SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
SCHEDULE 13D
Under the Securities Exchange Act of 1934
CHANTAL PHARMACEUTICAL CORPORATION
(Name of Issuer)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
159300201
(CUSIP Number)
JONATHAN LIDSTER
BUCHANAN CAPITAL MANAGEMENT LTD.
BUCHANAN HOUSE
3 ST. JAMES'S SQUARE
LONDON SW1Y 4JU
ENGLAND
011-44-171-973-2766
(Name, address and telephone number of person
authorized to receive notices and communications)
December 18, 1996
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [ ].
NOTE: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter the disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not
be deemed to be "filed" for purposes of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Page 1 of 10 Pages
<PAGE>
13D
CUSIP No. 159300201
_____________________________________________________________________________
(1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON
Buchanan Fund Limited
_____________________________________________________________________________
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [x]
(b) [ ]
_____________________________________________________________________________
(3) SEC USE ONLY
_____________________________________________________________________________
(4) SOURCE OF FUNDS **
OO
_____________________________________________________________________________
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
_____________________________________________________________________________
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Bermuda
_____________________________________________________________________________
NUMBER OF (7) SOLE VOTING POWER
- 0 -
SHARES ______________________________________________________________
BENEFICIALLY (8) SHARED VOTING POWER
1,149,425
OWNED BY ______________________________________________________________
EACH (9) SOLE DISPOSITIVE POWER
- 0 -
REPORTING ______________________________________________________________
PERSON WITH (10) SHARED DISPOSITIVE POWER
1,149,425
_____________________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
1,149,425
_____________________________________________________________________________
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ]
_____________________________________________________________________________
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (11) 5.6%
_____________________________________________________________________________
(14) TYPE OF REPORTING PERSON **
CO
_____________________________________________________________________________
** SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 2 of 10 Pages
<PAGE>
13D
CUSIP No. 159300201
____________________________________________________________________________
(1) NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON
Buchanan Partners Limited
_____________________________________________________________________________
(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP **
(a) [x]
(b) [ ]
_____________________________________________________________________________
(3) SEC USE ONLY
_____________________________________________________________________________
(4) SOURCE OF FUNDS **
OO
_____________________________________________________________________________
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
_____________________________________________________________________________
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
England
_____________________________________________________________________________
NUMBER OF (7) SOLE VOTING POWER
- 0 -
SHARES ______________________________________________________________
BENEFICIALLY (8) SHARED VOTING POWER
2,298,850
OWNED BY ______________________________________________________________
EACH (9) SOLE DISPOSITIVE POWER
- 0 -
REPORTING ______________________________________________________________
PERSON WITH (10) SHARED DISPOSITIVE POWER
2,298,850
_____________________________________________________________________________
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED
BY EACH REPORTING PERSON
2,298,850
_____________________________________________________________________________
(12) CHECK BOX IF THE AGGREGATE AMOUNT
IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ]
_____________________________________________________________________________
(13) PERCENT OF CLASS REPRESENTED
BY AMOUNT IN ROW (11) 11.2%
_____________________________________________________________________________
(14) TYPE OF REPORTING PERSON **
CO
_____________________________________________________________________________
** SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 3 of 10 Pages
<PAGE>
ITEM 1. SECURITY AND ISSUER.
This statement on Schedule 13D relates to Common Stock ("Common Stock")
of Chantal Pharmaceutical Corporation ("Chantal"). The principal executive
offices of Chantal are located at 12901 W. Jefferson Blvd., Los Angeles,
California 90066.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is filed by Buchanan Fund Limited ("Buchanan Fund") and
Buchanan Partners Limited ("Buchanan Partners"). Buchanan Fund and Buchanan
Partners are collectively referred to herein as the "Reporting Persons" and
information regarding each Reporting Person is set forth below.
Buchanan Fund is a company incorporated under the laws of Bermuda having
its principal place of business at 6 Front Street, Hamilton HM 11, Bermuda.
The principal business of Buchanan Fund, a private investment fund, is to
achieve capital gains and appreciation through investments in a variety of
financial instruments including international equities, bonds, warrants,
convertible bonds, options, futures and foreign exchange.
Buchanan Partners is a limited corporation organized under the laws of
England and Wales with its principal place of business at Buchanan House, 3
St. James's Square, London SW1Y 4JU, England. The principal business of
Buchanan Partners, a private investment management firm, is to achieve capital
gains and appreciation through investments in a variety of financial
instruments including international equities, bonds, warrants, convertible
bonds, options, futures and foreign exchange.
Buchanan Capital Management Ltd. ("Buchanan Capital"), a wholly-owned
subsidiary of Buchanan Partners, manages the investment portfolios of the
Reporting Persons. Buchanan Capital is a limited corporation organized under
the laws of England and Wales with its principal place of business at Buchanan
House, 3 St. James's Square, London SW1Y 4JU, England.
The names, business addresses and principal occupations of the directors
of the Buchanan Fund are as follows:
(a) Sharanbir Brijnath, Buchanan Capital Management Limited,
Buchanan House, 3 St. James's Square, London SW1Y 4JU, England. Mr. Brijnath
is an Executive Director of Buchanan Capital.
(b) John C. R. Collis, Conyers, Dill & Pearman, Clarendon House,
Church Street, Hamilton HM 11, Bermuda. Mr. Conyers is a partner of Conyers,
Dill & Pearman, a law firm.
(c) Luis A. Douglas, Bank of Bermuda Building, 6 Front Street,
Hamilton HM 11, Bermuda. Mr. Douglas is an Executive Vice President of
Corporate Trust and Systems and Operations of The Bank of Bermuda Limited.
(d) Dr. Terry A. Marsh, Hans School of Business, University of
California, Berkeley, California 94720. Dr. Marsh is a Professor of Finance
at the University of California, Berkeley.
