THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND IS
BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD
OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS.
8% CONVERTIBLE DEBENTURE
COMPANY: Thinka Weight-Loss Corporation
COMPANY ADDRESS: 00000 Xxx Xxxxxx Xxx., Xxxxx 0000, Xxxxxx, XX 00000
MATURITY DATE: January 29, 2005
PRINCIPAL AMOUNT: $300,000
Thinka Weight-Loss Corporation, a Nevada corporation, and any successor or
resulting corporation by way of merger, consolidation, sale or exchange of all
or substantially all of the assets or otherwise (the "COMPANY"), for value
received, hereby promises to pay to the Holder (as such term is hereinafter
defined), or such other Person (as such term is hereinafter defined) upon order
of the Holder, on January 29, 2005 (the "MATURITY DATE"), the principal sum of
three hundred thousand dollars ($300,000), as such sum may be adjusted pursuant
to Article 3, and to pay interest on the Principal Amount (as such term is
hereinafter defined) from the date such Principal Amount is received by the
Company, monthly in arrears, on the 15th day of each month (each an "INTEREST
PAYMENT DUE DATE" and collectively, the "INTEREST PAYMENT DUE DATES"),
commencing on March 15, 2003, at the rate eight percent (8%) per annum (the
"DEBENTURE INTEREST RATE"), until the Principal Amount of this Debenture has
been paid in full. All interest payable on the Principal Amount of this
Debenture shall be calculated on the basis of a 360-day year for the actual
number of days elapsed. Payment of interest on this Debenture shall be in cash.
This Debenture may not be prepaid without the written consent of the Holder.
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever used in
-----------
this Debenture have the following respective meanings:
(i) "AFFILIATE" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
(ii) "BANKRUPTCY CODE" means the United States Bankruptcy Code of
1986, as amended (11 U.S.C. Sec. 101 et. seq.).
--
(iii) "BUSINESS DAY" means a day other than Saturday, Sunday or
any day on which banks located in the State of California are authorized or
obligated to close.
(iv) "CAPITAL SHARES" means the Common Stock and any other shares
of any other class or series of capital stock, whether now or hereafter
authorized and however designated, which have the right to participate in the
distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Company.
(v) "CLOSING DATE" means January 29, 2003.
(vi) "COMMON SHARES" or "COMMON STOCK" means shares of the
Company's Common Stock.
(vii) "COMMON STOCK ISSUED AT CONVERSION", when used with reference
to the securities deliverable upon conversion of this Debenture, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which this Debenture hereafter shall have been changed or
substituted, whether now or hereafter created and however designated.
(viii) "CONVERSION" or "CONVERSION" means the repayment by the
Company of the Principal Amount of this Debenture (and, to the extent the Holder
elects as permitted by Section 3.1, accrued and unpaid interest thereon) by the
delivery of Common Stock on the terms provided in Section 3.2, and "CONVERT,"
"CONVENED," "CONVERTIBLE" and like words shall have a corresponding meaning.
(ix) "CONVERSION DATE" means any day on which all or any portion of
the Principal Amount of this Debenture is converted in accordance with the
provisions hereof.
(x) "CONVERSION NOTICE" means a written notice of conversion
substantially in the form annexed hereto as Exhibit A.
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(xi) "CONVERSION PRICE" on any date of determination means the
applicable price for the conversion of this Debenture into Common Shares on such
day as set forth in Section 3.1(a).
(xii) "CURRENT MARKET PRICE" on any date of determination means
the closing price of a Common Share on such day as reported on the NASDAQ OTCBB
Exchange; provided that, if such security is not listed or admitted to trading
--------
on the NASDAQ OTCBB, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing bid price of such security
on the over-the-counter market on the day in question as reported by Bloomberg
LP or a similar generally accepted reporting service, as the case may be.
(xiii) "DEADLINE" means the date that is the 130th day from the
Closing Date; provided, however, the Deadline shall be extended by such time as
is necessary for the Company to respond to comments by the SEC so long as the
Company files the appropriate registration statement within 30 days of the
Closing Date and thereafter responds to all SEC comments within 10 business days
of receipt thereof.
2
(xiv) "DEBENTURE" or "DEBENTURES" means this 8% Convertible
Debenture of the Company or such other convertible debenture(s) exchanged
therefor as provided in Section 2.1.
