optional Conversion right operates is as follows: Thirty (30) consecutive Trading Days occur during which the Per Share Market Value of the Common Stock is greater than the Conversion Trigger Price. The Conversion Notice Date is two (2) Business Days after the end of the thirty (30) day trading period. If the Company delivers the Conversion Notice by the Conversion Notice Date, it has properly exercised its Optional Conversion right and subject to this Section 6.2, the Debentures will be converted as provided herein. If the Company fails to deliver the Conversion Notice on or prior to the Conversion Notice Date, then there must again occur a thirty (30) consecutive day trading period in which the Per Share Market Value is in excess of the Conversion Trigger Price before the Company may again exercise its Optional Conversion right. ARTICLE VII SUBORDINATION OF DEBENTURES 7.1 DEBENTURES SUBORDINATE TO SENIOR INDEBTEDNESS. The Company covenants and agrees, and each Holder of a Debenture, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the payment of the principal of (and premium, if any) and interest on each and all of the Debentures are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. "SENIOR INDEBTEDNESS" shall mean any indebtedness, liabilities and other obligations of the Company (whether as primary obligor or as guarantor) to any Person (each a "SENIOR LENDER"), now existing or incurred hereafter, with respect to a Twenty Five Million dollar ($25,000,000) basket of senior corporate debt from a traditional lender and debt incurred as a result of a transaction with a corporate Strategic Partner. 7.2 NO PAYMENT ON DEBENTURES IN CERTAIN CIRCUMSTANCES. a. No payment or distribution of cash or property (other than Common Stock of the Company or other securities of the Company that are subordinated to Senior Indebtedness to at least the same extent as the Debentures) of the Company will be made on account of principal of or interest on the Debentures, or to defease or acquire any of the Debentures, or on account of the conversion provisions of the Debentures and no action shall be taken (judicial or otherwise) to collect any such payment or distribution (i) upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all Senior Indebtedness shall first be paid in full in cash, or such payment duly made in a manner satisfactory to the holders of such Senior Indebtedness or (ii) in the event that the Company defaults in the payment of any principal of, premium, if any, or interest on or any other amounts payable on or due in connection with any Senior Indebtedness when it becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, unless and until such default has been waived in writing by the holders of the Senior Indebtedness. Payments on the Debentures may and shall be resumed in the case of a payment default only upon the date on which such default is waived in writing by the holders of the Senior Indebtedness or their agent. b. If any default OTHER than a default contemplated by Section 7.2(a)(ii) above shall have occurred and be continuing that would permit the holders of the Senior Indebtedness to accelerate the maturity of Senior Indebtedness, upon written notice (a "PAYMENT BLOCKAGE NOTICE") of the default given to the Company and the Holders by the holders of, or an agent, trustee or other representative for, such Senior Indebtedness, then, unless and until such default has been waived in writing, no payment or distribution of cash or property (other than Common Stock of the Company or other securities of the Company that are subordinated to Senior Indebtedness to at least the same extent as the Debentures) shall be made by the Company with respect to the principal of or interest on the Debentures or on account of conversion of the Debentures or to acquire or repurchase any of the Debentures for cash or property other than Common Stock of the Company, and no action shall be taken (judicial or otherwise) to collect any such payment or distribution. If such Senior Indebtedness is not declared due and payable within 180 days after written notice of the event of default is given, promptly after the end of the 180-day period the Company will pay all sums due in respect of the Debentures and not paid during the 180-day period. During any 360-day consecutive period, only one such period during which payment with respect to the Debentures may not be made as the result of a Payment Blockage Notice may commence and the duration of such period may not exceed 180 days. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Holders shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. c. If any payment or distribution of assets of the Company is received by any Holder in respect of the Debentures at a time when that payment or distribution should not have been made because of paragraph (a) or (b) of this Section 7.2, and provided that prior to the Company's disbursement of such distribution or payment, the Holders shall have received a written notice from the Company or from an agent or representative for one or more holders of Senior Indebtedness, such payment or distribution will be received and held and will be paid over to the holders of Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them) until all such Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness. 7.3 DEBENTURES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION. Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership or similar proceedings relating to the Company or its property or upon an assignment for the benefit of creditors or any marshalling of the Company's assets or liabilities or otherwise): a. the holders of all Senior Indebtedness will first be entitled to receive payment in full of the principal of and interest due on Senior Indebtedness (including interest accruing after the commencement of a bankruptcy or insolvency) at the rate specified in the applicable Senior Indebtedness documents and including, without limitation, in respect of premiums, indemnities or otherwise, before the Holders are entitled to receive any payment or distribution on account of the principal of or interest on the Debentures; b. any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (except that Holders may receive securities that are subordinated at least to the same extent as the Debentures to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness), to which Holders would be entitled except for the provisions of this Section 7.3 will be paid by the liquidating trustee or agent or other persons legally empowered to make such a payment or distribution directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their representatives to the extent necessary to make or provide for payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness or provision for that payment or distribution; and c. if, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (except that Holders may receive securities that are subordinated at least to the same extent as the Debentures to Senior Indebtedness and any securities issued in exchange for Senior indebtedness) is received by the Holders on account of the principal of or interest on the Debentures before all Senior Indebtedness is paid in full, such payment or distribution will be received and held in trust for and will be forthwith paid over to the holders of the Senior Indebtedness remaining unpaid or unprovided for or their representatives for application (in the cash of cash) to, or as collateral (in the case of non-cash property or securities) for the payment of such Senior Indebtedness until all such Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution or provision therefor to the holders of such Senior Indebtedness. The Company will give prompt written notice to the Holders of any dissolution, winding up, liquidation or reorganization of it or any assignment for the benefit of its creditors. 7.4 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. Subject to the payment in full of all Senior Indebtedness, the Holders shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until all amounts owing on the Debentures shall be paid in full; and, for the purposes of such subrogation: a. no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders would be entitled except for the provisions of this Article VII and no payment pursuant to the provisions of this Article VII to the holders of Senior Indebtedness by the Holders shall, as between the Company, its creditors (other than holders of Senior Indebtedness) and the Holders, be deemed to be a payment by the Company to or on account of the Senior Indebtedness; and b. no payment or distributions of cash, property or securities to or for the benefit of the Holders pursuant to the subrogation provision of this Article VII, which would otherwise have been paid to the holders of Senior Indebtedness, shall be deemed to be a payment by the Company to or for the account of the Debentures. 7.5 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Debenture or in the Debentures is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Debentures, the obligation of the Company, which is absolute and unconditional to pay to the Holders of the Debentures the principal of (any premium, if any) and interest on the Debentures as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Debentures and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Debentures, subject to the rights, if any, under this Article VII of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Holder upon the exercise of any such remedy. 7.6 RIGHT TO FILE PROOF OF CLAIM. In the event of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon any assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company, with respect to the filing of a claim for the unpaid balance of any Holder's Debentures in the form required in those proceedings, if the Holder does not file a proper claim or proof of debt in the form required in such proceeding at least thirty (30) days before the expiration of the time to file such claim or claims, then the holders of Senior Indebtedness and their agents, trustees, or other representatives are hereby authorized to have the right to file, and are hereby authorized to file, an appropriate claim for and on behalf of each such Holder. 7.7 NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Debenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holders of the Debentures, without incurring responsibility to the Holders of the Debentures and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Debentures to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. 7.8 NOTICE TO HOLDERS. The Company shall give prompt written notice to the Holders of any fact known to the Company which would prohibit the making of any payment to or by the Holders in respect of the Debentures. Notwithstanding the provisions of this Article or any other provision of this Debenture, the Holders shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to the Holders in respect of the Debentures, unless and until the Holders shall have received written notice thereof from the Company or a holder of Senior Indebtedness; and, prior to the receipt of any such written notice, the Holders shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Holders shall not have received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of, and premium, if any, or interest on any Debenture), then, anything herein contained to the contrary notwithstanding, the Holders shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. The Holders shall be entitled to rely on the delivery to them of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a representative thereof) to establish that such notice has been given by a holder of Senior Indebtedness (or representative thereof). In the event that the Holders determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness (or a representative thereof) to participate in any payment or distribution pursuant to this Article, the Holders may request such Person to furnish evidence to the reasonable satisfaction of the Holders as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Holders may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. 7.9 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon the payment or distribution of assets of the Company referred to in this Article, the Holders of the Debentures shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of the creditors, agent or other Person making such payment or distribution, delivered to the Holders of Debentures, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article VII. 7.10 NO ADVERSE MODIFICATION TO DEBENTURE. Neither the Holders nor the Company shall enter into any modification of the Debentures which is in any way adverse to the holders of the Senior Indebtedness. 7.11 NOTICE TO HOLDERS OF SENIOR INDEBTEDNESS. The Company will furnish to the holders of Senior Indebtedness at the time Senior Indebtedness is initially incurred, when there is a change in the Holders thereof, or at any time upon request therefor, a true and correct copy of the then most current register setting forth the names and addresses of the Holders as of such date. 7.12 SUBORDINATION AGREEMENT. The Holder by its acceptance hereof agrees to execute and deliver to any Senior Lender such subordination agreement as may be reasonably requested by such Senior Lender, which may deviate in certain minor respects from the subordination provisions contained herein but which is commercially reasonable and customary, and to execute, acknowledge, deliver, file, notarize and register all such further agreements, instruments, certificates, documents and assurances, and perform such acts as such Senior Lender shall deem necessary or appropriate to effectuate the purposes of the subordination provisions contained herein. ARTICLE VIII OPTIONAL REDEMPTION 8.1 OPTIONAL REDEMPTION. In the case of a Change of Control then, each Holder shall have the right, for a period of thirty (30) Business Days following such Change of Control, unless the principal shall have already become due and payable, by giving the Company an Acceleration Notice, to require the Company to immediately redeem the Debenture owned by such Holder at the Mandatory Prepayment Amount. In the event that the Company shall not have promptly, but in any event within five (5) Business Days after receipt of an Acceleration Notice, shall have paid a Holder the amount specified above the Conversion Price of such Holder's Debenture shall automatically be adjusted to equal the average Per Share Market Value of the Common Stock during the preceding thirty (30) consecutive Trading Days immediately preceding the date of the Acceleration Notice, if such Per Share Market Value is lower than the Conversion Price. The aggregate principal amount payable in the event of an Optional Redemption shall be equal to the sum of (i) the Mandatory Prepayment Amount plus (ii) at the option of the Holder, the Mandatory Prepayment Amount for the Converted Debentures that would then be held by such Holder had the principal amount of Debentures converted into Debenture Shares (as defined herein) that are then held by the Holder not been so converted; provided, that the Holder has not physically received the Debenture Shares. For purposes of this Section 8.1, the principal amount of the Debentures is outstanding until such date as the Holder shall have been issued Debenture Shares upon a conversion (or attempted conversion) thereof. Interest shall accrue on the Mandatory Prepayment Amount hereunder from the day after such amount is due (being the date of a Change of Control) through the date of payment in full thereof at the rate of 20.0% per annum, accruing daily from the date of conversion until such amount, plus an interest thereon, if any, is paid in full. Payment of the Mandatory Prepayment Amount pursuant to this Section 3.1 shall be in addition to any other amounts that may be due to the Holder pursuant to this Debenture. Within five (5) Business Days of receipt by the Holder of payments of amounts due to the Holder, (i) the Holder shall return the Debentures to the Company and (ii) in the event the Mandatory Prepayment Amount relates to the Converted Debentures, the Holder shall return the Debenture Shares into which such Converted Debentures were converted. Any demand for redemption may be rescinded and annulled by a Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Redemption or impair any right consequent thereon. Upon delivery of any Acceleration Notice to the Company, the Company shall provide a copy of such notice to the other Holders, if any, within one (1) Business Day of the Company's receipt thereof. Failure to deliver such notice shall not affect the validity of the notice delivered by the Holders in accordance with the provisions referred to above. ARTICLE IX MISCELLANEOUS 9.1 MODIFICATION OF DEBENTURES. This Debenture may be modified without prior notice to any Holder upon the written consent of the Company and the Holders of more than 75% of the principal amount of the Debentures then outstanding. The Holders of more than 75% of the principal amount of the Debentures then outstanding may waive compliance by the Company with any provision of this Debenture without prior notice to any Holder. However, without the consent of each Holder affected, an amendment, supplement or waiver may not (1) reduce the amount of Debentures whose Holders must consent to an amendment, supplement or waiver, (2) reduce the principal amount of or extend the fixed maturity of any Debenture or (3) make any Debenture payable in money or property other than as stated in the Debentures. 9.2 MISCELLANEOUS. 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 hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, 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, that such suit, action or proceeding is improper. Except as specifically provided herein, the parties hereto, including all guarantors or endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Debenture, and assent to extensions of the time of payment, or forbearance or other indulgence without notice. The Holder of this Debenture by acceptance of this Debenture agrees to be bound by the provisions of this Debenture which are expressly binding on such Holder. 9.3 RANK AND SUBORDINATION. 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, interest and liquidated damages (if any) on, this Debenture at the time, place, and rate, and in the coin or currency (or, as provided herein, in Common Stock), herein prescribed. This Debenture is a direct obligation of the Company and ranks senior/pari passu with all Debt other than Senior Indebtedness, and is subordinate to such Senior Indebtedness. Except as otherwise provided herein, the Company may not voluntarily prepay the outstanding principal amount of the Debenture. 