(e) Robert R. Rans, Performa Securities Limited, 73 Front Street,
Hamilton HM 12, Bermuda. Mr. Rans is the President of Performa Securities
Limited, an investment management company incorporated in Bermuda.
(f) Kevin Rowe, Buchanan Capital Management Limited, Buchanan
House, 3 St. James's Square, London SW1Y 4JU, England.
Page 4 of 10 Pages
<PAGE>
(g) David T. Smith, Bank of Bermuda Building, 6 Front Street,
Hamilton HM 11, Bermuda. Mr. Smith is Vice President of Corporate Trust of
The Bank of Bermuda Limited, and also serves as Secretary to the Buchanan
Fund.
(h) Anthony D. Whaley, Conyers, Dill & Pearman, Clarendon House,
Church Street, Hamilton HM 11, Bermuda. Mr. Whaley is an associate of
Conyers, Dill & Pearman.
Except as indicated above, there are no executive officers of Buchanan
Fund.
The officers and directors of Buchanan Partners and Buchanan Capital, and
their principal business occupations, are as follows:
(a) Peregrine Moncreiffe, Chief Executive Officer;
(b) Sharanbir Brijnath, Executive Director;
(c) Richard Webb, Trading Director;
(d) Mark Pearson, Executive Director; and
(e) Jason Hathorn, Executive Director.
The business address of each of the foregoing persons is Buchanan House,
3 St. James's Square, London SW1Y 4JU, England.
None of the persons described in this Item 2, during the last five years,
(a) has been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or (b) was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The Reporting Persons each entered into an Offshore Securities
Subscription Agreement, dated as of October 16, 1996, with Chantal providing
for the purchase, in a Regulation S offering, of an aggregate of $2,000,000
principal amount of 8% Convertible Debentures due September 18, 1998 (the
"Debentures"). The Debentures are convertible into Common Stock of Chantal at
a conversion price equal to the lower of (a) 80% of the average closing bid
price of the Common Stock for the five business days immediately preceding the
date of a Debenture holder's giving notice of conversion or (b) 85% of the
average of the closing bid price of the Common Stock for the five business
days immediately preceding the date of subscription by the Holder as reported
by the National Association of Securities Dealers Automated Quotation System
("NASDAQ"). The Debentures are convertible into shares of Common Stock as to
one-third of the principal amount of each Debenture after 45 days from the
date of issuance (October 30, 1996), an additional one-third after 75 days
from the date of issuance and the balance after 90 days from the date of
issuance. By virtue of the expiration of the conversion limitations and the
decline in the price of Chantal Common Stock, the Reporting Persons may be
deemed to be the beneficial owners of 5% or more of the outstanding shares of
Common Stock of Chantal. On December 18, 1996, each of the Reporting Persons
gave notice of conversion of $330,000 of Debentures, at a then conversion
price of $1.42 per share of Common Stock or 235,654 shares of Common Stock for
each Reporting Person. Chantal has failed to honor the Reporting Persons'
notices of conversion, and accordingly, liquidated damages are due the
Reporting Persons under the terms of the Debentures. As a result of Chantal's
continuing failures to honor the conversion notice and to pay liquidated
damages, upon formal notice and failure to cure, an "Event of Default" will
have occurred under the Debentures and the Reporting Persons may deem the
Debentures immediately due and payable. The Reporting Persons are reviewing
their alternatives in light of the decline of the Common Stock price since the
December 20 conversion notice, the failure of Chantal to honor the conversion
notice, and the failure of Chantal to pay liquidated damages. Such
alternatives include, without limitation, demanding repayment of the
Debentures, seeking to convert the Debentures at current market prices, or
reaching agreement for a negotiated repurchase or restructuring of the
Debentures by Chantal.
The source of the funds used to make the purchases of the Debentures was
working capital and no part of the purchase price was represented by funds or
other consideration specially borrowed or otherwise specifically obtained for
the purpose of acquiring, holding, trading or voting the securities. The
aggregate principal amount of the Debentures held by the Reporting Persons and
the net investment cost of such Debentures was as follows:
Aggregate Net
Name Principal Amount Investment Cost
Buchanan Fund Limited 1,000,000 $1,000,000.00
Buchanan Partners Limited 1,000,000 $1,000,000.00
If the Reporting Persons were to convert the Debentures at the
Conversion Price in effect on July 10, 1997, each of the Reporting Persons
would hold 1,149,425 shares of Common Stock.
Page 5 of 10 Pages
<PAGE>
ITEM 4. PURPOSE OF THE TRANSACTION.
The Reporting Persons acquired the Debentures for investment purposes,
without limiting their ability following conversion to sell the Common Stock
in accordance with Regulation S or pursuant to an effective registration
statement. Under the Offshore Securities Subscription Agreement, the
Reporting Persons have the right to demand the filing of a registration
statement under the Securities Act of 1933, as amended, permitting their
resale of shares of Common Stock received upon conversion, if such resale is
not permitted under Regulation S. As described in Item 3 above, Chantal is in
default under the Debentures, and the Reporting Persons do not currently hold
any shares of Common Stock. Subject to compliance with the applicable
securities laws, if shares of Common Stock are issued upon conversion of the
Debentures, the Reporting Persons may offer and sell Common Stock from time to
time as market conditions permit in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices relating to the then-current
market price, or in negotiated transactions.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
Each of the Reporting Persons gave notice of conversion of one-third of
the principal amount of its Debentures on December 18, 1996 at a conversion
price of $1.42. Chantal has not honored the Reporting Persons' request for
conversion.
The aggregate number and percentage of shares of Common Stock which
would be held by the Reporting Persons upon conversion of the Debentures if
they were converted based on the conversion price in effect on July 10, 1997
is as follows:
Number of Percentage of
Name Common Shares Common Shares
Buchanan Fund Limited 1,149,425 5.6%
Buchanan Partners Limited 1,149,425 5.6%
The Debentures purchased by the Reporting Persons represented $2,000,000
of an aggregate of $5,000,000 of Debentures issued by the Company. The
foregoing percentages assume that none of the other Debentures are converted.