(xv) "DISCOUNT MULTIPLIER" has the meaning set forth in Section
3.1(a).
(xvi) "EVENT OF DEFAULT" has the meaning set forth in Section 6.1.
(xvii) "HOLDER" means La Jolla Cove Investors, Inc.
(xviii) "INTEREST PAYMENT DUE DATE" has the meaning set forth in the
opening paragraph of this Debenture.
(xix) "MARKET DISRUPTION EVENT" means any event that results in a
material suspension or limitation of trading of the Common Shares.
(xx) "MARKET PRICE" per Common Share means the lowest price of the
Common Shares during any Trading Day as reported on the NASDAQ OTCBB; provided
--------
that, if such security is not listed or admitted to trading on the NASDAQ OTCBB,
as reported on the principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange or
quotation system, the lowest price of the Common Shares during any Trading Day
on the over-the-counter market as reported by Bloomberg LP or a similar
generally accepted reporting service, as the case may be.
(xxi) "MAXIMUM RATE" has the meaning set forth in Section 6.3.
(xxii) "OUTSTANDING" when used with reference to Common Shares or
Capital Shares (collectively, "Shares") means, on any date of determination, all
issued and outstanding Shares, and includes all such Shares issuable in respect
of outstanding scrip or any certificates representing fractional interests in
such Shares; provided, however, that any such Shares owned or held in treasury
--------- -------
by the Company or by or for the benefit of any Subsidiary of the Company shall
not be deemed "Outstanding" for purposes hereof.
(xxiii) "PERSON" means an individual, a corporation, apartnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(xxiv) "PRINCIPAL AMOUNT" means, for any date of calculation, the
principal sum set forth in the first paragraph of this Debenture (but only such
principal amount as to which the Holder has (a) actually advanced pursuant to
the Securities Purchase Agreement (b) not
3
theretofore furnished a Conversion Notice in compliance with Section 3.2).
(xxv) "REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement of even date herewith by and between the Company
and Holder, as the same may be amended from time to time.
(xxvi) "SEC" means the United States Securities and Exchange
Commission.
(xxvii) "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as in effect at the
time.
(xxviii) "SECURITIES PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement of even date herewith by and among the Company and Holder, as
the same may be amended from time to time.
(xxix) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Company.
(xxx) "TRADING DAY" means any day on which (i) purchases and sales
of securities on the principal national security exchange or quotation system on
which the Common Shares are traded are reported thereon, or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, as reported by Bloomberg LP or a similar generally accepted reporting
service, as the case may be, (ii) at least one bid for the trading of Common
Shares is reported and (iii) no Market Disruption Event occurs.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
EXCHANGES, TRANSFER AND OPTIONAL REDEMPTION
SECTION 2.1 Exchange of Debentures. This Debenture, when presented for
----------------------
registration of transfer, shall (if so required by the Company) be duly
endorsed, or be accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company duly executed, by the Holder duly
authorized in writing.
SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of
-----------------------------------------
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Debenture and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Debenture, the Company shall make, issue and deliver, in
lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture of
like tenor and unpaid Principal Amount dated as of the date hereof (which shall
accrue interest from the most recent Interest Payment Due Date on which an
interest payment was made in full). This Debenture shall be held and owned upon
the express condition that the provisions of this Section 2.2 are exclusive
4
with respect to the replacement of a mutilated, destroyed, lost or stolen
Debenture and shall preclude any and all other rights and remedies
notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement of negotiable instruments or other securities
without the surrender thereof.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the Person
-------------------------
in whose name this Debenture shall be registered upon the registry books of the
Company to be, and may treat it as, the absolute owner of this Debenture
(whether or not this Debenture shall be overdue) for the purpose of receiving
payment of or on account of the Principal Amount of this Debenture, for the
conversion of this Debenture and for all other purposes, and the Company shall
not be affected by any notice to the contrary. All such payments and such
conversions shall be valid and effectual to satisfy and discharge the liability
upon this Debenture to the extent of the sum or sums so paid or the conversion
or conversions so made.