9.4 DEBENTURES OWNED BY COMPANY DEEMED NOT OUTSTANDING. In determining whether the Holders of the requisite aggregate principal amount of Debentures have concurred in any direction, consent or waiver under this Debenture, Debentures which are owned by the Company or any other obligor on the Debentures or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Debentures shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that any Debentures owned by the Purchasers shall be deemed outstanding for purposes of making such a determination. Debentures so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Company the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon the Debentures or any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company 9.5 Notice to Debentureholders Prior to Taking Certain Types of Action. In case: a. the Company shall authorize the issuance, at any time from and after the Original Issue Date, to all holders of any class or series of its Capital Stock, of rights or warrants to subscribe for or purchase shares of its capital stock or of any other right; b. the Company shall authorize, at any time from and after the Original Issue Date, the distribution to all holders of any class or series of its Capital Stock, of evidences of its indebtedness or assets; c. the Company shall declare a dividend (or other distribution) on its Common Stock or the Company shall declare a special nonrecurring dividend on or a redemption of its Common Stock; d. of any subdivision, combination or reclassification of any class or series of Capital Stock of the Company at any time from and after the Original Issue Date or of any consolidation or merger to which the Company is a party and for which approval by the shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or e. of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be mailed to the Holders of this Debenture, at their last addresses as they shall appear upon the registration books of the Company, at such time as the Company so notifies its stockholders, a notice stating (i) the date as of which the holders of record of such class or series of Capital Stock are to be entitled to receive any such rights, warrants or distribution are to be determined, or (ii) the date on which any such subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action is expected to become effective, and the date as of which it is expected that holders of record of such class or series of Capital Stock record shall be entitled to exchange their stock for securities or other property, if any, deliverable upon such subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action. The failure to give the notice required by this Section 9.5 or any defect therein shall not affect the legality or validity of any distribution, right, warrant, subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action, or the vote upon any of the foregoing. 9.6 EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 9.7 NO RIGHTS AS STOCKHOLDER. This Debenture shall not entitle the Holder to any rights as a stockholder of the Company, including without limitation, the right to vote, to receive dividends and other distributions unless and to the extent converted into shares of Common Stock in accordance with the terms hereof. 9.8 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed as of February __, 2000. ALLIANCE PHARMACEUTICAL, INC. By -------------------------------- Name: Title: FORM OF DEBENTURE EXHIBIT A ALLIANCE PHARMACEUTICAL, INC. CONVERSION NOTICE Reference is made to the Debenture issued by Alliance Pharmaceutical, Inc. (the "DEBENTURE"). In accordance with and pursuant to the Debenture, the undersigned hereby irrevocably elects to convert the principal amount of the Debenture, indicated below into shares of Common Stock, par value $.01 per share (the "COMMON STOCK"), of the Company, by tendering the Debenture specified below as of the date specified below. Date of Conversion:____________________________________________________________ Aggregate Principal Amount to be converted:_____________________________________________________________________ Debenture no(s). of Debenture to be converted:_________________________________ Please confirm the following information: Conversion Price:______________________________________________________________ Number of shares of Common Stock to be issued:________________________________________________________________________ Please issue the Common Stock into which the Debenture is being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to:______________________________________________________________________ Facsimile Number: _____________________________________________________________ Authorization: By:_____________________________________________________________ Title:_________________________________________________________________________ Dated:___________________________________ Account Number (if electronic book entry transfer):_____________________________________________________________________ Transaction Code Number (if electronic book entry transfer):____________________________________________________________ EX-4.2 3 Exhibit 4.2 =============================================================================== FORM OF SECURITIES PURCHASE AGREEMENT Among ALLIANCE PHARMACEUTICAL CORP. and THE PURCHASERS LISTED ON SCHEDULE I Dated as of February __, 2000 =============================================================================== TABLE OF CONTENTS PAGE ARTICLE I PURCHASE AND SALE................................................4 1.1 Purchase and Sale...................................................4 1.2 Closings............................................................5 ARTICLE II REPRESENTATIONS AND WARRANTIES..................................8 2.1 Representations, Warranties and Agreements of the Company...........8 2.2 Representations and Warranties of the Purchasers...................17 ARTICLE III OTHER AGREEMENTS..............................................18 3.1 Transfer Restrictions..............................................18 3.2 Transfer Instruction...............................................19 3.3 Furnishing of Information..........................................20 3.4 Blue Sky Laws......................................................20 3.5 Integration........................................................20 3.6 Listing and Reservation of Debenture Shares........................21 3.7 Notice of Breaches.................................................22 3.8 Form D.............................................................22 3.9 Use of Proceeds....................................................22 3.10 Transactions with Affiliates......................................23 3.11 Transfer Agent Instructions.......................................23 3.12 Press Release; Filing of Form 8-K.................................24 3.13 Ordinary Course Brokerage and Trading.............................24 3.14 Best Efforts......................................................24 3.15 Corporate Existence...............................................24 3.16 No Violation of Applicable Law....................................24 3.17 Subsequent Registrations..........................................25 3.18 Trading Restrictions..............................................25 ARTICLE IV CONDITIONS.....................................................25 4.1 First Closing Conditions...........................................25 4.2 Second Closing.....................................................28 ARTICLE V INDEMNIFICATION.................................................31 5.1 Indemnification....................................................32 ARTICLE VI MISCELLANEOUS..................................................33 6.1 Entire Agreement...................................................33 6.2 Notices............................................................33 6.3 AMENDMENTS; WAIVERS................................................34 6.4 Headings...........................................................35 6.5 Successors and Assigns.............................................35 6.6 No Third-Party Beneficiaries.......................................35 6.7 Governing Law......................................................35 6.8 Survival...........................................................35 6.9 Counterparts.......................................................36 6.10 Publicity.........................................................36 6.11 Severability......................................................36 6.12 Remedies..........................................................36 6.13 Independent Nature of Purchasers' Obligations and Rights..........37 6.14 Payment Set Aside.................................................37 6.15 Further Assurances................................................37 6.16 Fees and Expenses.................................................37 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is dated as of February __, 2000 among Alliance Pharmaceutical Corp., a New York corporation (the "COMPANY"), and the various purchasers identified and listed on Schedule I hereto (each referred to herein as a "PURCHASER" and, collectively, the "PURCHASERS.") WHEREAS, the Company and the Purchasers are executing and delivering this Agreement in reliance upon (i) the exemption from securities registration afforded by Rule 506 under Regulation D as promulgated by the United States Securities and Exchange Commission (the "COMMISSION") under Section 4(2) of the Securities Act of 1933, as amended (the "SECURITIES ACT") and (ii) Regulation S as promulgated by the Commission under the Securities Act; WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Purchasers, and the Purchasers desire to acquire from the Company, an aggregate of $15,000,000 principal amount of the Company's 5% convertible debentures due 2004, and under certain conditions a second tranche of 5% convertible debentures due four years after issuance (collectively, the "DEBENTURES," each of which a "DEBENTURE"), in the form of EXHIBIT A annexed hereto, convertible into shares of the Company's common stock, par value $0.01 per share (the "COMMON STOCK"); and WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form of EXHIBIT B attached hereto (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws. NOW THEREFORE, in consideration of the promises and mutual covenants and agreements hereinafter, the Company and the Purchasers hereby agree as follows: ARTICLE I 1.1 PURCHASE AND SALE. a. On the First Closing Date (as defined below), subject to the terms and conditions set forth herein, the Company shall issue and sell to each Purchaser and each Purchaser, severally and not jointly, shall purchase from the Company the principal amount of Debentures as set forth on Schedule I. The aggregate principal amount of Debentures purchased by the Purchasers shall be $15,000,000. b. On the Second Closing Date (as defined below), subject to the terms and conditions set forth herein, the Company shall issue and sell to the Purchasers an additional $15,000,000 principal amount of the Debentures. 1.2 CLOSINGS. a. THE FIRST CLOSING. The closing of the purchase and sale of the initial $15,000,000 aggregate principal amount of Debentures (the "FIRST CLOSING") shall take place at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, or by transmission by facsimile and overnight courier, immediately following the execution hereof or such later date or different location as the parties shall agree, but not prior to the date that the conditions set forth in Section 4.1 have been satisfied or waived by the appropriate party (the "FIRST CLOSING DATE"). At the First Closing: (i) Each Purchaser shall deliver, as directed by the Company, its portion of the purchase price as set forth next to its name on SCHEDULE I in United States dollars in immediately available funds to an account or accounts designated in writing by the Company; (ii) The Company shall deliver to each Purchaser a Debenture, in the form of EXHIBIT A hereto, representing the principal amount purchased by such Purchaser as set forth on SCHEDULE I hereto; (iii) The parties shall execute (except for the opinion referred to in Section 4.1(c)(i)) and deliver each of the documents referred to in Section 4.1 hereof. b. PURCHASERS CALL OPTION. Subject to the terms and conditions set forth in Section 4.2 and elsewhere in this Agreement, each Purchaser shall have the right (the "PURCHASERS CALL OPTION") at any time within a four-year period commencing on the First Closing Date to deliver a written notice to the Company (a "PURCHASERS CALL OPTION NOTICE") requiring the Company to issue and sell (in which event such Purchaser shall purchase) up to its pro rata portion of an additional $15,000,000 principal amount of a four (4) year Debenture at a conversion price of $12.06 per share, provided that the Company shall not be required to issue and sell debentures in an aggregate amount of less than $5,000,000. The closing of the purchase and sale of the additional Debentures (such closing or the closing under the Company Put Option Notice (defined below), the "SECOND CLOSING") under the Purchasers Call Option Notice shall take place in the same manner as the First Closing, on such date indicated on the Purchasers Call Option Notice but no earlier than ten (10) Business Days and no later than twenty (20) Business Days after the date of delivery of the Purchasers Call Option Notice (such date or the date of the Second Closing under the Company Put Option Notice, the "SECOND CLOSING DATE"); provided that in no case shall the Second Closing take place unless and until the conditions listed in Section 4.2 have been satisfied or waived by the appropriate party. Upon the occurrence of any Change of Control, the Company shall take appropriate action to ensure that the Purchasers shall have the right to exercise the Purchasers Call Option after the Change of Control. At the Second Closing: (i) Each Purchaser shall deliver, as directed by the Company, its portion of the purchase price as set forth next to its name on a schedule similar to SCHEDULE I (the "SECOND CLOSING SCHEDULE"), to be attached to the Purchasers Call Option Notice, in United States dollars in immediately available funds to an account or accounts designated in writing by the Company; (ii) The Company shall deliver to each Purchaser a Debenture, in the form of EXHIBIT A hereto (which shall mature four (4) years from the date it is issued and in which the conversion price shall be $12.06 per share (such price, as may be adjusted pursuant to the terms of the Debenture)), representing the principal amount purchased by such Purchaser as set forth on the Second Closing Schedule. (iii) The parties shall execute and deliver each of the documents referred to in Section 4.2 hereof. c. COMPANY PUT OPTION. Subject to the terms and conditions in Section 4.2 and elsewhere in this Agreement, after the Optional Conversion Date of the Optional Conversion of the Debentures (as defined in Article VI of the Debentures), the Company shall have the one time right (the "COMPANY PUT OPTION") at any time subsequent to the First Closing to deliver a written notice to the Purchasers (a "COMPANY PUT OPTION NOTICE") requiring the Purchasers to exercise in full the Purchasers Call Option, provided that for at least twenty five (25) out of thirty (30) consecutive Trading Days (as defined in the Debentures) prior to the exercise of the Company Put Option the Per Share Market Value (as defined in the Debentures) was more than $21.10 dollars (such price, as may be adjusted pursuant to the terms of the Debentures), the "PUT TRIGGER PRICE," and the occurrence of thirty (30) consecutive Trading Days at such price, a "PUT TRIGGER"). The Company must exercise its Company Put Option by delivering the Company Put Option Notice to each Holder within ten (10) Business Days of the occurrence of a Put Trigger (such deadline, the "PUT NOTICE DATE"). If the Company does not deliver the Company Put Option Notice by the Put Notice Date, then the Company shall not have the right to effect a Company Put Option until a Put Trigger occurs again after such Put Notice Date. An example of how the Company Put Option operates is as follows: Thirty (30) consecutive Trading Days occur during which the Per Share Market Value of the Common Stock is greater than the Put Trigger Price. The Put Notice Date is ten (10) Business Days after the end of the thirty (30) day trading period. If the Company delivers the Company Put Option Notice by the Put Notice Date, it has properly exercised its Company Put Option. If the Company fails to deliver the Put Option Notice by the Put Notice Date, then there must again occur a consecutive thirty (30) day trading period in which the Per Share Market Value is in excess of the Put Trigger Price before the Company may again exercise its Company Put Option. The Second Closing under this Company Put Option Notice shall take place on such date indicated in the Company Put Option Notice but no earlier than ten (10) Business Days after the Purchasers' receipt of the Company Put Option Notice; PROVIDED THAT in no case shall the Second Closing take place unless and until the conditions listed in Section 4.2 have been satisfied or waived by the appropriate party. Five (5) Business Days after receipt of the Company Put Option Notice, the Purchasers shall deliver to the Company a Second Closing Schedule, indicating the principal amount of Debentures that each Purchaser shall purchase for an aggregate total of $15,000,000. At the Second Closing under the Company Put Option Notice: (i) Each Purchaser shall deliver, as directed by the Company, its portion of the purchase price as set forth next to its name on the Second Closing Schedule, in United States dollars in immediately available funds to an account or accounts designated in writing by the Company; (ii) The Company shall deliver to each Purchaser a Debenture, in the form of EXHIBIT A hereto, representing the principal amount purchased by such Purchaser as set forth on the Second Closing Schedule; (iii) The parties shall execute and deliver each of the documents referred to in Section 4.2 hereof. d. LIQUIDATED DAMAGES. In addition to any other rights available to the Purchasers, if the Company defaults in its obligation to deliver to each Purchaser the Debenture required to be delivered to it at the Second Closing, the Company shall pay such Purchaser, upon the Purchaser's demand, as liquidated damages by cash or wire transfer in immediately available funds to the account of such Purchaser, or as otherwise directed by such Purchaser, the difference between the Per Share Market Price (as defined in the Debentures) on the Second Closing Date and the Conversion Price (as defined in the Debentures) multiplied by the number of shares of Common Stock into which the Debentures that should have been delivered at the Second Closing could have been converted. e. ADJUSTMENT OF PUT TRIGGER PRICE. The Put Trigger Price shall be adjusted from time to time in the same manner and for the same reasons that Conversion Price is subject to adjustment pursuant to Section 4.5(a), (b) and (c) of the Debenture, including without limitation, for stock splits, reverse stock splits, stock dividends and the like. The adjustment shall automatically be effected on the record date established for purposes of determining the event that causes the adjustment to the Put Trigger Price, and will reset if such event does not transpire. Notice of adjustment to the Put Trigger Price need not be given when such adjustment occurs, but must be stated in the Notice of Company Put Option Notice. f. REGISTRATION. The shares of Common Stock underlying the Debentures issued pursuant to either the Purchasers Call Option or the Company Put Option shall be deemed Registrable Securities (as defined in the Registration Rights Agreement) and the Registration Rights Agreement shall apply to such Registrable Securities mutatis mutandis, PROVIDED, HOWEVER, that with regard to Debentures issuable pursuant to the Company Put Option, the Debenture Shares shall have been registered prior to the issuance of any such Debenture (see Section 4.2(b)(v)(B)), PROVIDED FURTHER, that with specific regard to Debentures issuable pursuant to the Purchasers Call Option, in subsection (i) of the definition of "Effectiveness Period" in the Registration Rights Agreement, the 90th day shall be changed to the 60th day. ARTICLE II 2.