Because of the decline in the share price of the Common Stock and the
expiration of the conversion limitations described above, the Debentures held
by the Reporting Persons are convertible into 5% or more of the Common Stock.
Page 6 of 10 Pages
<PAGE>
Upon conversion at the current share price, the Reporting Persons would
own in the aggregate 2,298,850 of the outstanding shares of Common Stock of
Chantal. Were all the Debentures held by the Reporting Persons and the other
holders thereof converted into Common Stock, Chantal would be required to
issue in excess of the number of its currently authorized but unissued shares.
The approximate aggregate percentage of shares of Common Stock
beneficially owned by the Reporting Persons is based on 18,190,516 shares
outstanding, which is the total number of shares of Common Stock outstanding
as of April 15, 1997, as reflected in Chantal's quarterly report on Form 10-Q
filed with the Securities and Exchange Commission (the "SEC") for the
quarterly period ended March 31, 1997 (which is the most recent Form 10-Q on
file with the SEC.
(b) The power to vote the Common Stock upon conversion of the
Debentures with respect to each Reporting Person noted in paragraph (a) above
is set forth on the cover sheet of the Schedule 13D for each Reporting Person.
Buchanan Partners, because of its equity ownership of Buchanan Capital,
may be deemed to indirectly beneficially own 2,298,850 or 11.2% of the shares
of Common Stock by virtue of Buchanan Capital's investment advisory
relationships with Buchanan Fund and Buchanan Partners, pursuant to which
Buchanan Capital provides discretionary investment advisory services.
(c) The Reporting Persons each acquired 20 Debentures as of October 30,
1996 at a price of $50,000 per Debenture. The Reporting Persons each gave
notice of conversion at a conversion price of $1.42 per share of Common Stock
of one-third of their principal amounts of the Debentures on December 18,
1996. Chantal has not honored these notices of conversion.
(d) Except as set forth above, no other person is known to have the
right to receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, such securities.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
Under Offshore Securities Subscription Agreements between each of the
Reporting Persons and Chantal, dated October 16, 1996, the Reporting Persons
each acquired 20 Debentures at $50,000 per Debenture on October 30, 1996.
Upon conversion of the Reporting Persons' Debentures into Common Stock, the
Reporting Persons would acquire beneficial ownership of more than 4.99% of the
Common Stock. Under the Debentures, the conversion price of a Debenture is
lower of (a) 80% of the average closing bid price of the Common Stock for the
five business days immediately preceding the date of a Debenture holder's
giving notice of conversion or (b) 85% of the average of the closing bid price
of the Common Stock for the five business days immediately preceding the date
of Subscription by the Holder as reported by NASDAQ.
Except as described above and in Items 2 and 5, none of the Reporting
Persons is a party to a contract, arrangement, understanding or relationship
with respect to any securities of Chantal.
Page 7 of 10 Pages
<PAGE>
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Filed herewith as Exhibit I is a written agreement relating to the
filing of joint acquisition statements as required by Rule 13d-1(f)(1) of the
Act.
Filed herewith as Exhibit II is the Subscription Agreement.
Filed herewith as Exhibit III is a Form of Debenture.
Page 8 of 10 Pages
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of our knowledge and belief,
the undersigned certify that the information set forth in this statement is
true, complete and correct.
DATED: July 11, 1997 BUCHANAN FUND LIMITED
By: Buchanan Capital Management Limited
Investment Manager
By: /s/ Jason Hathorn
_________________________________
Jason Hathorn, Executive Director
BUCHANAN PARTNERS LIMITED
By: Buchanan Capital Management Limited
Investment Manager
By: /s/ Jason Hathorn
_________________________________
Jason Hathorn, Executive Director
Page 9 of 10 Pages
EXHIBIT I
----------
JOINT ACQUISITION STATEMENT
PURSUANT TO RULE 13D-1(F)(1)
----------------------------
The undersigned acknowledge and agree that the foregoing statement on Schedule
13D is filed on behalf of each of the undersigned and that all subsequent
amendments to this statement on Schedule 13D shall be filed on behalf of each
of the undersigned without the necessity of filing additional joint
acquisition statements. The undersigned acknowledge that each shall be
responsible for the timely filing of such amendments, and for the completeness
and accuracy of the information concerning it contained therein, but shall not
be responsible for the completeness and accuracy of the information concerning
the others, except to the extent that it knows or has reason to believe that
such information is inaccurate.
DATED: July 11, 1997 BUCHANAN FUND LIMITED
By: Buchanan Capital Management Limited
Investment Manager
By: /s/ Jason Hathorn
_________________________________
Jason Hathorn, Executive Director
BUCHANAN PARTNERS LIMITED
By: Buchanan Capital Management Limited
Investment Manager
By: /s/ Jason Hathorn
_________________________________
Jason Hathorn, Executive Director
Page 10 of 10 Pages
EXHIBIT II
----------
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of 16 October,
1996 (the "Agreement"), is executed in reliance upon the exemption from
registration afforded by Regulation S ("Regulation S") as promulgated by the
Securities and Exchange Commission ("SEC"), under the Securities Act of 1933,
as amended. Capitalized terms used herein and not defined shall have the
meanings given to them in Regulation S.