SECTION 2.4 Repayment at Maturity. At the Maturity Date, the Company
-----------------------
shall repay the outstanding Principal Amount of this Debenture in whole in cash,
together with all accrued and unpaid interest thereon, in cash, to the Maturity
Date.
ARTICLE 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price; Valuation Event. (a) At the
---------------------------------------------
option of the Holder, this Debenture may be converted, either in whole or in
part, up to the full Principal Amount hereof (in increments of $1,000 in
Principal Amount) into Common Shares (calculated as to each such conversion to
the nearest 1/100th of a share), at any time and from time to time on any
Business Day, subject to compliance with Section 3.2. The number of Common
Shares into which this Debenture may be converted is equal to (i) the Principal
Amount of the Debenture being converted at the Conversion Date (plus, at the
option of the Holder, any accrued and unpaid interest on the Debenture being
converted through the Conversion Date) divided by (ii) the Conversion Price. In
addition, the Company shall pay to the Holder on the Conversion Date, in cash,
any accrued and unpaid interest on the Debenture being converted not included at
the option of the Holder in clause (i) of the immediately preceding sentence.
The "CONVERSION PRICE" shall be equal to the lesser of (i) $0.20, or (ii) eighty
percent (80%) of the lowest Market Price during the twenty (20) Trading Days
prior to Holder's election to convert (a "DISCOUNT MULTIPLIER"); provided, that
--------
in the event the Registration Statement has not been declared effective by the
SEC by the Deadline or, if the Registration Statement has theretofore been
declared effective but is not thereafter effective, then the applicable Discount
Multiplier shall decrease by three percentage points (3%) for each month or
partial month occurring after the Deadline that the Registration Statement is
not effective.
(b) Notwithstanding the provisions of Section 3.1(a), in the event the
Company's Registration Statement has not been declared effective by the
Deadline, or, if the Registration Statement has theretofore been declared
effective but is not thereafter effective, the following will also apply in
addition to any damages incurred by the Holder as a result thereof:
(i) The Holder may demand repayment of one hundred and fifty
5
percent (150%) of the Principal Amount of the Debenture, together with all
accrued and unpaid interest thereon, in cash, at any time prior to the Company's
Registration Statement being declared effective by the SEC or during the period
that the Company's Registration Statement is not effective, such repayment to be
made within three (3) business days of such demand. In the event that the
Debenture is so accelerated, in addition to the repayment of one hundred and
fifty percent (150%) of the Principal Amount together with accrued interest as
aforesaid, the Company shall immediately issue and pay, as the case may be, to
the Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30) day
period, or portion thereof, during which the Principal Amount, including
interest thereon, remains unpaid, with the monthly payment amount to increase to
$20,000 for each thirty (30) day period, or portion thereof after the first
ninety (90) day period;
(ii) If the Holder does not elect to accelerate the
Debenture, the Company shall immediately issue or pay, as the case may be, to
Holder 50,000 Shares of Common Stock and $15,000 for each thirty (30) day
period, or portion thereof that the Registration Statement is not effective,
with the monthly payment amount to increase to $20,000 for each thirty (30) day
period, or portion thereof after the first ninety (90) day period.
SECTION 3.2 Exercise of Conversion Privilege. (a) Conversion of this
----------------------------------
Debenture may be exercised on any Business Day by the Holder by telecopying an
executed and completed Conversion Notice to the Company prior to 5:00 p.m.