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company hereby makes the following representations and warranties as of the date hereof to each of the Purchasers: a. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New York, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. Except as set forth on Schedule 2.1(a), the Company has no subsidiaries (collectively, the "Subsidiaries"). A "Subsidiary" for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns the majority of such entity's capital stock or holds an equivalent equity or similar interest, but does not include an entity in which the Company holds a warrant or similar right to acquire controlling equity in the entity and does not otherwise have a controlling equity interest in the entity. Each of the Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the full corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. Each of the Company and the Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not, individually or in the aggregate, (x) materially adversely affect the legality, validity or enforceability of any of this Agreement or the Transaction Documents (as defined in Section 2.1(b)) or any of the transactions contemplated hereby or thereby, (y) have or result in a material adverse effect on the results of operations, assets, prospects, or financial condition of the Company and its Subsidiaries, taken as a whole or (z) materially impair the Company's ability to perform fully on a timely basis its obligations under any Transaction Document (any of (x), (y) or (z), being a "Material Adverse Effect"). The Company has furnished to each of the Purchasers, as requested, true and correct copies of the Company's Certificate of Incorporation, as amended and as in effect on the date hereof (the "Certificate of Incorporation"), and the Company's Bylaws, as in effect on the date hereof (the "Bylaws"). b. AUTHORIZATION; ENFORCEMENT. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement, the Debenture and the Registration Rights Agreement (collectively, the "TRANSACTION DOCUMENTS"), and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of this Agreement and the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and no further action is required by the Company, its Board of Directors or its stockholders. Each of this Agreement and the Transaction Documents has been duly executed by the Company and when delivered in accordance with the terms hereof will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application and except that rights to indemnification and contribution may be limited by Federal or state securities laws or public policy relating thereto. Neither the Company nor any Subsidiary is in any material violation of any of the provisions of its respective certificate of incorporation, bylaws or other charter documents such that any right of a holder of the Debentures would be affected. c. CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company is as set forth in Schedule 2.1(c). All of such outstanding shares of capital stock have been, or upon issuance will be, validly authorized and issued, fully paid and nonassessable and were issued in accordance with the registration provisions of the Securities Act, or pursuant to valid exemptions therefrom. Except as disclosed in Schedule 2.1(c) or the SEC Documents (as defined in Section 2.1(k) hereof), (i) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, nor is any holder of the Common Stock entitled to preemptive or similar rights arising out of any agreement or understanding with the Company by virtue of any Transaction Document, (ii) there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, or giving any Person (as defined below) any right to subscribe for or acquire, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its Subsidiaries, (iii) there are no outstanding debt securities of the Company or any of its Subsidiaries, (iv) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except the Registration Rights Agreement), (v) there are no outstanding securities of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries, (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the shares of Common Stock as described in this Agreement, (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement and (viii) except as specifically disclosed in the SEC Documents, no Person (as defined below) or group of related Persons, to the knowledge of the Company, beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) or has the right to acquire by agreement with or by obligation binding upon the Company beneficial ownership of in excess of 5% of the Common Stock. "PERSON" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. d. AUTHORIZATION AND VALIDITY; ISSUANCE OF SHARES. The shares of Common Stock issuable upon conversion of the Debentures (the "DEBENTURE SHARES") are and will at all times hereafter continue to be duly authorized and reserved for issuance and the Debenture Shares will be validly issued, fully paid and non-assessable, free and clear of all liens, encumbrances and Company rights of first refusal, other than liens and encumbrances created by the Purchasers (collectively, "LIENS") and will not be subject to any preemptive or similar rights. The issuance by the Company of the Debentures and the Debenture Shares is exempt from registration under the Securities Act, assuming the accuracy of the Purchasers' representations and warranties herein. e. NO CONFLICTS. The execution, delivery and performance of this Agreement and each of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including the issuance of the Debenture Shares) do not and will not (i) conflict with or violate any provision of the Certificate of Incorporation, Bylaws or other organizational documents of the Company or any of the Subsidiaries, (ii) subject to obtaining the consents referred to in Section 2.1(f), conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument (evidencing a Company or Subsidiary debt or otherwise) to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or any Subsidiary is subject (including Federal and state securities laws and regulations and the rules and regulations of the principal market or exchange on which the Common Stock is traded or listed) applicable to the Company or any of its Subsidiaries, or by which any material property or asset of the Company or any Subsidiary is bound or affected. f. CONSENTS AND APPROVALS. Except as specifically set forth on Schedule 2.1(f), neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority, regulatory or self regulatory agency, or other Person in connection with the execution, delivery and performance by the Company of this Agreement or the Transaction Documents, other than (i) the filing of a registration statement with the Commission (ii) the application(s) or any letter(s) acceptable to the Nasdaq National Market ("NASDAQ") for the listing of the Debenture Shares with Nasdaq (and with any other national securities exchange or market on which the Common Stock is then listed) and (iii) any filings, notices or registrations under applicable state securities laws (together with the consents, waivers, authorizations, orders, notices and filings referred to on Schedule 2.1(f), the "REQUIRED APPROVALS"). g. LITIGATION; PROCEEDINGS. Except as specifically set forth on Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or investigation pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its Subsidiaries or any of their respective properties or assets before or by any court, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which (i) adversely affects or challenges the legality, validity or enforceability of any of this Agreement or the Transaction Documents or (ii) could reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect. h. NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary (i) is in default under or in violation of any indenture, loan or other credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties or assets is bound and which is required to be included as an exhibit to any SEC Document or will be required to be included as an exhibit to the Company's next filing under either the Securities Act or Exchange Act, (ii) is in violation of any order of any court, arbitrator or governmental body applicable to it, (iii) is in violation of any statute, rule or regulation of any governmental authority to which it is subject, (iv) is in default under or in violation of its Certificate of Incorporation, Bylaws or other organizational documents, respectively, or (v) is in default under or in violation of any of the listing requirements of Nasdaq as in effect on the date hereof and is not aware of any facts which would reasonably lead to delisting or suspension of the Common Stock by Nasdaq in the foreseeable future, except in each case referred to in the preceding clauses (i) through (iv) where such violations have not resulted or would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted in violation of any law, ordinance, rule or regulation of any governmental entity, except where such violations have not resulted or would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in breach of any agreement where such breach, individually or in the aggregate, would have a Material Adverse Effect. i. DISCLOSURE; ABSENCE OF CERTAIN CHANGES. This Agreement, the Schedules to this Agreement, the Transaction Documents, the SEC Documents and any other written or formally presented information, report, financial statement, exhibit, schedule or document furnished by or on behalf of the Company in connection with the negotiation of the transactions contemplated hereby have not contained, do not contain, and will not contain at the time it was or is so furnished any untrue statement of a material fact or omitted, omits or will omit at such time to state any material fact necessary in order to make the statements made herein and therein, in light of the circumstances under which they were made, not misleading. Except as disclosed on Schedule 2.1(i) or in SEC Documents filed on EDGAR at least five Business Days prior to the date hereof, since June 30, 1999, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, liabilities or results of operations or, insofar as can reasonably be foreseen, prospects of the Company or the Subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. Except as disclosed on Schedule 2.1(i), no event, liability, development or circumstance has occurred or exists, or is contemplated to occur, with respect to the Company or its Subsidiaries or their respective businesses, properties, operations or financial condition or, insofar as can reasonably be foreseen, prospects, that would be required to be disclosed by the Company under applicable securities laws on a registration statement (including by way of incorporation by reference) filed with the Commission, on the date this representation is made or deemed to be made, relating to an issuance and sale by the Company of its Common Stock and which has not been publicly disclosed. j. PRIVATE OFFERING. Subject to the accuracy and completeness of the representations and warranties of the respective Purchasers contained in Section 2.2 hereof, the Company and all Persons acting on its behalf have not made, directly or indirectly, and will not make, offers or sales of any securities or solicited any offers to buy any security under circumstances that would require registration of the Debentures or the Debenture Shares or the issuance of such securities under the Securities Act. The offer, sale and issuance of the Debentures and the Debenture Shares to the Purchasers will not be integrated with any other offer, sale and issuance of the Company's securities (past, current, or future) under the Securities Act or any regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated or for purposes of any stockholder approval provision applicable to the Company or its securities. Subject to the accuracy and completeness of the representations and warranties of the respective Purchasers contained in Section 2.2 hereof, the offer, sale and issuance by the Company to the Purchasers of the Debentures and the Debenture Shares are exempt from the registration requirements of the Securities Act. k. SEC DOCUMENTS; FINANCIAL STATEMENTS. The Common Stock of the Company is registered pursuant to Section 12(g) of the Exchange Act. The Company, during the last twelve (12) months, has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act, including pursuant to Section 13, 14 or 15(d) thereof (the foregoing materials and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein being collectively referred to herein as the "SEC DOCUMENTS"), on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Documents prior to the expiration of any such extension. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Documents, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. All agreements to which the Company or any Subsidiary is a party or to which the property or assets of the Company or any Subsidiary are subject and which are required to be filed as exhibits to the SEC Documents have been filed as exhibits to the SEC Documents as required and neither the Company nor any Subsidiary nor to the Company's knowledge, any other party is in material breach of any such agreement. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial year-end audit adjustments. Neither the Company nor any of its Subsidiaries or any of their officers, directors, employees or agents have provided the Purchasers with any information that will be material, nonpublic information after March 31, 2000. The Company acknowledges that the Purchasers will be trading in the securities of the Company in reliance on the foregoing representation and warranty. l. INVESTMENT COMPANY. The Company is not, and is not controlled by or under common control with an affiliate (an "AFFILIATE") of an "investment company" within the meaning of the Investment Company Act of 1940, as amended. m. BROKER'S FEES. No fees or commissions or similar payments with respect to the transactions contemplated by this Agreement or the Transaction Documents have been paid or will be payable by the Company to any broker, financial advisor, finder, investment banker, or bank, other than as set forth in Schedule 2.1(m). The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons introduced or retained by the Company for fees of a type contemplated in this Section 2.1(m) that may be due in connection with the transactions contemplated by this Agreement and the Transaction Documents. n. FORM S-3 ELIGIBILITY. The Company is, and at the Closing Date will be, eligible to register securities (including the Debenture Shares) for resale with the Commission under Form S-3 (or any successor form) promulgated under the Securities Act. o. LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The principal markets on which the Common Stock is currently traded is Nasdaq. The Company has not in the three years preceding the date hereof received notice (written or oral) from Nasdaq (or any stock exchange, market or trading facility on which the Common Stock is or has been listed (or on which it has been quoted)) to the effect that the Company is not in compliance with the listing or maintenance requirements of such market or exchange. The Company is not aware of any facts that would reasonably lead to delisting or suspension of the Common Stock by Nasdaq. After giving effect to the transactions contemplated by this Agreement and the Transaction Documents, the Company is and will be in compliance with all such maintenance requirements. p. INTELLECTUAL PROPERTY RIGHTS. The Company and each of its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trademark applications, trade names and service marks, whether or not registered, and all patents, patent applications, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and intellectual property rights (collectively, "INTELLECTUAL PROPERTY RIGHTS") which are necessary for use in connection with their respective businesses as now conducted and as described in the SEC Documents. q. EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. Neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that relations with their employees are good. Since June 30, 1999, no executive officer (as defined in Rule 501(f) under the Securities Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment with the Company. r. REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as described on Schedule 2.1(r) hereto, (i) the Company has not granted or agreed to grant to any Person any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the Commission or any other governmental authority which has not been satisfied and (ii) no Person, including, but not limited to, current or former stockholders of the Company, underwriters, brokers or agents, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement or any Transaction Document. s. TITLE. Except as disclosed on Schedule 2.1(s), the Company and each of its Subsidiaries have good and marketable title in fee simple to all real property and personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, except for liens that do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and, to the Company's best knowledge, enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and the Subsidiaries. t. PERMITS. The Company and each of its Subsidiaries possess all certificates, authorizations, licenses, easements, consents, approvals, orders and permits necessary to own, lease and operate their respective properties and to conduct their respective businesses as currently conducted except where the failure to possess such permits would not, individually or in the aggregate, have a Material Adverse Effect ("MATERIAL PERMITS"), and there is no proceeding pending, or, to the knowledge of the Company, threatened relating to the revocation, modification, suspension or cancellation of any Material Permit. Neither the Company nor any of the Subsidiaries is in any material respect, in conflict with or default or violation of any Material Permit. u. INSURANCE. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business, at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its Subsidiaries, taken as a whole. v. INTERNAL ACCOUNTING CONTROLS. The Company and each of the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with United States generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. w. TAX STATUS; FIRPTA. The Company and each of its Subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, and has set aside on its books, in accordance with standard accounting practices, provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company is not a "United States real property holding corporation" within the meaning of Section 847(c)(2) of the Internal Revenue Code of 1986, as amended. x. TRANSACTIONS WITH AFFILIATES. The Company has reported, in accordance with law, any transactions with officers, directors or employees of the Company who are parties to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. y. APPLICATION TO TAKEOVER PROTECTION. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination or other similar anti-takeover provision under the Certificate of Incorporation, Bylaws or the laws of the state of incorporation which is or could become applicable to the Purchasers or the Transaction Documents as a result of the transactions contemplated by this Agreement or the Transaction Documents. None of the transactions contemplated by this Agreement or the Transaction Documents, including the conversion of the Debentures, will trigger any poison pill provisions of any of the Company's stockholders' rights or similar agreements. z. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permits, licenses or other approvals except where the failure of any of the foregoing would not result in a Material Adverse Effect. aa. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee form corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. bb. SOLICITATION MATERIALS. The Company has not (i) distributed any offering materials in connection with the offering and sale of the Debentures, other than the SEC Documents, the Schedules to this Agreement, any amendments and supplements thereto and the materials listed on Schedule 2.1(bb), or (ii) solicited any offer to buy or sell the Debentures by means of any form of general solicitation or advertising. Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Debentures. cc. ACKNOWLEDGEMENT OF DILUTION. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Debenture Shares upon conversion of the Debentures. The Company further acknowledges that its obligation to issue Debenture Shares upon conversion of the Debentures in accordance with this Agreement and the Debentures is absolute and unconditional (but subject to the terms and conditions of the Debentures and this Agreement) regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. dd. ACKNOWLEDGEMENT REGARDING PURCHASERS' PURCHASE OF DEBENTURES. The Company acknowledges and agrees that the Purchasers are acting solely in the capacity of arm's length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Purchasers' purchase of the securities. The Company further represents to each Purchaser that the Company's decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives. ee. SENIORITY; EXCLUSIVITY. No class of equity securities of the Company will be senior to the Debentures in right of payment, whether upon liquidation, dissolution or otherwise. So long as any Debenture issued hereunder remains outstanding, the Company shall not exchange, redeem or convert any of the Company's capital stock for indebtedness, including convertible debt, of the Company. Except as expressly permitted in this Agreement, the Company shall not issue and sell any Debentures, other than to the Purchasers pursuant to this Agreement, without the prior written consent of each of the Purchasers. 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each of the Purchasers, severally and not jointly, hereby represents and warrants to the Company as follows: a. ORGANIZATION; AUTHORITY. Such Purchaser is a corporation or a limited duration company or a limited liability company or limited partnership duly formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with the requisite power and authority, corporate or otherwise, to enter into and to consummate the transactions contemplated hereby and by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The purchase by such Purchaser of the Debentures hereunder has been duly authorized by all necessary action on the part of such Purchaser. Each of this Agreement and the Registration Rights Agreement has been duly executed and delivered by such Purchaser and constitutes the valid and legally binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity. b. INVESTMENT INTENT. Such Purchaser is acquiring the Debentures for its own account and not with a present view to or for distributing or reselling the Debentures the Debenture Shares or any part thereof or interest therein in violation of the Securities Act; provided, however, that by making the representations herein, such Purchaser does not agree to hold any of the Debentures or the Debenture Shares for any minimum or other specific term and reserves the right to dispose of the Debentures at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. c. PURCHASER STATUS. At the time such Purchaser was offered the Debentures, and at the Closing Date, (i) it was and will be an "accredited investor" as defined in Rule 501 under the Securities Act and (ii) such Purchaser, either alone or together with its representatives, had and will have such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Debentures. d. RELIANCE. Such Purchaser understands and acknowledges that (i) the Debentures are being offered and sold to such Purchaser without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act under Section 4(2) of the Securities Act, Regulation D promulgated thereunder or Regulation S promulgated under the Securities Act and (ii) the availability of such exemptions depend in part on, and the Company will rely upon the accuracy and truthfulness of, the representations set forth in this Section 2.2 and such Purchaser hereby consents to such reliance. e. INFORMATION. Such Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Debentures which have been requested by such Purchaser or its advisors. Such Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigation conducted by Purchaser or any of its advisors or representatives shall modify, amend or affect Purchaser's right to rely on the Company's representations and warranties contained in Section 2.1 above or representations and warranties of the Company contained in any other Transaction Document. Such Purchaser understands that its investment in the Debentures involves a significant degree of risk. f. GOVERNMENTAL REVIEW. Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Debentures. g. RESIDENCY. Such Purchaser is a resident of the jurisdiction set forth immediately below such Purchaser's name on Schedule II hereto. The Company acknowledges and agrees that the Purchasers make no representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 2.2. The Company further acknowledges that, to the best of its knowledge, the Purchasers, collectively, are not acting as a group pursuant to Rule 13d of the Exchange Act. ARTICLE III 3.1 TRANSFER RESTRICTIONS. a. If any Purchaser should decide to dispose of the Debentures or the Debenture Shares held by it, such Purchaser understands and agrees that it may do so only pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from the registration requirements of the Securities Act or Rule 144 promulgated under the Securities Act ("RULE 144"). The Company shall announce any material non-public information that it legally is required to announce on or prior to the Effectiveness Date (as defined in the Registration Rights Agreement) of the registration statement filed pursuant to the Registration Rights Agreement and shall not enter into any subsequent non-disclosure agreements that would prevent it from announcing any such information that otherwise legally is required to be announced on or prior to the Effectiveness Date, unless confidential treatment for such information is granted by the Commission. In connection with any transfer of any Debentures or Debenture Shares other than pursuant to an effective registration statement, Rule 144 or to the Company, the Company may require the transferor thereof to provide to the Company a written opinion of counsel experienced in the area of United States securities laws selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be customary for opinions of counsel in comparable transactions, to the effect that such transfer does not require registration of such transferred securities under the Securities Act; provided, however, that if the Debentures or Debenture Shares may be sold pursuant to Rule 144(k), no written opinion of counsel shall be required from the Purchaser if such Purchaser provides reasonable assurances that such security can be sold pursuant to Rule 144(k). Notwithstanding the foregoing, the Company hereby consents to and agrees to register any transfer by any Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Company that it is an "accredited investor" as defined in Rule 501(a) under the Securities Act. Any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Transaction Documents. If a Purchaser provides the Company with an opinion of counsel, the form and substance of which opinion shall be customary for opinions of counsel in comparable transactions, to the effect that a public sale, assignment or transfer of the Debentures and the Debenture Shares may be made without registration under the Securities Act or the Purchaser provides the Company with reasonable assurances that the Debentures and the Debenture Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Debenture Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Purchaser and without any restrictive legend. Notwithstanding the foregoing or anything else contained herein to the contrary, the securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. b. Each Purchaser agrees to the imprinting, so long as is required by this Section 3.1(b), of the following legend on the Debentures and the Debenture Shares: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION 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. Neither the Debentures nor the Debenture Shares shall contain the legend set forth above (or any other legend) (i) if in the written opinion of counsel to the Company experienced in the area of United States securities laws such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) or (ii) if such Debentures or Debenture Shares may be sold pursuant to Rule 144(k). The Company agrees that it will provide each Purchaser, upon request, with a certificate or certificates representing Debentures or Debenture Shares, free from such legend at such time as such legend is no longer required hereunder. If such certificate or certificates had previously been issued with such a legend or any other legend, the Company shall, upon request and delivery of such certificate or certificates to the Company for such Purchaser, reissue to such Purchaser such certificate or certificates free of any legend. 3.2 STOP TRANSFER INSTRUCTION. The Company may not make any notation on its records or give instructions to any transfer agent of the Company which enlarge the restrictions on transfer set forth in Section 3.1. 3.3 FURNISHING OF INFORMATION. As long as any Purchaser owns the Debentures or the Debenture Shares, the Company will cause the Common Stock to continue at all times to be registered under Section 12(g) of the Exchange Act, will timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13, 14 or 15(d) of the Exchange Act and, unless filed by EDGAR, promptly furnish, but in no event later than two (2) Business Days after the filing thereof with the Commission, such Purchaser with true and complete copies of all such filings, and will not take any action or file any document (whether or not permitted by the Exchange Act or the rules thereunder) to terminate or suspend such reporting and filing obligations. As long as any Purchaser owns the Debentures or the Debenture Shares, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company also agrees to send the following to each Purchaser prior to and during the Effectiveness Period (as defined in the Registration Rights Agreement): (i) on the same day as the release thereof, facsimile copies of all press releases issued by the Company or any of its Subsidiaries and (ii) copies of any notices and other information sent to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders. The Company further covenants that it will take such further action as any holder of the Debentures or the Debenture Shares may reasonably request, all to the extent required from time to time to enable such Person to sell the Debentures or the Debenture Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including the legal opinion referenced above in Section 3.1(b). Upon the request of any such Person, the Company shall deliver to such Person a written certification of a duly authorized officer as to whether it has complied with such requirements. 3.4 BLUE SKY LAWS. In accordance with the Registration Rights Agreement, the Company shall if required under applicable law (i) qualify the Debenture Shares under the securities or "blue sky" laws of such jurisdictions as the Purchasers may request (or obtain an exemption from such qualification), (ii) shall provide evidence of any such action so taken to each Purchaser on or prior to the Closing Date and (iii) shall continue such qualification at all times through the resale of all Debenture Shares, but in any event not past the fourth anniversary of the Closing Date. 3.5 INTEGRATION. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Debentures or the Debenture Shares in a manner that would require the registration under the Securities Act of the sale of the Debentures or the Debenture Shares to any Purchaser or cause the offering of such securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities. 3.6 LISTING AND RESERVATION OF DEBENTURE SHARES. a. The Company shall (i) not later than the time the Company filed the registration statement on Form S-3 to register the Debenture Shares for resale, prepare and file with Nasdaq (as well as any other national securities exchange or market on which the Common Stock is then listed) additional shares listing applications or letters acceptable to Nasdaq covering and listing a number of shares of Common Stock which is at least equal to the maximum number of Debenture Shares then issuable, assuming that the payment of all interest payments on the Debentures for a period of one year and all future dividends on such shares then outstanding were made in shares of Common Stock, (ii) take all steps necessary to cause the Debenture Shares to be approved for listing on Nasdaq (as well as on any other national securities exchange or market on which the Common Stock is then listed) as soon as possible thereafter, (iii) maintain, so long as any other shares of Common Stock shall be so listed, such listing of all such Debenture Shares, and (iv) provide to the Purchasers evidence of such listing. Neither the Company nor any of its Subsidiaries shall take any action that would result in the delisting or suspension of the Common Stock on Nasdaq. The Company shall promptly provide to each Purchaser copies of any notices it receives from Nasdaq regarding the continued eligibility of the Common Stock for listing on such automated quotation system, so long as such notice does not include material, nonpublic information. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 3.6(a). b. The number of shares of Common Stock initially included in the Initial Registration Statement (as defined in the Registration Rights Agreement) shall be determined pursuant to Section 2(a) of the Registration Rights Agreement. c. The Company at all times shall reserve a sufficient number of shares of its authorized but unissued Common Stock to provide for the full conversion of the outstanding Debentures (including the payment of all interest thereon for a one year period). Shares of Common Stock reserved for issuance upon conversion of the Debentures shall be allocated pro rata to each of the Purchasers in accordance with the amount of Debentures issued and delivered to such Purchaser at the Closing. If at any time the number of shares of Common Stock authorized and reserved for issuance is insufficient to cover the number of Debenture Shares issued and issuable upon conversion of the Debentures (based on the Conversion Price (as defined in the Debenture) in effect from time to time without regard to any limitation on conversions or exercises and the number of shares of Common Stock issuable upon the payment of interest on the principal amount of the Debentures then outstanding for a one year period, the Company will promptly take all corporate action necessary to authorize and reserve such number of shares of Common Stock of such shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company's obligations under this Section 3.6(c), in the case of an insufficient number of authorized shares, and using its best efforts to obtain stockholder approval of an increase in such authorized number of shares. In addition, if on the actual date of an adjustment of the Conversion Price pursuant to Section 4.5 of the Debenture, the registration statements are insufficient to register such number of shares of Common Stock, the Company shall immediately, but in no more than five (5) Business Days thereafter, file a registration statement sufficient to register such additional shares of Common Stock. All calculations of the above amount shall be made without regard to any limitation on conversions of Debentures. 3.7 NOTICE OF BREACHES. a. The Company and each Purchaser shall give prompt written notice to the other of any breach by it of any representation, warranty or other agreement contained in this Agreement or in the Transaction Documents, as well as any events or occurrences arising after the date hereof and prior to the Closing Date, which would reasonably be likely to cause any representation or warranty or other agreement of such party, as the case may be, contained herein to be incorrect or breached as of the Closing Date, provided such notice will not constitute material non-public information unless, after being told by the Company that the notice would constitute material non-public information, the Purchaser agrees to receive such notice. However, no disclosure by either party pursuant to this Section 3.7 shall be deemed to cure any breach of any representation, warranty or other agreement contained herein or in the Transaction Documents. b. Notwithstanding the generality of Section 3.7(a), the Company shall promptly notify, provided such notification will not constitute material non-public information, each Purchaser of any notice or claim (written or oral) that it receives from any lender of the Company or any Subsidiary to the effect that the consummation of the transactions contemplated hereby and by the Transaction Documents violates or would violate any written agreement or understanding between such lender and the Company or any Subsidiary, and the Company shall promptly furnish by facsimile to the Purchasers a copy of any written statement in support of or relating to such claim or notice. c. The default by any Purchaser of any of its obligations, representations or warranties under this Agreement or the Transaction Documents shall not be imputed to, and shall have no effect upon, any other Purchaser or affect the Company's obligations under this Agreement or any Transaction Document to any non-defaulting Purchaser. 3.8 FORM D. The Company agrees to file a Form D with respect to the Debentures as required by Rule 506 under Regulation D and to provide a copy thereof to each Purchaser promptly after such filing. 3.9 USE OF PROCEEDS. The Company shall use the proceeds from the sale of the Debentures for working capital, including ongoing Company obligations in clinical trials. 