This Agreement has been executed by the undersigned "Buyer" in connection
with the private placement of 8.0% Convertible Debentures of Chantal
Pharmaceutical Corporation, a corporation organized under the laws of Delaware,
with its principal executive offices located at 12121 Wilshire Blvd, Suite 120,
Los Angeles, CA 90025 (hereinafter referred to as "Seller"). Buyer hereby
represents and warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"),
AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN
REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF
U.S. PERSONS (AS DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT
PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
1. Agreement To Subscribe; Purchase Price.
--------------------------------------
(a) Subscription. The undersigned Buyer hereby subscribes for
and agrees to purchase the Sellers 8.0% Convertible Debentures substantially in
the form of the Debentures attached as Exhibit A hereto and having an aggregate
original principal amount of U.S. $5,000,000 (singly, a "Debenture," and
collectively, the "Debentures"), at an aggregate purchase price as set forth in
subscription (b) herein.
(b) Payment. The Purchase Price for the Buyer's portion of the
Debentures shall be One Million United States Dollars (U.S. $1,000,000) (the
"Purchase Price"), which shall be payable at each closing pursuant to paragraph
C herein by delivering immediately available funds in United States Dollars by
wire transfer to the designated depository Barry Globerman, Esq. as Escrow
Agent ("Escrow Agent") for closing by delivery of securities versus payment.
(c) Closing. Subject to the satisfaction of the conditions set
forth in Sections 7 and 8 hereof, the closing of the transactions contemplated
by this Agreement shall occur from time to time in denominations of not less
than $50,000 but in any event on or before October 20, 1996, or such earlier or
later date as is mutually agreed to in writing by Buyer and Seller.
2. Buyer Representations and Covenants; Access to Information.
----------------------------------------------------------
<PAGE>
Offshore Transaction. In connection with the purchase and sale of
the Debentures, Buyer represents and warrants to, and covenants and agrees with
Seller as follows:
(i) Buyer is not a natural person and is not
organized under the laws of any jurisdiction within the United
States, was not formed by a U.S. Person (as defined in Section
902(o) of Regulation S) for the purpose of investing in Regulation
S securities and is not otherwise a U.S. Person. Buyer is not, and
on the closing date will not be, an affiliate of Seller;
(ii) At the time the buy order was originated, Buyer
was outside the United States and is outside of the United States
as of the date of the execution and delivery of this Agreement;
(iii) No offer to purchase the Debentures or the
common stock of Seller issuable upon conversion of the Debentures
(collectively, the "Securities"), was made by Buyer in the United
States;
(iv) Buyer is purchasing the Securities for its own
account and Buyer is qualified to purchase the Securities under the
laws of its jurisdiction of residence, and the offer and sale of
the Securities will not violate the securities or other laws of
such jurisdiction.
(v) All offers and sales of any of the Securities by
Buyer prior to the end of the Restricted Period (as hereinafter
defined) shall be made in compliance with any applicable securities
laws of any applicable jurisdiction and in accordance with Rule 903
and 904, as applicable, of Regulation S or pursuant to registration
of securities under the 1933 Act or pursuant to an exemption from
registration. In any case, none of the Securities have been and
will be offered or sold by Buyer to, or for the account or benefit
of, a U.S. Person or within the United States until after the end
of the forty (40) day period commencing on the later of (x) the
date of closing of the offering of the Securities or (y) the date
of the first offer of the Securities to persons other than
distributors (the "Restricted Period"), as certified by Buyer to
Seller, and thereafter only pursuant to a Registration Statement or
an applicable exemption therefrom;
(vi) The transactions contemplated by this Agreement
(a) have not been and will not be pre-arranged by Buyer with a
purchaser located in the United States or a purchaser which is a
U.S. Person, and (b) are not and will not be part of a plan or
scheme by Buyer, to evade the registration provisions of the 1933
Act;
(vii) Buyer understands that the Securities are not
registered under the 1933 Act and are being offered and sold to it
<PAGE>
in reliance on specific exclusions from the registration
requirements of Federal and State securities laws, and that Seller
is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of Buyer
set forth herein in order to determine the applicability of such
exclusions and the suitability of Buyer and any purchaser from
Buyer to acquire the Securities;
(viii) Buyer shall take all reasonable steps to ensure
its compliance with Regulation S and shall promptly send to each
purchaser who acts as a distributor, dealer or a person receiving a
selling concession, fee or other remuneration in respect of any of
the Securities, who purchases prior to the expiration of the
Restricted Period referred to in subparagraph (v) above, a
confirmation or other notice to the purchaser stating that the
purchaser is subject to the same restrictions on offers and sales
as Buyer pursuant to Section 901(c)(2)(iv) of Regulation S;
(ix) Buyer has not conducted and shall not conduct
any "directed selling efforts" as that term is defined in Rule
902(b) of Regulation S; nor has Buyer conducted any general
solicitation relating to the offer and sale of any of the
Securities in the United States or elsewhere;
(x) This Agreement has been duly authorized, validly
executed and delivered on behalf of Buyer and is a valid and
binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
(xi) The execution and delivery of this Agreement and
the consummation of the purchase of the Securities, and the
transactions contemplated by this Agreement do not and will not
conflict with or result in a breach by Buyer of any of the terms or
provisions of, or constitute a default under, the articles of
incorporation or by-laws (or similar constitutive documents) of
Buyer or any indenture, mortgage, deed of trust, or other material
agreement or instrument to which Buyer is a party or by which it or
any of its properties or assets are bound, or any existing
applicable law, rule or regulation of the United States or any
State thereof or any applicable decree, judgment or order of any
Federal or State court, Federal or State regulatory body,
administrative agency or other United States governmental body
having jurisdiction over Buyer or any of its properties or assets;
(xii) All invitations, offers and sales of or in
respect of, any of the Securities, by Buyer and any distribution by
Buyer of any documents relating to any offer by it of any of the
Securities will be in compliance with applicable laws and
regulations and will be made in such a manner that no prospectus
need be filed and no other filing need be made by Seller with any
<PAGE>
regulatory authority or stock exchange in any country or any
political sub-division of any country;
(xiii) Buyer will not make any offer or sale of the
Securities by any means which would not comply with the laws and
regulations of the territory in which such offer or sale takes
place or to which such offer or sale is subject or which would in
connection with any such offer or sale impose upon Seller any
obligation to satisfy any public filing or registration requirement
or provide or publish any information of any kind whatsoever or
otherwise undertake or become obligated to do any act; and
(xiv) Neither the Buyer nor any of its affiliates has
entered, has the intention of entering, or will during the
Restricted Period enter into any put option, short position or
other similar instrument or position with respect to any of the
Securities or securities of the same class as the Securities.