Eastern Standard Time. Each date on which a Conversion Notice is telecopied to
the Company in accordance with the provisions of this Section 3.2 shall
constitute a Conversion Date. The Company shall convert this Debenture and issue
the Common Stock Issued at Conversion in the manner provided below in this
Section 3.2, and all voting and other rights associated with the beneficial
ownership of the Common Stock Issued at Conversion shall vest with the Holder,
effective as of the day following the Conversion Date. Until such time as a
registration statement is in effect for the sale by the Holder of the Common
Stock Issued at Conversion, the Common Stock Issued at Conversion shall be
issued in the name of Holder. Provided such registration statement is then in
effect, the Conversion Notice may state the name or names (with addresses) of
the persons who are to become the holders of the Common Stock Issued at
Conversion in connection with such conversion, and such Stock shall be issued in
such name. As promptly as practicable after the receipt of the Conversion Notice
as aforesaid, but in any event not more than five (5) Business Days after the
Company's receipt of such Conversion Notice, the Company shall (i) issue the
Common Stock Issued at Conversion in accordance with the provisions of this
Article 3 and (ii) cause to be mailed for delivery by overnight courier, or if a
Registration Statement covering the Common Stock has been declared effective by
the SEC cause to be electronically transferred, to Holder (x) a certificate or
certificate(s) representing the number of Common Shares to which the Holder is
entitled by virtue of such conversion, (y) cash, as provided in Section 3.3, in
respect of any fraction of a Common Share deliverable upon such conversion and
(z) cash or shares of Common Stock, as applicable, representing the amount of
accrued and unpaid interest on this Debenture as of the Conversion Date. Such
conversion shall be deemed to have been effected on the Conversion Date, and at
such time the rights of the Holder of this Debenture, as such (except if and to
the extent that any Principal Amount thereof remains unconverted), shall cease
and the Person and Persons in whose name or names the Common Stock Issued at
Conversion shall be issuable shall be deemed to have become the holder or
holders of record of the Common Shares
6
represented thereby, and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons. The Conversion Notice shall constitute a contract between the
Holder and the Company, whereby the Holder shall be deemed to subscribe for the
number of Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 3.4), to surrender
this Debenture and to release the Company from all liability thereon (except if
and to the extent that any Principal Amount thereof remains unconverted). No
cash payment aggregating less than $1.00 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time after the date of this Debenture, (i) the
Company challenges, disputes or denies the right of the Holder hereof to effect
the conversion of this Debenture into Common Shares or otherwise dishonors or
rejects any Conversion Notice delivered in accordance with this Section 3.2 or
(ii) any third party who is not and has never been an Affiliate of the Holder
commences any lawsuit or legal proceeding or otherwise asserts any claim before
any court or public or governmental authority which seeks to challenge, deny,
enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect
the conversion of this Debenture into Common Shares, then the Holder shall have
the right, by written notice to the Company, to require the Company to promptly
redeem this Debenture for cash at one hundred and fifty (150%) of the Principal
Amount thereof together with all accrued and unpaid interest thereon to the date
of redemption. Under any of the circumstances set forth above, the Company shall
be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in defending
itself in any such action or pursuing its rights hereunder (in addition to any
other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under the Bankruptcy
Code. In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. Sec. 362 in respect of the Holder's conversion
privilege. The Company hereby waives to the fullest extent permitted any rights
to relief it may have under 11 U.S.C. Sec. 362 in respect of the conversion of
this Debenture. The Company agrees, without cost or expense to the Holder, to
take or consent to any and all action necessary to effectuate relief under 11
U.S.C. Sec. 362.
SECTION 3.3 Fractional Shares. No fractional Common Shares or scrip
------------------
representing fractional Common Shares shall be delivered upon conversion of this
Debenture. Instead of any fractional Common Shares which otherwise would be
delivered upon conversion of this Debenture, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
multiplied by the Current Market Price on the Conversion Date. No cash payment
of less than $1.00 shall be required to be given unless specifically requested
by the Holder.
SECTION 3.4 Adjustments. The Conversion Price and the number of shares
-----------
deliverable upon conversion of this Debenture are subject to adjustment from
time to time as follows:
7
(i) Reclassification, Etc. Except as contemplated by the
----------------------
Securities Purchase Agreement, if the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another Person
(where the Company is not the survivor or where there is a change in or
distribution with respect to the Common Stock of the Company), sell, convey,
transfer or otherwise dispose of all or substantially all its property, assets
or business to another Person, or effectuate a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of (each, a "FUNDAMENTAL CORPORATE CHANGE") and, pursuant to
the terms of such Fundamental Corporate Change, shares of common stock of the
successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation ("OTHER PROPERTY") are to be received by
or distributed to the holders of Common Stock of the Company, then the Holder of
this Debenture shall have the right thereafter, at its sole option, to (x)
require the Company to prepay this Debenture for cash at one hundred and fifty
percent (150%) of the Principal Amount thereof together with all accrued and
unpaid interest thereon to the date of prepayment, (y) receive the number of
shares of common stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Other Property as is receivable
upon or as a result of such Fundamental Corporate Change by a holder of the
number of shares of Common Stock into which such the outstanding portion of this
Debenture may be converted at the Conversion Price applicable immediately prior
to such Fundamental Corporate Change or (z) require the Company, or such
successor, resulting or purchasing corporation, as the case may be, to, without
benefit of any additional consideration therefor, execute and deliver to the
Holder a debenture with substantial identical rights, privileges, powers,
restrictions and other terms as this Debenture in an amount equal to the amount
outstanding under this Debenture immediately prior to such Fundamental Corporate
Change. For purposes hereof "COMMON STOCK OF THE SUCCESSOR OR ACQUIRING
CORPORATION" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to prepayment and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions shall similarly apply to successive Fundamental Corporate
Changes.