3.10 TRANSACTIONS WITH AFFILIATES. So long as any Debentures are outstanding, the Company shall not, and shall cause each of its Subsidiaries not to, enter into, amend, modify or supplement, or permit any Subsidiary to enter into, amend, modify or supplement, any agreement, transaction, commitment or arrangement with any of its or any Subsidiary's officers, directors or persons who were officers or directors at any time during the previous two years, stockholders who beneficially own 5% or more of the Common Stock, or Affiliates or any individual related by blood, marriage or adoption to any such individual or with any entity in which any such entity or individual owns a 5% or more beneficial interest (each a "RELATED PARTY"), except for (a) customary employment arrangements and benefit programs on reasonable terms, (b) any agreement, transaction, commitment or arrangement on an arms-length basis on terms no less favorable than terms which would have been obtainable from a Person other than such Related Party, or (c) any agreement, transaction, commitment or arrangement which is approved by a majority of the disinterested directors of the Company. For purposes hereof, any director who is also an officer of the Company or any Subsidiary of the Company shall not be a disinterested director with respect to any such agreement, transaction, commitment or arrangement. "AFFILIATE" for purposes of this section only means, with respect to any person or entity, another person or entity that, directly or indirectly, (i) has a 5% or more equity interest in that person or entity, (ii) has 5% or more common ownership with that person or entity, (iii) controls that person or entity, or (iv) shares common control with that person or entity. "CONTROL" or "Controls" for purposes of this section means that a person or entity has the power, direct or indirect, to conduct or govern the policies of another person or entity. 3.11 TRANSFER AGENT INSTRUCTIONS. At each Closing the Company shall issue irrevocable instructions to its transfer agent (and shall issue to any subsequent transfer agent as required), to issue certificates, registered in the name of each such Purchaser or its respective nominee(s), for the Debenture Shares in such amounts, in accordance with the terms of the Debentures, as specified from time to time by each Purchaser to the Company in a form acceptable to such Purchasers (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 3.11, and stop transfer instructions to give effect to Section 3.1 hereof (in the case of the Debenture Shares, prior to registration of the Debenture Shares under the Securities Act) will be given by the Company to its transfer agent and that the Debentures and the Debenture Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Transaction Documents. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchasers by violating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 3.11 will be inadequate and agrees, in the event of a beach or threatened breach by the Company of the provisions of this Section 3.11, that the Purchasers, shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 3.12 PRESS RELEASE; FILING OF FORM 8-K. Subject to the provisions of Section 6.10 hereof, on or before the fifth (5th) Business Day following the Closing Date, the Company shall (i) file a press release in form and substance reasonably acceptable to the Purchasers (except as otherwise required by law) and (ii) file a Form 8-K with the Commission describing the terms of the transaction contemplated by this Agreement and the Transaction Documents in the form required by the Exchange Act. 3.13 ORDINARY COURSE BROKERAGE AND TRADING. Subject to compliance with all applicable securities laws and Nasdaq regulations, no Purchaser shall be prohibited from engaging in its ordinary course brokerage and trading activities in respect of the Company's Common Stock; PROVIDED that the personnel engaged in such activities have not been involved with the transactions contemplated hereby and have not been provided with confidential information with respect to the Company. 3.14 BEST EFFORTS. Each of the parties hereto shall use its best efforts to satisfy each of the conditions to be satisfied by it as provided in Article IV of this Agreement. 3.15 CORPORATE EXISTENCE. Until such time, while the Debentures are outstanding, as all of the Purchasers provide the Company with written notice that they do not beneficially own any Debentures, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company's assets, where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose common stock is listed for trading on the Nasdaq or any subsequent Market (as defined in the Debentures). 3.16 NO VIOLATION OF APPLICABLE LAW. Notwithstanding any provision of this Agreement to the contrary, if the redemption of Debentures or Debenture Shares otherwise required under this Agreement or the Registration Rights Agreement would be prohibited by the relevant provisions of the Business Corporation Law of the State of New York, such redemption shall be effected as soon as it is permitted under such law; provided, however, that from the fifth (5th) day after such redemption notice until such redemption price is paid in full, interest on any such unpaid amount shall accrue and be payable at the rate of 15% per annum in accordance with the Debentures. 3.17 SUBSEQUENT REGISTRATIONS. Other than Debenture Shares and other Registrable Securities (as defined in the Registration Rights Agreement) to be registered in accordance with the Registration Rights Agreement, the Company shall not, for a period of not less than 90 Trading Days after the date that the Registration Statement is declared effective by the Commission, without the prior written consent of Purchasers holding two-thirds of the principal amount of the Debentures, (i) except for securities issuable in connection with the transactions identified on Schedule 3.17 hereto, issue or sell any of its or any of its Affiliates' equity or equity-equivalent securities unless such issuance or sale is equal to or at a premium to the Per Share Market Price (as defined in the Debenture) on the date of such issuance or sale, (ii) except in connection with the transactions identified on Schedule 3.17 hereto, register for resale any securities of the Company if the per Share Market Price is twelve dollars ($12.00) or less or (iii) except in connection with the transactions identified on Schedule 3.17 hereto, have a registration statement declared effective covering an issuance by the Company of any of its securities if the Per Share Market Price is twelve dollars ($12.00) or less. Any days that any Purchaser is unable to sell Debenture Shares under an effective Registration Statement shall be added to such 90 Trading Day period for the purposes of (i), (ii) and (iii) above. 3.18 TRADING RESTRICTIONS. Each Purchaser represents and agrees: (i) that it has not and will not maintain a short position within twenty (20) days of the First Closing, (ii) that all short positions taken in the Company's Common Stock, by such Purchaser, will be covered within thirty (30) Trading Days, (iii) that if such Purchaser exercises the Purchasers Call Option, then within twenty (20) days of the Second Closing Date, such Purchaser will not short the Company's Common Stock at a price below the applicable Conversion Price (as set forth in the Debenture) and (iv) upon notice from the Company that the Company, in its good faith belief, is planning to consummate a transaction pursuant to which there will be a reset event pursuant to Section 4.5(e) of the Debenture, the Purchasers shall not hold a short position below the applicable Conversion Price for the lesser of twenty (20) days and the closing of such transaction. ARTICLE IV CONDITIONS 4.1 FIRST CLOSING CONDITIONS. a. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL THE DEBENTURES. The obligation of the Company to sell the Debentures is subject to the satisfaction or waiver (with prior written notice to each Purchaser) by the Company, at or before the First Closing Date of each of the following conditions: (i) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND WARRANTIES. The representations and warranties of each Purchaser in this Agreement shall be true and correct in all material respects as of the date when made as though made at that time (except for representations and warranties that speak as of a specific date) and as of the First Closing; (ii) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or before the First Closing; and (iii) NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement or the Transaction Documents. b. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE THE DEBENTURES AT THE FIRST CLOSING. The obligation of each Purchaser hereunder to acquire and pay for the Debentures at the First Closing is subject to the satisfaction or waiver (with prior written notice to the Company and each other Purchaser) by such Purchaser, at or before the First Closing Date, of each of the following conditions: (i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company set forth in this Agreement and in the Registration Rights Agreement shall be true and correct in all material respects as of the date when made as though made at that time (except for representations and warranties that speak as of a specific date) and as of the First Closing Date; (ii) PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or before the First Closing Date; (iii) NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement and the Transaction Documents; (iv) NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in the Common Stock shall not have been suspended by the Commission, on Nasdaq (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company); (v) LISTING OF COMMON STOCK. The Common Stock shall have been at all times since the date of this Agreement and on the Closing Date listed for trading on the Nasdaq; (vi) REQUIRED APPROVALS. All Required Approvals, other than those relating solely to Closing Dates other than the First Closing Date, shall have been obtained and copies thereof delivered to the Purchasers other than those relating solely to Closing Dates other than the First Closing Date; (vii) SHARES OF COMMON STOCK. The Company shall have duly reserved the number of Debenture Shares required by this Agreement and the Transaction Documents to be reserved upon the conversion of the Debentures acquired by the Purchaser on the First Closing Date; (viii) ADVERSE CHANGES. Since the date of the financial statements included in the Company's Quarterly Report on Form 10-Q or Annual Report on Form 10-K, whichever is more recent, last filed prior to the date of this Agreement, no event which had a Material Adverse Effect shall have occurred which is not disclosed on any Schedule hereto (for purposes hereof, changes in the market price of the Common Stock may be considered in determining whether there has occurred an event which has had a Material Adverse Effect); (ix) LITIGATION. No litigation shall have been instituted or threatened against the Company which could reasonably be expected to, individually or in the aggregate, have had a Material Adverse Effect; (x) CHANGE OF CONTROL. No Change of Control shall have occurred between the date hereof and the First Closing Date. "CHANGE OF CONTROL" means the occurrence 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), other than the Purchasers or any of their Affiliates, of in excess of 33% of the voting securities of the Company, (ii) a replacement of more than one-half of the members of the Company's Board of Directors that is not approved by those individuals who are members of the Board of Directors on the date hereof, or successors on a continuing Board of Directors, in one or a series of related transactions, (iii) the merger of the Company with or into another entity where the shareholders of the Company own less than 50% of the outstanding voting power of the surviving corporation, (iv) the consolidation or sale of all or substantially all of the assets of the Company in one or a series of related transactions, 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), (ii), (iii) or (iv); and (xi) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent Instructions, in a form reasonably acceptable to the Purchasers, shall have been delivered to and acknowledged in writing by the Company's transfer agent with a copy forwarded to each Purchaser. (xii) RESOLUTIONS. The Board of Directors of the Company shall have adopted resolutions consistent with Section 2.1(b) and in a form reasonably acceptable to each Purchaser (the "Resolutions"). c. DOCUMENTS AND CERTIFICATES. At the First Closing, the Company shall have delivered to the Purchasers, the following in form and substance reasonably satisfactory to the Purchasers: (i) OPINION. An opinion of the Company's legal counsel in the form attached hereto as Exhibit C dated as of the First Closing Date; (ii) DEBENTURE. A Debenture(s) representing the principal amount of Debentures purchased by such Purchaser as set forth next to such Purchaser's name on Schedule I, registered in the name of such Purchaser, each in form satisfactory to the Purchaser; (iii) REGISTRATION RIGHTS. The Company shall have executed and delivered the Registration Rights Agreement; (iv) OFFICER'S CERTIFICATE. An Officer's Certificate dated the First Closing Date and signed by an executive officer of the Company confirming the accuracy of the Company's representations, warranties and covenants as of such First Closing Date and confirming the compliance by the Company with the conditions precedent set forth in this Section 4.1 as of the First Closing Date; (v) SECRETARY'S CERTIFICATE. A Secretary's Certificate dated the First Closing Date and signed by the Secretary or Assistant Secretary of the Company certifying (A) that attached thereto is a true and complete copy of the Certificate of Incorporation of the Company, as in effect on the First Closing Date, (B) that attached thereto is a true and complete copy of the by-laws of the Company, as in effect on the First Closing Date and (C) that attached thereto is a true and complete copy of the Resolutions duly adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and of the Transaction Documents, and that such Resolutions have not been modified, rescinded or revoked; (vi) CERTIFICATE OF INCORPORATION. The Company shall have delivered to each of the Purchasers a copy of a certificate evidencing the incorporation and good standing of the Company, in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within ten days of the First Closing Date; (vii) TRANSFER AGENT LETTER. The Company shall have delivered to each Purchaser a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the First Closing Date; 4.2 SECOND CLOSING. a. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL THE DEBENTURES. The obligation of the Company to sell the Debentures is subject to the satisfaction or waiver (with prior written notice to each Purchaser) by the Company, at or before the Second Closing Date of each of the following conditions: (i) FIRST CLOSING. The First Closing shall have occurred for an aggregate amount of $15,000,000. (ii) MINIMUM ISSUANCE.An aggregate amount of at least five million dollars ($5,000,000) in Debentures has been requested to be issued in the Second Closing. (iii) ACCURACY OF THE PURCHASERS' REPRESENTATIONS AND WARRANTIES. The representations and warranties of each Purchaser in this Agreement shall be true and correct in all material respects as of the date when made as though made at that time (except for representations and warranties that speak as of a specific date) and as of the Second Closing; (iv) PERFORMANCE BY THE PURCHASERS. Each Purchaser shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or before the Second Closing; and (v) NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement or the Transaction Documents. b. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO PURCHASE. The obligation of each Purchaser hereunder to acquire and pay for the Debentures at the Second Closing is subject to the satisfaction or waiver (with prior written notice to the Company and each other Purchaser) by such Purchaser, at or before the Second Closing Date, of each of the following conditions: (i) FIRST CLOSING. The First Closing shall have occurred; (ii) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company set forth in this Agreement and the Registration Rights Agreement shall be true and correct in all respects as of the date when made and as of the Second Closing Date as though made at that time, except for changes made to the Schedules to update them since the First Closing and except for other exceptions to the representations and warranties necessary to update then since the First Closing (in either case with information about matters that do not have a Material Adverse Effect); (iii) PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement and the Transaction Documents to be performed, satisfied or complied with by the Company at or before to the Second Closing; (iv) NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement and the Transaction Documents; (v) REGISTRATION STATEMENTS FOR DEBENTURES AND WARRANTIES OF FIRST CLOSING. (A) The Registration Statement with respect to the Debenture Shares with respect to the Debenture(s) sold at the First Closing shall have been declared effective under the Securities Act by the SEC; (B) a Registration Statement with respect to the Debenture Shares with respect to the Debenture(s) to be sold at the Second Closing shall have been declared effective under the Securities Act; and (C) on the Second Closing Date such Registration Statements shall be effective, not subject to any stop order and not be subject to any suspension of the Registration Rights Agreement, and shall have been effective and shall not have been subject to any stop order for the thirty (30) Business Days prior to the Second Closing Date and no stop order shall be pending or threatened at the Second Closing Date. (vi) ADVERSE CHANGES. Since the date of the financial statements included in the Company's Quarterly Report on Form 10-Q or Annual Report on Form 10-K, whichever is more recent, last filed prior to the date of this Agreement, no event which had a Material Adverse Effect shall have occurred which is not disclosed on any Schedule hereto or otherwise in writing to each of the Purchasers; (vii) LITIGATION. No litigation shall have been instituted or threatened against the Company which could reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect; (viii) NO SUSPENSIONS OF TRADING IN COMMON STOCK. The trading in the Common Stock shall not have been suspended by the Commission, on Nasdaq during the sixty (60) days prior to the Second Closing (except for any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company); (ix) LISTING OF COMMON STOCK. The Debenture Shares shall on the Second Closing Date be, listed for trading on Nasdaq, or other exchange acceptable to Purchasers; (x) REQUIRED APPROVALS. All Required Approvals shall have been obtained and copies thereof delivered to the Purchasers. (xi) SHARES OF COMMON STOCK. The Company shall have duly reserved the number of Debenture Shares required by this Agreement to be reserved for issuance upon the conversion of the Debentures purchased on the First Closing Date and on the Second Closing Date. (xii) PERFORMANCE OF CONVERSION/EXERCISE OBLIGATIONS. The Company shall have delivered Debenture Shares upon any demand for conversion of any of the Debentures and otherwise performed its obligations in accordance with the terms, conditions and timing requirements of the Transaction Documents. (xiii) CHANGE OF CONTROL. Subject to Section 4.2(c), no Change of Control in the Company shall have occurred; (xiv) TRANSFER AGENT INSTRUCTIONS. The Irrevocable Transfer Agent Instructions, in a form reasonably acceptable to the Purchasers, shall have been delivered to and acknowledged by the Company's transfer agent with a copy forwarded to each Purchaser; (xv) MINIMUM PER SHARE MARKET VALUE. On the date of the Company Put Option Notice, the Per Share Market Value was more than ten dollars ($10); and (xvi) OPTIONAL CONVERSION. The Company shall have exercised the Optional Conversion (as defined in the Debentures). c. DOCUMENTS AND CERTIFICATES. On the Second Closing Date, the Company