(xv) The Buyer (or others for whom it is contracting
hereunder) has been advised to consult its own legal and tax
advisors with respect to applicable resale restrictions and
applicable tax considerations and it (or others for whom it is
contracting hereunder) is solely responsible (and the Seller is not
in any way responsible) for compliance with applicable resale
restrictions and applicable tax legislation.
(xvi) No Government Recommendation or Approval. Buyer
understands that no Federal or State or foreign government agency
has passed on or made any recommendation or endorsement of the
Securities.
(xvii) Current Public Information. Buyer acknowledges
that it and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of
Seller and all materials relating to the offer and sale of the
Securities, in each case which have been requested by Buyer. Buyer
further acknowledges that it and its advisors, if any, have
received complete and satisfactory answers to such inquiries.
(xviii) Buyer's Sophistication. Buyer acknowledges
that the purchase of the Securities involves a high degree of risk,
including the total loss of Buyer's investment. Buyer has such
knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of purchasing the
Securities.
(xix) Tax Status. Buyer is not a "10-percent
Shareholder" (as defined in Section 871(h)(3)(B) of the U.S.
Internal Revenue Code) of Seller.
<PAGE>
3. Seller Representations and Covenants.
------------------------------------
(a) Reporting Company Status. Seller is a "Reporting Issuer" as
defined by Rule 902 of Regulation S. Seller has registered its Common Stock,
no par value per share (the "Common Stock"), pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Common Stock is listed and trades on NASDAQ. Seller has filed all material
required to be filed pursuant to all reporting obligations under either Section
13(a) or 15(d) of the Exchange Act for a period of at least twelve (12) months
immediately preceding the offer or sale of the Securities (or for such shorter
period that Seller has been required to file such material).
(b) Current Public Information. Seller has furnished Buyer with
copies of its most recent reports, as amended, filed under the Exchange Act
referred to in Section 3(a) above, and such other publicly available documents
as requested by Buyer.
(c) Offshore Transaction. Seller has not offered any of the
Securities to any person in the United States, any identifiable groups of U.S.
citizens abroad, or to any U.S. Person, as such terms are used in Regulation S.
(i) At the time the buy order was originated, Seller
and/or its agents reasonably believe the Buyer was outside of the
United States and was not a U.S. person, based on the
representations of Buyer.
(ii) Seller and/or its agents reasonably believe that the
transaction has not been pre-arranged with a buyer in the United
States, based on the representations of Buyer.
(iii) No offer to buy or sell the Securities was or will
be made by Seller to any person in the United States.
(iv) The sale of the Securities by Seller pursuant to
this Agreement will be made in accordance with the provisions and
requirements of Regulation S provided that the representations and
warranties of Buyer in Section 2(a) hereof are true and correct.
(v) The transactions contemplated by this Agreement (a)
have not been and will not be pre-arranged by Seller with a
purchaser located in the United States or a purchaser which is a
U.S. Person, and (b) are not and will not be a part of a plan or
scheme by Seller to evade the registration provisions of the 1933
Act.
(d) No Directed Selling Efforts. In regard to this transaction,
Seller has not conducted any "directed selling efforts" as that term is defined
in Rule 902 of Regulation S nor has Seller conducted any general solicitation
relating to the offer and sale of any of the Securities in the United States or
elsewhere.
<PAGE>
(e) Concerning the Securities. The issuance, sale and delivery
of the Debentures have been duly authorized by all required corporate action on
the part of Seller, and when issued, sold and delivered in accordance with the
terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued, fully paid and non-assessable. The Common
Stock issuable upon conversion of the Debenture has been duly and validly
reserved for issance and, upon issuance in accordance with the terms of the
Debentures, shall be duly and validly issued, fully paid, and non-assessable
and will not subject the holders thereof, if such persons are non-U.S. persons,
to personal liability by reason of being such holders. There are no pre-
emptive rights of any shareholder of Seller.
(f) Subscription Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(g) Non-contravention. The execution and delivery of this
Agreement and the consummation of the issuance of the Securities and the
transactions contemplated by this Agreement do not and will not conflict with
or result in a breach by Seller of any of the terms or provisions of, or
constitute a default under, the articles of incorporation or by-laws of Seller,
or any indenture, mortgage, deed of trust, or other material agreement or
instrument to which Seller is a party or by which it or any of its properties
or assets are bound, or any existing applicable law, rule or regulation of the
United States or any State thereof or any applicable decree, judgment or order
of any Federal or State court, Federal or State regulatory body, administrative
agency or other United States governmental body having jurisdiction over Seller
or any of its properties or assets.
(h) Approvals. Seller is not aware of any authorization,
approval or consent of any governmental body which is legally required for the
issuance and sale of the Debentures and the Common Stock issuable upon
conversion thereof to persons who are non-U.S. Persons, as contemplated by this
Agreement.
4. Exemption; Reliance on Representations. Buyer understands that the
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offer and sale of the Securities are not being registered under the 1933 Act.
Seller and Buyer are relying on the rules governing offers and sales made
outside the United States pursuant to Regulation S.