shall have delivered to the Purchasers, the following in form and substance reasonably satisfactory to the Purchasers: (i) OPINION. An opinion of the Company's legal counsel, in substantially the form attached hereto as EXHIBIT C dated as of the Second Closing Date; (ii) DEBENTURE(S). A Debenture(s) representing the Debenture(s) purchased by such Purchaser as set forth next to such Purchaser's name on the Second Closing Schedule registered in the name of such Purchaser, each in form satisfactory to the Purchaser; (iii) OFFICER'S CERTIFICATE. The Company shall deliver to the Purchasers an Officer's Certificate dated the Second Closing Date and signed by an executive officer of the Company confirming the accuracy of the Company's representations, warranties and covenants as of such Second Closing Date and confirming the compliance by the Company with the conditions precedent set forth in this Section 4.2(b) as of the Second Closing Date; (iv) SECRETARY'S CERTIFICATE. A Secretary's Certificate dated the Second Call Option Closing Date and signed by the Secretary or Assistant Secretary of the Company certifying (A) that attached thereto is a true and complete copy of the Certificate of Incorporation of the Company, as in effect on the Second Closing Date, (B) that attached thereto is a true and complete copy of the bylaws of the Company, as in effect on the Second Closing Date and (C) that attached thereto is a true and complete copy of the resolutions duly adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of the Agreement and the Transaction Documents and that such resolutions have not been modified, rescinded or revoked; (v) CERTIFICATE OF INCORPORATION. The Company shall have delivered to each of the Purchasers a copy of a certificate evidencing the incorporation and good standing of the Company, in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within ten days of the Second Closing Date; (vi) TRANSFER AGENT LETTER. The Company shall have delivered to each Purchaser a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Second Closing Date; and (vii) OTHER DOCUMENTS. The Company shall have delivered to each Purchaser such other documents relating to the transactions contemplated by the Transaction Documents as the Purchasers or its counsel may reasonably request. ARTICLE V INDEMNIFICATION 5.1 INDEMNIFICATION. a. Except to the extent that matters which could be covered by this Section 5 are covered by Section 5 of the Registration Rights Agreement, in consideration of the Purchasers, execution and delivery of this Agreement and the Transaction Documents and acquiring the Debentures and Debenture Shares thereunder and in addition to all of the Company's other obligations under this Agreement and the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Purchaser, its past and present Affiliates and their successors and assigns (in accordance with the provisions of Section 6.5 hereof), each other holder of the Debenture Shares and all of their stockholders, officers, directors, employees and direct or indirect investors and any of the foregoing Person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, proceedings, costs (as incurred), penalties, fees (including legal fees and expenses), liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including interest, penalties and attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or in the Transaction Documents, or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or the Transaction Documents, or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made, other than by the Company, against such Indemnitee and arising out of or resulting from (i) any wrongful action or inaction by the Company in connection with the execution, delivery, performance or enforcement of this Agreement or the Transaction Documents, assuming that the Purchaser seeking indemnification has not committed a material breach of its representations, warranties or obligation under this Agreement or the Transaction Documents, which breach is the cause of the Company's wrongful action or inaction, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Debentures or (iii) solely the status of such Purchasers or holders of the Debentures or the Debenture Shares as an investor in the Company. The indemnification obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliate of the Purchasers and partners, directors, agents, employees and controlling Persons (if any), as the case may be, of the Purchasers and any such affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such affiliate and any such Person. The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors, agents, employees or controlling Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of this Agreement or any of the Transaction Documents except to the extent that any losses, claims, damages, liabilities or expenses incurred by the Company result from the breach of representations, warranties or obligation or the gross negligence or willful misconduct of such Purchaser or entity in connection with the transactions contemplated by this Agreement or the Transaction Documents. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. b. All fees and expenses (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) of the Indemnitees shall be paid to the Indemnities as incurred, within ten (10) Business Days of written notice thereof to the Company, which notice shall be delivered no more frequently than on a monthly basis (regardless of whether it is ultimately determined that an Indemnitee is not entitled to indemnification hereunder; provided, that the Company may require such Indemnitee to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnitee is not entitled to indemnification hereunder), provided, however, that the Company shall only be required to pay the legal fees of one legal counsel, which counsel shall be Akin, Gump, Strauss, Hauer & Feld, L.L.P. ARTICLE VI MISCELLANEOUS 6.1 ENTIRE AGREEMENT. This Agreement, together with the Exhibits and Schedules hereto and the Transaction Documents contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters. 6.2 NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party (if received by 8:00 p.m. EST where such notice is received) or the first business day following such delivery (if received after 8:00 p.m. EST where such notice is received); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: Alliance Pharmaceutical Corp. 6175 Lusk Boulevard San Diego, California 92121 Telephone: (858) 410-5107 Facsimile: (858) 410-5343 Attention: President With a copy to: Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038 Telephone: (212) 806-5400 Facsimile: (212) 806-6006 Attention: Melvin Epstein If to the Transfer Agent: American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, New York 10005 Telephone: (718) 921-8275 Facsimile: (718) 921-8331 Attention: Paula Caroppoli If to _________________________________ to: _________________________________ _________________________________ _________________________________ Telephone: _________________________________ Facsimile: _________________________________ Attention: _________________________________ Each party shall provide written notice to the other party of any change in address or facsimile number in accordance with the provisions hereof. 6.3 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by both the Company and each of the Purchasers or, in the case of a waiver, by the Company (if a waiver of the Company' rights) or Purchasers holding a majority of the then outstanding principal amount of Debentures or who will be purchasing the majority of the principal amount of the Debentures (if a waiver of the Purchasers' rights). No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. Notwithstanding the foregoing, no such amendment shall be effective to the extent that it applies to less than all of the holders of the Debentures outstanding without the consent of the Company and those Holders who might be adversely affected by such an amendment. The Company shall not offer or pay any consideration to a Purchaser for consenting to such an amendment or waiver unless the same consideration is offered to each Purchaser and the same consideration is paid to each Purchaser which consents to such amendment or waiver. 6.4 HEADINGS. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 6.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each of the Purchasers, except pursuant to a merger by operation of law. The Purchasers may assign this Agreement or any rights or obligations hereunder without the prior written consent of the Company, provided, that any assignees must make the representations and warranties set forth in Section 2.2 and otherwise comply with the terms of this Agreement otherwise applicable to its assignor. This provision shall not limit a Purchaser's right to transfer securities in accordance with all of the terms of this Agreement or the Transaction Documents. 6.6 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. 6.7 GOVERNING LAW. This Agreement 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 hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, 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, that such suit, action or proceeding is improper. 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 to such party at the address for such notices to it under this Agreement 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 HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. 6.8 SURVIVAL. The representations and warranties of the Company and the Purchasers contained in Sections 2.1 and 2.2, the agreements and covenants set forth in Section 3, and the indemnification provisions set forth in Section 5, shall survive the Closing and any conversion of the Debentures regardless of any investigation made by or on behalf of the such Purchaser or by or on behalf of the Company, except that, in the case of representations and warranties such survival shall be limited to the period of four (4) years following the Closing Date on which they were made or deemed to have been made (other than with respect to any claim by a third party against the party to this Agreement who seeks to assert a claim based on such representations and warranties). This section shall have no effect on the survival of the indemnification provisions of the Registration Rights Agreement. 6.9 COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. 6.10 PUBLICITY. The Company and the Purchasers shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and neither party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other party with prior notice of such public statement. The Company shall not publicly or otherwise disclose the names of any of the Purchasers without such Purchaser's prior written consent. The Purchasers and their affiliated companies shall, without further cost, have the reasonable right to use in its advertising, marketing or other similar materials the Company's logo and trademarks and all or parts of the Company's press releases that focus on the transaction forming the subject matter of this Agreement or which make reference to the transaction. The Purchasers understand that this grant by the Company only waives objections that the Company might have to the use of such materials by the Purchasers and in no way constitutes a representation by the Company that references in such materials to the activities of third-parties have been cleared or constitute a fair use. 6.11 SEVERABILITY. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 6.12 REMEDIES. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchasers will be entitled to specific performance of the obligations of the Company under this Agreement or the Transaction Documents without the showing of economic loss and without any bond or other security being required. Each of the Company and the Purchasers (severally and not jointly) agree that monetary damages would not be adequate compensation for any loss incurred by reason of any breach of its obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 6.13 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The obligations of each Purchaser hereunder are several and not joint with the obligations of the other Purchasers hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. 6.14 PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Purchasers hereunder or pursuant to the Transaction Documents or the Purchasers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 6.15 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 6.16 FEES AND EXPENSES. Except as set forth in the Registration Rights Agreement, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement; PROVIDED, HOWEVER, that the Company shall pay the Purchasers an aggregate fee of $50,000 at the First Closing. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Debenture Shares pursuant hereto. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized persons as of the date first indicated above. ALLIANCE PHARMACEUTICAL CORP. By:___________________________ Name: Title: PURCHASERS --------------------------- SCHEDULE I PRINCIPAL AMOUNT OF NUMBER OF SHARES NAME OF PURCHASER DEBENTURES AT CLOSING DATE UNDERLYING DEBENTURES - ----------------- -------------------------- --------------------- SCHEDULE II NAME OF PURCHASER ADDRESS Exhibit A Form of Convertible Debenture (attached) Exhibit B Form of Registration Rights Agreement (attached) Exhibit C Company's Legal Opinion (attached) EX-4.3 4 Exhibit 4.3 FORM OF REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "AGREEMENT") is made and entered into as of February __, 2000 among Alliance Pharmaceutical Corp., a New York corporation (the "COMPANY"), and the parties who have executed this Agreement and whose names appear on Schedule I hereto (each party listed on Schedule I hereto is sometimes individually referred to herein as a "PURCHASER" and all such parties are sometimes collectively referred to herein as the "PURCHASERS"). This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof among the Company and the Purchasers (the "PURCHASE AGREEMENT"). The Company and the Purchasers hereby agree as follows: 1. DEFINITIONS Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "ADVICE" has meaning set forth in Section 3(o) hereof. "AFFILIATE" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "CONTROL," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "AFFILIATED," CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing. "AGGREGATE PRICE" has the meaning set forth in Section 2(b) hereof. "BUSINESS DAY" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other government actions to close. "CLOSING DATE" shall mean the Closing Date as defined in the Purchase Agreement. "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" means the Company's Common Stock, par value $0.01 per share. "DEBENTURES" means the Company's 5% convertible debentures due February __, 2004 issuable pursuant to the Debenture and the Purchase Agreement, and under certain conditions a second tranche of 5% convertible debentures due four years after issuance. "EFFECTIVENESS DATE" means the earlier of (i) the 90th day following the Closing Date, or (ii) the fifth business day after the Company has received notice (written or oral) from the Commission that the Commission Staff will not be reviewing the Registration Statement or has no further comments on the Registration Statement. "EFFECTIVENESS PERIOD" has the meaning set forth in Section 2(a) hereof. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EVENT" has the meaning set forth in Section 2(b) hereof. "FILING DATE" means as soon as practicable but in no event later than the 30th day following the Closing Date. "HOLDER" or "HOLDERS" means the holder or holders, as the case may be, from time to time of Registrable Securities. "INDEMNIFIED PARTY" has the meaning set forth in Section 5(c) hereof. "INDEMNIFYING PARTY" has the meaning set forth in Section 5(c) hereof. "INITIAL REGISTRATION STATEMENT" has the meaning set forth in Section 2(a) hereof. "LOSSES" has the meaning set forth in Section 5(a) hereof. "NASDAQ" has the meaning set forth in Section 2(b). "PERSON" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "PROCEEDING" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "PROSPECTUS" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus. "REGISTRABLE SECURITIES" means the shares of Common Stock issued or issuable upon (i) conversion of or with respect to $15,000,000 principal amount of the Debentures, (ii) payment of interest or any other payments in respect of the Debentures and (iii) any shares of the Company's capital stock issued with respect to (i) or (ii) as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise. "REGISTRATION DELAY PAYMENT" has the meaning set forth in Section 2(b) hereof. "REGISTRATION STATEMENT" means the Initial Registration Statement and any additional registration statements contemplated by Sections 2(a), 2(b) and 7(d), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement. "RULE 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "RULE 158" means Rule 158 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "RULE 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "SECURITIES ACT" means the Securities Act of 1933, as amended. "TRADING DAY" means a day on which Nasdaq (or such other securities market on which the Common Stock is listed) is open for trading. "UNDERLYING SHARES" means the shares of Common Stock issuable upon conversion of the Debentures. "UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a registration in connection with which securities of the Company are sold to an underwriter for reoffering to the public pursuant to an effective registration statement. 2. REGISTRATION REQUIREMENTS a. FILING AND EFFECTIVENESS OBLIGATIONS. On or prior to the Filing Date, the Company shall prepare and file with the Commission a Registration Statement (the "INITIAL REGISTRATION STATEMENT") which shall cover all Registrable Securities for an offering to be made on a continuous basis pursuant to a "Shelf" registration statement under Rule 415. The Initial Registration Statement shall be on Form S-3 or any successor form (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the reasonable consent of the Holders of the Registrable Securities). The Company shall (i) not permit any securities other than the Registrable Securities to be included in the Initial Registration Statement and (ii) use its best efforts to cause the Initial Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event on or prior to the Effectiveness Date, and to keep such Initial Registration Statement continuously effective under the Securities Act until the date which is four years after the date that such Initial Registration Statement is declared effective by the Commission or such earlier date when all Registrable Securities covered by such Initial Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144 as determined by counsel to the Company pursuant to a written opinion letter, addressed to the Holders and the Company's transfer agent to such effect (the "EFFECTIVENESS PERIOD"). The number of shares of Common Stock initially included in the Initial Registration Statement shall be no less than (a) the number of shares of Common Stock that are then issuable upon conversion of the Debentures (based on the Conversion Price (as defined in the Debentures) as would then be in effect at such time), without regard to any limitation on the Investor's ability to convert the Debentures, and (b) the number of shares of Common Stock that could be issued as payment of interest on the Debentures for a one year period. If on the date of an actual adjustment to the Conversion Price pursuant to Section 4.5 of the Debenture the Registration Statements are insufficient to register all Underlying Shares (after giving effect to such adjustment) and the number of shares of Common Stock issuable upon the payment of interest on the principal amount of the then outstanding Debentures for a one year period, the Company shall immediately, but in no more than ten (10) Business Days, file a Registration Statement sufficient to register such additional shares of Common Stock.; b. UNDERWRITTEN OFFERING. In addition to the Initial Registration Statement, at any time when a Registration Statement covering the Registrable Securities is not effective (during any period in which a Registration Statement is required to be effective pursuant to the terms hereof), if the Holders of a majority of the Registrable Securities covered by a Registration Statement so elect on or after August __, 2000 an offering of Registrable Securities pursuant to such Registration Statement may be effected on no more than two (2) occasions in the form of an Underwritten Offering. In such event, and if the managing underwriters advise the Company and such Holders in writing that in their opinion the amount of Registrable Securities proposed to be sold in such Underwritten Offering exceeds the amount of Registrable Securities which can be sold in such Underwritten Offering, there shall be included in such Underwritten Offering the amount of such Registrable Securities which in the opinion of such managing underwriters can be sold, and such amount shall be allocated PRO RATA among the Holders proposing to sell Registrable Securities in such Underwritten Offering. c. UNDERWRITER. If any of the Registrable Securities are to be sold in an Underwritten Offering, the investment banker in interest that will administer the offering will be selected by the Holders of a majority of the Registrable Securities included in such offering provided that the Company shall consent to the inclusion of such investment banker, which consent shall not be unreasonably withheld. No Holder may participate in any Underwritten Offering hereunder unless such Holder (i) agrees to sell its Registrable Securities on the basis provided in any underwriting agreements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such arrangements. d. If (i) any of the Holders desires to sell Underlying Shares and the Initial Registration Statement covering all the applicable Registrable Securities required to be filed by the Company pursuant to this Agreement is not (A) filed with the Commission on or before the Filing Date or (B) declared effective by the Commission on or before the applicable Effectiveness Date, (ii) on any day after the Registration Statement has been declared effective by the Commission any of the Holders desires to sell Underlying Shares and cannot do so pursuant to Rule 144 and (A) sales of all the Registrable Securities which such Holders desire to sell cannot be made pursuant to the Registration Statement (including, without limitation, because of a failure to keep the Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to the Registration Statement, or to register sufficient shares of Common Stock) or (B) the Common Stock is not listed or included for quotation on the National Market System of the Nasdaq Stock Market ("NASDAQ"), the Nasdaq SmallCap Market, the New York Stock Exchange ("NYSE") or the American Stock Exchange (the "AMEX") after being so listed or included for quotation or (iii) the Company shall otherwise fail to file a Registration Statement required by Section 2(a) hereof that is necessary in order to permit sales of Underlying Shares that Holders desire to sell (each such event specified in (i), (ii) and (iii) above, an "EVENT"), then, as partial relief for the damages to any Holder by reason of any such delay in or reduction of its ability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each Holder an amount in cash (a "REGISTRATION DELAY PAYMENT") equal to the portion of the then outstanding principal amount of the Debentures which the Holders desired to convert to Common Stock and sell and cannot sell under Rule 144 (and, in the case of Holders, the principal amount of such Debentures from which such Registrable Securities were converted) (the "AGGREGATE PRICE") multiplied by two hundredths (.020) times the sum of: (i) the number of months (prorated for partial months) after the end of the Effectiveness Date and prior to the date the Registration Statement is declared effective by the Commission or such shares can be sold under Rule 144, PROVIDED, HOWEVER, that there shall be excluded from such period any delays which are solely attributable to changes required by the Purchasers in the Registration Statement with respect to information relating to the Purchasers, or to the failure of the Purchasers to conduct their review of the Registration Statement pursuant to Section 3(a); (ii) the number of months (prorated for partial months) that sales cannot be made either pursuant to Rule 144 or the Registration Statement after the Registration Statement has been declared effective (including, without limitation, when sales cannot be made by reason of the Company's failure to properly supplement or amend the Prospectus in accordance with the terms of this Agreement, or otherwise, but excluding when such sales cannot be made solely by reason of any act or omission solely attributable to the Purchasers); and (iii) the number of months (prorated for partial months) that the Common Stock is not listed or included for quotation on the Nasdaq, NYSE or AMEX or that trading thereon is halted after the Registration Statement has been declared effective. The Company shall pay any Required Registration Delay Payments to each Holder in cash on the last Business Day of each month during which an Event has occurred and is continuing. In the event the Company fails to make a Registration Delay Payment within ten (10) Business Days of the date such Registration Delay Payment is due, such Registration Delay Payment shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. e. The Company represents and warrants that it meets the registrant eligibility and transaction requirements for the use of Form S-3 (for secondary offerings) for the registration of the sale of Registrable Securities by the Purchasers and any other Holders and the Company shall file all reports required to be filed by the Company with the Commission in a timely manner so as to maintain such eligibility for the use of Form S-3. 3. REGISTRATION PROCEDURES In connection with the Company's registration obligations hereunder, the Company shall: a. PREPARATION OF REGISTRATION STATEMENT. Prepare and file with the Commission on or prior to the Filing Date a Registration Statement on Form S-3 or its successor form (or if the Company is not then eligible to register for resale the Registrable Securities on Form S-3 such registration shall be on another appropriate form in accordance herewith (which shall include a plan of distribution reasonably agreed upon by the parties hereto, in the form of EXHIBIT A annexed hereto, unless in connection with an Underwritten Offering) or in connection with an Underwritten Offering hereunder, such other form agreed to by the Company and by a majority-in-interest of Holders of Registrable Securities to be covered by such Registration Statement) (except if otherwise directed by the Holders), and cause the Registration Statement to become effective and remain effective as provided herein; PROVIDED, HOWEVER, that not less than five (5) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated therein by reference), the Company shall, if reasonably practicable (i) furnish to the Holders, their counsel and any managing underwriters, copies of all such documents proposed to be filed (including documents incorporated by reference), which documents will be subject to the review of such Holders, their counsel and such managing underwriters, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities, their counsel or any managing underwriters shall reasonably object within three (3) Business Days after receipt of copies of any such documents, and will not request acceleration of such Registration Statement without prior notice to such counsel. The sections of such Registration Statement covering information with respect to the Holders, the Holder's beneficial ownership of securities of the Company or the Holders intended method of disposition of Registrable Securities shall conform to the information provided to the Company by each of the Holders. b. AMENDMENTS. (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as possible to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. In the event the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover the number of the Registrable Securities required by Section 2(a) hereof, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefore, if applicable), or both, so as to cover such number of the Registrable Securities, in each case, as soon as practicable, but in any event within ten (10) Business Days after the necessity therefor arises (based on the Conversion Price of the Debentures and other relevant factors on which the Company reasonably elects to rely). The Company shall use its best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. The provisions of Section 2(b) above shall be applicable with respect to such obligation, with the ninety (90) days running from the day after the date on which the Company reasonably first determines (or reasonably should have determined) the need therefor. c. NOTIFICATIONS. Notify the Holders of Registrable Securities to be sold, their counsel and any managing underwriters as promptly as possible (and, in the case of (i)(A) below, not less than five (5) days prior to such filing and, in the case of (i)(C) below, not later than the first Business Day after effectiveness) and (if requested by any such Person) confirm such notice in writing no later than one (1) Business Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) if at any time any of the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. d. SUSPENSIONS. Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. e. SUPPLEMENTS AND POST-EFFECTIVE AMENDMENTS. If requested by any managing underwriter or the Holders of a majority in interest of the Registrable Securities to be sold in connection with an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; PROVIDED, HOWEVER, that the Company shall not be required to take any action pursuant to this Section 3(e) that would, in the opinion of counsel, reasonably acceptable to the purchasers, for the Company, violate applicable law. f. COPIES OF REGISTRATION STATEMENT. Furnish to each Holder, their counsel, and any managing underwriters, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. g. COPIES OF PROSPECTUS. Promptly deliver to each Holder, their counsel, and any underwriters, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders and any underwriters in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. h. BLUE SKY. Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders, any underwriters and their counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder or underwriter requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; PROVIDED, HOWEVER, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject. i. CERTIFICATES. Cooperate with the Holders and any managing underwriters to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law and the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such managing underwriters or Holders may request at least two (2) Business Days prior to any sale of Registrable Securities. j. SUPPLEMENTS AND AMENDMENTS. Upon the occurrence of any event contemplated by Section 3(c)(vi), as promptly as possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. k. LISTING. Use its best efforts to cause all Registrable Securities relating to such Registration Statement to be listed on Nasdaq and any other securities exchange, quotation system, market or over-the-counter bulletin board, if any, on which similar securities issued by the Company are then listed as and when required pursuant to the Purchase Agreement. l. UNDERWRITING AGREEMENT. Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in Underwritten Offerings) and take all such other actions in connection therewith (including those reasonably requested by any managing underwriters and the Holders of a majority of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and whether or not an underwriting agreement is entered into, (i) make such representations and warranties to such Holders and such underwriters as are customarily made by issuers to underwriters in underwritten public offerings, and confirm the same if and when requested; (ii) in the case of an Underwritten Offering obtain and deliver copies thereof to the managing underwriters, if any, or in the case of non-Underwritten Offerings, if reasonably requested by the selling Holders, obtain and deliver copies thereof to such selling Holders, of opinions of counsel to the Company and updates thereof addressed to each such underwriter, in form, scope and substance reasonably satisfactory to any such managing underwriters and counsel to the selling Holders covering the matters customarily covered in opinions requested in Underwritten Offerings and such other matters as may be reasonably requested by such counsel and underwriters; (iii) immediately prior to the effectiveness of the Registration Statement, and, in the case of an Underwritten Offering, at the time of delivery of any Registrable Securities sold pursuant thereto, and, in the case of non-Underwritten Offerings, at such time as the selling Holders may reasonably request, obtain and deliver copies to the Holders and the managing underwriters, if any, of "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if required, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data is, or is required to be, included in the Registration Statement), addressed to each of the underwriters, if any, in form and substance as are customary in connection with Underwritten Offerings; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the selling Holders and the underwriters, if any, than those set forth in Section 5 (or such other provisions and procedures acceptable to the managing underwriters, if any, and holders of a majority of Registrable Securities participating in such Underwritten Offering; and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold, their counsel and any managing underwriters to evidence the continued validity of the representations and warranties made pursuant to clause 3(1)(i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. m. DUE DILIGENCE. Make available for inspection by the selling Holders, any representative of such Holders, any underwriter participating in any disposition of Registrable Securities, and any attorney or accountant retained by such selling Holders or underwriters, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the officers, directors, agents and employees of the Company and its subsidiaries to supply all information in each case reasonably requested by any such Holder, representative, underwriter, attorney or accountant in connection with the Registration Statement; PROVIDED, HOWEVER, that if any information is determined in good faith by the Company in writing to be of a confidential nature at the time of delivery of such information, then prior to delivery of such information, the Company and the Holders shall enter into a confidentiality agreement reasonably acceptable to the Company and the Holders providing that such information shall be kept confidential, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities (PROVIDED, HOWEVER, that the Company shall be given notice of any such pending disclosure so that the Company may seek a protective order); (ii) disclosure of such information, in the opinion of counsel to such Person, is required by law; (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by such Person; or (iv) such information becomes available to such Person from a source other than the Company and such source is not known by such Person to be bound by a confidentiality agreement with the Company. n. EARNINGS STATEMENT. Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts Underwritten Offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158. o. INFORMATION. The Company may require each selling Holder to furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law to be disclosed in the Registration Statement, and the Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. The Company shall hold in confidence and not make any disclosure of information concerning a Holder provided to the Company unless (i) disclosure of such confidential information is necessary to comply with federal or state securities laws, (ii) the disclosure of such confidential information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such confidential information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (iv) such confidential information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, if possible, upon learning that disclosure of such information concerning a Holder is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Holder prior to making such disclosure, and allow the Holder, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder covenants and agrees that (i) it will not sell any Registrable Securities under the Registration Statement until it has received copies of the Prospectus as then amended or supplemented as contemplated in Section 3(g) and notice from the Company that such Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will comply with the prospectus delivery requirements of the Securities Act as applicable to them in connection with sales of Registrable Securities pursuant to the Registration Statement. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the "ADVICE") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of a Holder in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Holder has entered into a binding contract for sale prior to the Holder's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi) and for which the Holder has not yet settled. p. RESPONSES TO THE COMMISSION. The Company agrees to respond fully and completely, in the Company's best judgement, to any and all comments on a Registration Statement received from the Commission staff as promptly as possible but, for non-Underwritten Offerings, in no event later than ten (10) Business Days of the receipt of such comments, regardless of whether such comments are in oral or written form. q. CONFIRMATION OF EFFECTIVENESS. Within two (2) Business Days after a Registration Statement which covers applicable Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Holders whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the Commission in the form attached hereto as EXHIBIT B. 4. REGISTRATION EXPENSES a. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, whether or not pursuant to an Underwritten Offering and whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation (and except as provided herein), (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with Nasdaq and each other securities exchange or market on which Registrable Securities are required hereunder to be listed and (B) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Holders in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the managing underwriters, if any, or the Holders of a majority of Registrable Securities may designate), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is requested by the managing underwriters, if any, or by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and counsel for the Holders, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. b. If the Holders require an Underwritten Offering pursuant to the terms hereof, the Company shall be responsible for all reasonable costs, fees and expenses in connection therewith, except for the fees and disbursements of the Underwriters (including any underwriting commissions and discounts) and their legal counsel and accountants (which shall be borne by the Holders). Therefore, in such circumstances the Holder shall bear the expenses of the fees and disbursements of any legal counsel or accounting firm retained by the underwriters in connection with such Underwritten Offering and the costs of any determination (but not filing) by the underwriters of the eligibility of the Registrable Securities for investment under the applicable state securities laws. By way of illustration which is not intended to diminish from the provisions of Section 4(a), the Holders shall not be responsible for, and the Company shall be required to pay the fees or disbursements incurred by the Company (including by its legal counsel and accountants) in connection with, the preparation and filing of a Registration Statement and related Prospectus for such offering, the maintenance of such Registration Statement in accordance with the terms hereof, the listing of the Registrable Securities in accordance with the requirements hereof, and printing expenses incurred to comply with the requirements hereof. 5. INDEMNIFICATION a. INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents (including any underwriters retained by such Holder in connection with the offer and sale of Registrable Securities), brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all joint or several losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and attorneys' fees) and expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, "LOSSES"), as incurred, arising out of or relating to (i) any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary Prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made), except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, which information was reasonably relied on by the Company for use therein or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of prospectus or in any amendment or supplement thereto (provided that the Company amended any disclosure with respect to the method of distribution upon written notice from the Holders that such section of the Prospectus should be revised in any way) or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of Registrable Securities. The Company shall not, however, be liable for any Losses to any Holder with respect to any untrue or alleged untrue statement of material fact or omission or alleged omission of material fact if such statement or omission was made in a preliminary Prospectus and such Holder did not receive a copy of the final Prospectus (or any amendment or supplement thereto) at or prior to the confirmation of the sale of the Registrable Securities in any case where such delivery is required by the Securities Act and the untrue or alleged untrue statement of material fact or omission or alleged omission of material fact contained in such preliminary Prospectus was corrected in the final Prospectus (or any amendment or supplement thereto), unless the failure to deliver such final Prospectus (as amended or supplemented) was a result of noncompliance by the Company with Section 3(g) of this Agreement. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. b. INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, the directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in the Registration Statement or such Prospectus and that such information was reasonably relied upon by the Company for use in the Registration Statement, such Prospectus or such form of prospectus or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of prospectus; PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 5(b) shall not apply to amounts paid in settlement of any Losses if such settlement is effected without the prior written consent of such Holder, which consent shall not be unreasonably withheld. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. c. CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; PROVIDED, HOWEVER, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party, which notice shall be delivered no more frequently than on a monthly basis (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). d. CONTRIBUTION. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or refusal of a court of competent jurisdiction to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. In no event shall any selling Holder be required to contribute an amount under this Section 5(d) in excess of the net proceeds received by such Holder upon sale of the Registrable Securities pursuant to the Registration Statement giving rise to such contribution obligation. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 6. RULE 144 As long as any Holder owns Registrable Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or l5(d) of the Exchange Act and to promptly furnish the Holders with true and complete copies of all such filings. As long as any Holder owns Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a) or l5(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Underlying Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including providing any legal opinions referred to in the Purchase Agreement. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements. 7. MISCELLANEOUS a. REMEDIES. In the event of a breach by the Company or by a Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. b. NO INCONSISTENT AGREEMENTS. Neither the Company nor any of its subsidiaries has, as of the date hereof, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as disclosed in Schedule 2.1(r) of the Purchase Agreement, neither the Company nor any of its subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person. Without limiting the generality of the foregoing, without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subordinated in all respects to the rights in full of the Holders set forth in Section 2 herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement; notwithstanding the foregoing, the Company may grant pari passu rights to a Strategic Partner (as defined in the Debenture). This Agreement, together with the Purchase Agreement, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters. c. NO PIGGYBACK ON REGISTRATIONS. Except as disclosed on Schedule 2.1(r) of the Purchase Agreement, neither the Company nor any of its securityholders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the Registration Statements and the Company shall not after the date hereof enter into any agreement providing such right to any of its securityholders, unless the right so granted is subordinated in all respects to the rights in full of the Holders set forth herein, and is not otherwise in conflict or inconsistent with the provisions of this Agreement; notwithstanding the foregoing, the Company may grant pari passu rights to a Strategic Partner (as defined in the Debenture). d. PIGGY-BACK REGISTRATIONS. Except as provided herein if, at any time when there is not an effective Registration Statement covering the Registrable Securities, the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to each Holder of Registrable Securities written notice of such determination and, if within fifteen (15) days after receipt of such notice, any such Holder shall so request in writing, (which request shall specify the Registrable Securities intended to be disposed of by the Holders), the Company will use reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holder, to the extent requisite to permit the disposition of the Registrable Securities so to be registered; PROVIDED, that if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to such Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4 hereof), and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities being registered pursuant to this Section 7(d) for the same period as the delay in registering such other securities. The Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; PROVIDED, HOWEVER, that the Company shall not be required to register any Registrable Securities pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such registration statement, then if the Company after consultation with the Underwriter's representative should reasonably determine that the inclusion of such Registrable Securities would materially adversely affect the offering contemplated in such registration statement, and based on such determination recommends inclusion in such registration statement of fewer Registrable Securities then proposed to be sold by the Holders, then (x) the number of Registrable Securities of the Holders included in such registration statement shall be reduced pro rata among such Holders (based upon the number of Registrable Securities requested to be included in the registration) or (y) none of the Registrable Securities of the Holders shall be included in such registration statement if the Company, after consultation with the underwriter(s), recommends the inclusion of none of such Registrable Securities; PROVIDED, HOWEVER, that if securities are being offered for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Registrable Securities intended to be offered by the Holders than the fraction of similar reductions imposed on such other persons or entities (other than the Company). Notwithstanding the foregoing, the Company shall not file any registration statement under the Securities Act (other than on Form S-4 or Form S-8) relating to the offer and sale of any equity securities of the Company, or offer or sell any equity securities of the Company in a transaction exempt from registration pursuant to Regulation S under the Securities Act, if the Per Share Market Value is twelve dollars ($12.00) or less, until the earlier of (i) such time as the Initial Registration Statement has been effective for a period of sixty (60) Trading Days, which period shall be tolled if and during the period the effectiveness of the Initial Registration Statement is suspended for any reason whatsoever or (ii) all of the Registrable Securities covered therein shall have been sold; provided, further, that in the case of warrants or other securities which the Company has issued with piggy-back registration rights, as set forth on Schedule 2.1(r) to the Securities Purchase Agreement, the Company shall be allowed to file a separate registration statement during the same time period as the Initial Registration Statement and/or any Registration Statement being filed pursuant to this sentence. e. AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of at least two thirds of the then outstanding Registrable Securities; PROVIDED, HOWEVER, that for the purposes of this sentence, Registrable Securities that are owned, directly or indirectly, by the Company, or an Affiliate of the Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; PROVIDED, HOWEVER, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. f. NOTICES. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been received (a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct answer back received), telecopy or facsimile (with transmission confirmation report) at the address or number designated below (if received by 8:00 p.m. EST where such notice is to be received), or the first Business Day following such delivery (if received after 8:00 p.m. EST where such notice is to be received) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications are (i) if to the Company to Alliance Pharmaceutical Corp., 6175 Lusk Boulevard, San Diego, California 92121, Attention: President, facsimile number: (858) 410-5343 with a copy to Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, Attention: Melvin Epstein, facsimile number: (212) 896-6006 and (ii) if to any Purchaser to the address set forth on Schedule I hereto with copies to those specified on the signature pages hereto and to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, Attn: James Kaye, Esq., fax no. (212) 872-1002 or such other address as may be designated in writing hereafter, in the same manner, by such Person. g. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder, which will not be unreasonably withheld. Each Holder may assign its rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement. In addition, the rights of each Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by each Holder if: (i) the Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement, and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement. The rights to assignment shall apply to the Holders (and to subsequent) successors and assigns. h. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. i. GOVERNING LAW. The corporate laws of the State of New York shall govern all issues concerning the relative rights of the Company and the Purchasers as its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of law. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, 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, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement 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. j. CUMULATIVE REMEDIES. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. k. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. l. HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. m. SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than any Holder or transferees or successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. ALLIANCE PHARMACEUTICAL CORP. By: -------------------------- Name: Title: PURCHASERS ------------------------------ SCHEDULE I COMPANY ALLIANCE PHARMACEUTICAL CORP. 6175 Lusk Boulevard San Diego, California 92121 Attention: President Facsimile: (858) 410-5343 PURCHASERS: EXHIBIT A PLAN OF DISTRIBUTION The Company is registering the Registrable Securities on behalf of the Holder. As used herein, the term Holder means the holder of the Registrable Securities and includes donees and pledgees selling Registrable Securities received from a named Holder after the date of this Prospectus. All costs, expenses and fees in connection with the registration of the Registrable Securities offered hereby will be borne by the Company. Brokerage commissions and similar selling expenses, if any, attributable to the sale of Registrable Securities will be borne by the Holders. Sales of Registrable Securities may be effected by Holders from time to time in one or more types of transactions (which may include block transactions) on the Nasdaq National Market, in the over-the-counter market, in negotiated transactions, through put or call options transactions relating to the Registrable Securities, through short sales of Registrable Securities, or a combination of such methods of sale, at market prices prevailing at the time of sale, or at negotiated prices. Such transactions may or may not involve brokers or dealers. The Holders have advised the Company that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities, nor is there an underwriter or coordinated broker acting in connection with the proposed sale of Registrable Securities by the Holders. The Holders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of the Registrable Securities or of securities convertible into or exchangeable for the Registrable Securities in the course of hedging positions they assume with Holders. The Holders may also enter into options or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealers or other financial institutions of Registrable Securities offered by this Prospectus, which Registrable Securities such broker-dealer or other financial institution may resell pursuant to this Prospectus (as amended or supplemented to reflect such transaction). The Holders may effect such transactions by selling Registrable Securities directly to purchasers or to or through broker-dealers, which may act as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from Holders and/or the purchasers of Registrable Securities for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Holders and any broker-dealers that act in connection with the sale of Registrable Securities might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any commissions received by such broker-dealers any profit on the resale of the Registrable Securities sold by them while acting as principals might be deemed to be underwriting discounts or commissions under the Securities Act. The Company has agreed to indemnify each Holder against certain liabilities, including liabilities arising under the Securities Act. The Holders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the Registrable Securities against certain liabilities, including liabilities arising under the Securities Act. The Holders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act. The Holders will be subject to the prospectus delivery requirements of the Securities Act. The Company has informed the Holders that the anti-manipulative provisions of Regulation M promulgated under the Exchange Act may apply to their sales in the market. Holders also may resell all or a portion of the Registrable Securities in open market transactions in reliance upon Rule 144 under the Securities Act, provided they meet the criteria and conform to the requirements of such Rule. Upon the Company being notified by a Holder that any material arrangement has been entered into with a broker-dealer for the sale of Registrable Securities through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this Prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such Holder and of the participating broker-dealer(s), (ii) the number of Registrable Securities involved, (iii) the initial price at which such Registrable Securities were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this Prospectus and (vi) other facts material to the transactions. In addition, upon the Company being notified by a Holder that a donee or pledgee intends to sell more than 500 Registrable Securities, a supplement to this Prospectus will be filed. EXHIBIT B FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT [TRANSFER AGENT] Attn.: Re: Alliance Pharmaceutical Corp. Ladies and Gentlemen: We are counsel to Alliance Pharmaceutical Corp., a New York corporation (the "Company"), and have represented the Company in connection with that certain Securities Purchase Agreement (the "Purchase Agreement") entered into by and among the Company and the buyers named therein (collectively, the "Holders") pursuant to which the Company issued to the Holders its 5% convertible debentures due February __, 2004 (the "Debentures") convertible into shares of the Company's common stock, par value $0.01 per share (the "Common Stock"). Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement with the Holders (the "Registration Rights Agreement") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issuable upon conversion of the Debentures, under the Securities Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligations under the Registration Rights Agreement, on _______________, 1999, the Company filed a Registration Statement on Form S-3 (File No. 333-_____________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement. Very truly yours, [ISSUER'S COUNSEL] CC: [LIST NAMES OF HOLDERS] -----END PRIVACY-ENHANCED MESSAGE-----