5. Transfer Agent Instructions.
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(a) Debentures. Upon the conversion of the Debentures, the
holder thereof shall submit such Debenture with a notice of conversion to the
Seller and the Seller shall instruct Seller's transfer agent to issue one or
more Certificates representing that number of share of Common Stock into which
the Debenture or Debentures are convertible in accordance with the provisions
regarding conversion set forth in Exhibit A hereto. The Seller or its
<PAGE>
designees shall act as Debenture Registrar and shall maintain an appropriate
ledger containing the necessary information with respect to each Debenture.
(c) Common Stock to be Issued Without Restrictive Legend. Upon
the conversion of any Debenture by a person who is a non-U.S. Person, Seller
shall instruct Seller's transfer agent to issue Stock Certificates without
restrictive legend in the name of Buyer (or its nominee (being a non-U.S.
Person) or such non-U.S. Persons as may be designated by Buyer prior to the
closing) and in such denominations to be specified at conversion representing
the number of shares of Common Stock issuable upon such conversion, as
applicable. Seller warrants that no instructions other than these instructions
and instructions to impose a "stop transfer" instruction with respect to the
certificates until the end of the Restricted Period have been given or will be
given to the transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of Seller. Nothing in this Section 5,
however, shall affect in any way Buyer's or such nominee's obligations and
agreements to comply with all applicable securities laws upon resale of the
Securities.
6. Registration. If upon conversion of Debentures effected by the
------------
Buyer pursuant to the terms of this Agreement the Company fails to issue
certificates for shares of Common Stock issuable upon such conversion (the
"Underlying Shares") to the Buyer bearing no restrictive legend for any reason
other than the Company's reasonable good faith belief that the representations
and warranties made by the Buyer in this Agreement or the Notice of Conversion
were untrue when made, or if the restricted period under Regulation S is
extended, then the Company shall be required, at the request of the Buyer and
at the Company's expense, to effect the registration of the Underlying Shares
issuable upon conversion of the Debentures under the Act and relevant Blue Sky
laws as promptly as is practicable. The Company and the Buyer shall cooperate
in good faith in connection with the furnishing of information required for
such registration and the taking of such other actions as may be legally or
commercially necessary in order to effect such registration. The Company shall
file a registration statement within 45 days of Buyer's demand therefor and
shall use its best efforts to cause such registration statement to become
effective as soon as practicable thereafter. Such best efforts shall include,
but not be limited to, promptly responding to all comments received from the
staff of the Securities and Exchange Commission, providing Buyer's counsel with
a contemporaneous copy of all written communications from and to the staff of
the Securities and Exchange Commission with respect to such registration
statement and promptly preparing and filing amendments to such registration
statement which are responsive to the comments received from the staff of the
Securities and Exchange Commission. Once declared effective by the Securities
and Exchange Commission, the Company shall cause such registration statement to
remain effective until the earlier of (i) the sale by the Buyer of all
Underlying Shares registered or (ii) 120 days after the effective date of such
registration statement. The foregoing shall not in any way limit Buyer's
rights in connection with the Common Stock pursuant to Regulation S.
7. Delivery Instructions. The Debentures being purchased hereunder
---------------------
<PAGE>
shall be delivered to the Buyer at such time and place as shall be mutually
agreed by Seller and Buyer.
8. Conditions to Seller's Obligation To Sell. Seller's obligation to
-----------------------------------------
sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Buyer of this Agreement as
evidenced by execution of this Agreement by Buyer.
(b) Delivery into the closing depository of good funds by Buyer
as payment in full of the purchase price of the Debentures.
9. Conditions To Buyer's Obligation To Purchase. Buyer's obligation
--------------------------------------------
to purchase the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as
evidenced by execution of this Agreement by the duly authorized officer of
Seller.
(b) Delivery of the Debentures as described herein.
10. Offering Materials. All offering materials and documents used in
------------------
connection with offers and sales of the Securities prior to the expiration of
the Restricted Period referred to in Section 2(v) hereof shall include
statements to the effect that the Securities have not been registered under the
1933 Act or applicable state securities laws, and that neither Buyer, nor any
direct or indirect purchaser of the Securities from Buyer, may directly or
indirectly offer or sell the Securities in the United States or to U.S. Persons
(other than distributors) unless that Securities are registered under the 1933
Act any applicable state securities laws, or any exemption from the
registration requirements of the 1933 Act or such state securities laws is
available. Such statements shall appear (1) on the cover of any prospectus or
offering circular used in connection with the offer or sale of the Securities,
(2) in the underwriting section of any prospectus or offering circular used in
connection with the offer or sale of the Securities, and (3) in any
advertisement made or issued by Seller, Buyer, any other distributor, any of
their respective affiliates, or any person acting on behalf of any of the
foregoing.
11. No Shareholder Approval. Seller hereby agrees that from the
-----------------------
Closing Date until the issuance of Common Stock upon the conversion of the
Debentures, Seller will not take any action which would require Seller to seek
shareholder approval of such issuance unless such shareholder approval is
required by law or regulatory body (including but not limited to the NASDAQ
Stock Market, Inc.) as a result of the issuance of the Securities hereunder.
<PAGE>
12. Miscellaneous.
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(a) Except as specifically referenced herein, this Agreement
constitutes the entire contract between the parties, and neither party shall be
liable or bound to the other in any manner by any warranties, representations
or covenants except as specifically set forth herein. Any previous agreement
among the parties related to the transactions described herein is superseded
hereby. The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
hereto. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor, and is not the agent of
Seller. Buyer is not authorized to bind Seller, or to make any representations
or warranties on behalf of Seller.
(c) Seller makes no representations or warranty with respect to
Seller, its finances, assets, business prospects or otherwise. Buyer will
advise each purchaser, if any, and potential purchaser of the Securities, of
the foregoing sentence, and that such purchaser is relying on its own
investigation with respect to all such matters, and that such purchaser will be
given access to any and all documents and Seller personnel as it may reasonably
request for such investigation.
(d) All representations and warranties contained in this
Agreement by Seller and Buyer shall survive the closing of the transactions
contemplated by this Agreement.
(e) This Agreement shall be construed in accordance with the
laws of California and shall be binding upon the successors and assigns of each
party hereto. This Agreement may be executed in counterparts, and the
facsimile transmission of an executed counterpart to this Agreement shall be
effective as an original.
(f) Buyer agrees to indemnify and hold Seller harmless from any
and all claims, damages and liabilities arising from Buyer's breach of its
representations and/or covenants set forth herein.
[The remainder of this page is intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first set forth above.
Official Signatory of Seller:
----------------------------
Chantal Pharmaceutical Corporation
By:
-------------------------------
Title:
-----------------------------
Official Signatory of Buyer:
---------------------------
---------------------------
By:
-------------------------------
Title:
-----------------------------
Address of Buyer:
EXHIBIT III
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FORM OF DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN
REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO REGISTRATION
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE ACT AND APPLICABLE STATE SECURITIES LAWS.
No._______ US $_____________
CHANTAL PHARMACEUTICAL CORPORATION
8.0% CONVERTIBLE DEBENTURE DUE SEPTEMBER 30, 1998
THIS DEBENTURE is one of a duly authorized issue of Debentures of Chantal
Pharmaceutical Corporation, a corporation duly organized and existing under
the laws of Delaware (the "Company") designated as its 8.0% Convertible
Debenture Due September 30, 1998, in an aggregate principal amount not
exceeding Five Million Dollars (U.S. $5,000,000).
FOR VALUE RECEIVED, the Company promises to pay to ____________________
the registered holder hereof and its successors and assigns (the "Holder"),
the principal sum of ______________________ Dollars (US $_____________) on
September 30, 1998 (the "Maturity Date"), and to pay interest on the principal
sum outstanding at the rate of 8% per annum due and payable quarterly in
arrears. Accrual of interest shall commence on the date hereof and shall
continue until payment in full of the outstanding principal sum has been made
or duly provided for. The interest so payable will be paid to the person in
whose name this Debenture (or one or more predecessor Debentures) is
registered on the records of the Company regarding registration and transfers
of the Debentures (the "Debenture Register"); provided, however, that the
Company's obligation to a transferee of this Debenture arises only if such
transfer, sale or other disposition is made in accordance with the terms and
conditions of the Offshore Securities Subscription Agreement dated as of
______________ between the Company and ________________________________ (the
"Subscription Agreement"). The principal of, and interest on, this Debenture
are payable in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts, at
the address last appearing on the Debenture Register of the Company as
designated in writing by the Holder hereof from time to time. The Company
will pay the outstanding principal of and all accrued and unpaid interest due
upon this Debenture on the Maturity Date, less any amounts required by law to
be deducted or withheld, to the Holder of this Debenture as of the tenth
(10th) day prior to the Maturity Date and addressed to such record Holder at
the last address appearing on the Debenture Register. The forwarding of such
check shall constitute a payment of outstanding principal and interest
hereunder and shall satisfy and discharge the liability for principal and
interest on this Debenture to the extent of the sum represented by such check
plus any amounts so deducted.
<PAGE>
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Fifty Thousand
Dollars (US$50,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of
different authorized denominations, as requested by the Holders surrendering
the same but not less than U.S. $50,000. No service charge will be made for
such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the U.S. only in compliance with the Securities Act of 1933, as
amended (the "Act") and applicable state securities laws. Prior to due
presentment for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or
not this Debenture be overdue, and neither the Company nor any such agent
shall be affected or bound by notice to the contrary. Any holder of this
Debenture, electing to exercise the right of conversion set forth in Section
4(a) hereof, in addition to the requirements set forth in Section 4(a), is
also required to give the Company (i) written confirmation that it is not a
U.S. Person and the Debenture is not being converted on behalf of a U.S.
Person ("Notice of Conversion") or (ii) an opinion of U.S. counsel to the
effect that the Debenture and shares of common stock issuable upon conversion
thereof have been registered under the 1933 Act or are exempt from such
registration. In the event a Notice of Conversion or opinion of counsel is
not provided the Holder hereof will not be entitled to exercise the right to
convert the Debentures pursuant to Section 4(a) herein.
4. (a) The Holder of this Debenture is entitled, at its option,
at any time commencing 45 days after issue hereof to convert up to 1/3 of the
original principal amount of this Debenture; and after 75 days to convert up
to 2/3rd of the original principal amount of this Debenture; and after 90 days
to convert any or all of the original principal amount of this Debenture into
shares of common stock, $0.01 par value per share, of the Company (the "Common
Stock"), at a conversion price for each share of Common Stock equal to the
lower of (a) 80% of the average closing bid price of the Common Stock for the
five (5) business days immediately preceding the conversion date or (b) 85% of
the average of the closing bid price of the Common Stock for the five (5)
business days immediately preceding the date of Subscription by the Holder as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") (the "Conversion Price"). Such conversion shall be
effectuated by surrendering the Debentures to be converted to the Company with
the form of conversion notice attached hereto as Exhibit I, executed by the
Holder of this Debenture evidencing such Holder's intention to convert this
<PAGE 2>
Debenture or a specified portion (as above provided) hereof, and accompanied
by proper assignment hereof in blank. Accrued but unpaid interest shall be
subject to conversion at the option of the Company. No fractional shares or
scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest whole share, with
the fraction paid in cash at the discretion of the Company. The date on which
notice of conversion is given shall be deemed to be the date on which the
Holder has delivered this Debenture, with the conversion notice duly executed,
to the Company or, if earlier, the date set forth in such notice of conversion
if the Debenture is received by the Company within five (5) business days
thereafter.
(b) Notwithstanding the provisions of paragraph 4(a) hereof, the
Company is entitled, at its option, to redeem part or all of the Debentures
being converted by paying to the holder the product of (i) the average market
price for the 5 consecutive trading days as reported by NASDAQ prior to the
Notice of Conversion, and (ii) the higher number of shares of Common Stock
that would be issuable for such Debentures pursuant to the calculations in
paragraph 4(a). Such payment shall include accrued interest to such date, and
shall be less any amounts required by law to be deducted or withheld. Such
payment shall be made by delivering immediately available funds in United
States Dollars by wire transfer to the Holder, or if no wiring instructions
have been provided to the Company, by cashier's or certified check to the last
address of Holder appearing on the Debenture Register, within 5 days of the
date of the Company's giving notice to the holder of the Company's intention
to redeem all or part of the Debentures. The wiring of such funds or the
forwarding of such check shall constitute a payment of principal and interest
hereunder and shall automatically satisfy and discharge the liability for
principal and interest on this Debenture to the extent of the sum represented
by such wire or check plus any amount so deducted. Company shall notify
Holder of its intent to redeem within 2 days of receipt of the Notice of
Conversion.
5. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Debenture at the time, place and rate, and
in the coin currency, herein prescribed.
6. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, bringing of suit and diligence
in taking any action to collect amounts called for hereunder and shall be
directly and primarily liable for the payment of all sums owing and to be
owing hereon, regardless of and without any notice, diligence, act or omission
as or with respect to the collection of any amount called for hereunder.
7. The Company agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8. If one or more of the following described "Events of Default"
shall occur:
<PAGE 3>
(a) The Company shall default in the payment of principal or
interest on this Debenture; or
(b) Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in any
certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of
this Debenture or the Subscription Agreement shall be
false or misleading in any material respect at the time
made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision,
condition, agreement or obligation of the Company under
this Debenture and such failure shall continue uncured for
a period of seven (7) days after notice from the Holder of
such failure including, but not limited to, failure to
issue the Common Stock upon conversion of this Debenture
pursuant to paragraph 4(a) hereof; or
(d) The Company shall (1) become insolvent; (2) admit in
writing its liability to pay its debts generally as they
mature; (3) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or
(4) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part
of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or
business without its consent and shall not be discharged
within sixty (60) days after such appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of
the Company and shall not be dismissed within sixty (60)
days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process in excess of Three Hundred Thousand
($300,000) Dollars in the aggregate shall be entered or
filed against the Company or any of its properties or
other assets and shall remain unpaid, unvacated, unbonded
or unstayed for a period of thirty (30) days or in any
event later than five (5) days prior to the date of any
proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed
within sixty (60) days after such instruction of the
Company shall by any action or answer approve of, consent
to, or acquiesce in any such proceedings or admit the
material allegations of, or default in answering a
petition filed in any such proceeding; or
(i) The Company shall have its Common Stock delisted from an
exchange or over-the-counter market.
Then, or at any time thereafter, and in each and every such case, as long as
such Event of Default is continuing unless such Event of Default shall have
been waived in writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the Holder and in the
Holder's sole discretion, the Holder may consider this Debenture immediately
due and payable, without presentment, demand, protest or notice of any kinds,
all of which are hereby expressly waived, anything herein or in any note or
other instruments contained to the contrary notwithstanding, and the Holder
may immediately, and without expiration of any period of grace, enforce any
and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law.
9. This Debenture represents a general unsecured obligation of
the Company. No recourse shall be had for the payment of the principal, or
the interest on, this Debenture, or for any claim based hereon, or otherwise
in respect hereof, against any incorporator, shareholder, officer or director,
as such, past present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
10. The Holder of this Debenture, by acceptance hereof, agrees
that this Debenture is being acquired for investment and that such Holder will
not offer, sell or otherwise dispose of this Debenture or the Shares of Common
Stock issuable upon exercise thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky law or
similar laws relating to the sale of securities.
11. In case any provision of this Debenture is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
12. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement between
the Company and the Holder with respect to the subject hereof. Neither this
Debenture nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and the Holder.
13. This Debenture shall be governed by and construed in
accordance with the laws of California.
14. As set forth herein, the Company shall use all reasonable
efforts to issue and deliver, within three business days after the Holder has
fulfilled all conditions and submitted all necessary documents duly executed
and in proper form required for conversion (the "Deadline"), to the Holder or
any party receiving a Debenture by transfer from the Holder (together, a
"Holder"), at the address of the Holder on the books of the Company, a
certificate or certificate for the number of Shares of Common Stock to which
the Holder shall be entitled. The Company understands that a delay in the
issuance of the Shares of Common Stock beyond the Deadline could result in
economic loss to the Holder. As compensation to the Holder for such loss, the
Company agrees to pay liquidated damages to the Holder for late issuance of
Shares upon conversion in accordance with the following schedule (where "No.
Business Days Late" is defined as the number of business days beyond seven (7)
days from the date of receipt by the Company of a Notice of Conversion and the
transfer agent of all necessary documentation duly executed and in proper form
required for conversion, including the original Debenture to be converted, all
in accordance with the Debenture, Subscription Agreement and the requirements
of the transfer agent):
No. Business Days Late Liquidated Damages
---------------------- ------------------
1 $500
2 $1,000
3 $1,500
4 $2,000
5 $2,500
6 $3,000
7 $3,500
8 $4,000
9 $4,500
10 $5,000
10 $5,500 + $1,000 each
Business Day Late beyond 10 days
The Company shall pay the Holder any liquidated damages incurred under
this Section by check upon the earlier to occur of (i) issuance of the Shares
to the Holder or (ii) each monthly anniversary of the receipt of the Company
of such Holder's Notice of Conversion. Nothing herein shall limit the
Holder's right to pursue actual damages for the Company's failure to issue and
deliver shares of Common Stock to the Subscriber in accordance with the terms
of the Debenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated:________________________
CHANTAL PHARMACEUTICAL CORPORATION
By:_______________________________
Title:____________________________