SECTION 3.5 Surrender of Debentures. Upon any redemption of this
-------------------------
Debenture pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity pursuant to
Section 2.4, the Holder shall either deliver this Debenture by hand to the
Company at its principal executive offices or surrender the same to the Company
at such address by nationally recognized overnight courier. Payment of the
redemption price or the amount due on maturity specified in Section 2.4, shall
be made by the Company to the Holder against receipt of this Debenture (as
provided in this Section 3.5) by wire transfer of immediately available funds to
such account(s) as the Holder shall specify by written notice to the Company. If
payment of such redemption price is not made in full by the redemption date, or
the amount due on maturity is not paid in full by the Maturity Date, the Holder
shall again have the right to convert this Debenture as provided in Article 3
hereof or to declare an Event of Default.
8
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture constitutes a legal,
--------------------
valid and binding obligation of the Company, enforceable in accordance with its
terms subject, as to enforceability, to general principles of equity and to
principles of bankruptcy, insolvency, reorganization and other similar laws of
general applicability relating to or affecting creditors' rights and remedies
generally.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any Common
--------------------------
Shares deliverable upon the conversion hereof have not been registered under the
Securities Act. The Holder by accepting this Debenture agrees that this
Debenture and the shares of Common Stock to be acquired as interest on and upon
conversion of this Debenture may not be assigned or otherwise transferred unless
and until (i) an exemption from registration exists and the Company has received
the opinion of counsel for the Holder that this Debenture or such shares may be
sold pursuant to an exemption from registration under the Securities Act and in
accordance with Rule 144 or (ii) a registration statement relating to the
proposed transfer of this Debenture or such shares has been filed by the Company
and declared effective by the SEC.
Each certificate for shares of Common Stock deliverable hereunder shall
bear a legend as follows unless and until such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"). The securities may not be offered for sale, sold or
otherwise transferred except (i) pursuant to an effective registration
statement under the Securities Act or (ii) pursuant to an exemption
from registration under the Securities Act in respect of which the
issuer of this certificate has received an opinion of counsel
satisfactory to the issuer of this certificate to such effect. Copies
of the agreement covering both the purchase of the securities and
restrictions on their transfer may be obtained at no cost by written
request made by the holder of record of this certificate to the
Secretary of the issuer of this certificate at the principal executive
offices of the issuer of this certificate."
ARTICLE 5
COVENANTS
SECTION 5.1 Conversion. The Company shall cause the transfer agent,
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not later than three (3) Business Days after the Company's receipt of a
Conversion Notice, to issue and deliver to the Holder the requisite shares of
Common Stock Issued at Conversion. Such delivery shall be by electronic transfer
if a Registration Statement covering the Common Stock has been declared
effective by the SEC.
SECTION 5.2 Notice of Default. If any one or more events occur which
---------- -------
constitute or which, with notice, lapse of time, or both, would constitute an
Event of Default, the Company
9
shall forthwith give notice to the Holder, specifying the nature and status of
the Event of Default or such other event(s), as the case may be.
SECTION 5.3 Payment of Obligations. So long as this Debenture shall be
----------------------
outstanding, the Company shall pay, extend, or discharge at or before maturity,
all its respective material obligations and liabilities, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings.
SECTION 5.4 Compliance with Laws. So long as this Debenture shall be
----------------------
outstanding, the Company shall comply with all applicable laws, ordinances,
rules, regulations and requirements of governmental authorities, except for such
noncompliance which would not have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company and the Subsidiaries.
ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "EVENT OF DEFAULT" wherever used herein
-----------------
means any one of the following events so long as this Debenture remains
outstanding:
(i) the Company shall default in the payment of principal of or
interest on this Debenture as and when the same shall be due and payable and, in
the case of an interest payment default, such default shall continue for five
(5) Business Days after the date such interest payment was due, or the Company
shall fail to perform or observe in any other covenant, agreement, term,
provision, undertaking or commitment under this Debenture, the Conversion
Warrants (as defined in the Securities Purchase Agreement), the Securities
Purchase Agreement or the Registration Rights Agreement and such default shall
continue for a period of ten (10) Business Days after the delivery to the
Company of written notice that the Company is in default hereunder or
thereunder;
(ii) any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration Rights 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, the Warrants, the Securities Purchase
Agreement or the Registration Rights Agreement shall be false or misleading in a
material respect on the Closing Date;
(iii) under the laws of any jurisdiction not otherwise covered by
clauses (iv) and (v) below, the Company or any Subsidiary (A) becomes insolvent
or generally not able to pay its debts as they become due, (B) admits in writing
its inability to pay its debts generally or makes a general assignment for the
benefit of creditors, (C) institutes or has instituted against it any proceeding
seeking (x) to adjudicate it a bankrupt or insolvent, (y) liquidation,
winding-up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors including any plan of compromise or
arrangement or other corporate proceeding involving or affecting its creditors
or (z) the entry of an order for relief or the appointment of a receiver,
trustee or other similar
10
person for it or for any substantial part of its properties and assets, and in
the case of any such official proceeding instituted against it (but not
instituted by it), either the proceeding remains undismissed or unstayed for a
period of sixty (60) calendar days, or any of the actions sought in such
proceeding (including the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar official for it
or for any substantial part of its properties and assets) occurs or (D) takes
any corporate action to authorize any of the above actions;
(iv) the entry of a decree or order by a court having jurisdiction
in the premises adjudging the Company or any Subsidiary a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under the Bankruptcy
Code or any other applicable Federal or state law, or appointing a receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of the
Company or of any substantial part of its property, or ordering the winding-up
or liquidation of its affairs, and any such decree or order continues and is
unstayed and in effect for a period of sixty (60) calendar days;
(v) the institution by the Company or any Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under the Bankruptcy Code or any other applicable federal or state law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as and when they
become due, or the taking of corporate action by the Company in furtherance of
any such action;
(vi) a final judgment or final judgments for the payment of money
shall have been entered by any court or courts of competent jurisdiction against
the Company and remains undischarged for a period (during which execution shall
be effectively stayed) of thirty (30) days, provided that the aggregate amount
--------
of all such judgments at any time outstanding (to the extent not paid or to be
paid, as evidenced by a written communication to that effect from the applicable
insurer, by insurance) exceeds One Hundred Thousand Dollars ($100,000);
(vii) it becomes unlawful for the Company to perform or comply with
its obligations under this Debenture, the Conversion Warrant, the Securities
Purchase Agreement or the Registration Rights Agreement in any respect;
(viii) the Common Shares shall be delisted from the NASDAQ OTCBB (the
"TRADING MARKET";
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If an
--------------------------------------------------
Event of Default occurs and is continuing, then and in every such case the
Holder may, by a notice in writing to the Company, rescind any outstanding
Conversion Notice and declare that all amounts owing or otherwise outstanding
under this Debenture are immediately due and payable and upon any such
declaration this Debenture shall become immediately due and payable in cash at a
price
11
of one hundred and fifty percent (150%) of the Principal Amount thereof,
together with all accrued and unpaid interest thereon to the date of payment;
provided, however, in the case of any Event of Default described in clauses
-------- -------
(iii), (iv), (v) or (vii) of Section 6.1, such amount automatically shall become
--
immediately due and payable without the necessity of any notice or declaration
as aforesaid.
SECTION 6.3 Late Payment Penalty. If any portion of the principal of
---------------------
or interest on this Debenture shall not be paid within ten (10) days of when it
is due, the Discount Multiplier under this Debenture, and under all warrants
granted by the Company to the Holder, shall decrease by one percentage point
(1%) for all conversions of this Debenture and warrant exercises thereafter.
SECTION 6.4 Maximum Interest Rate. Notwithstanding anything herein to
----------------------
the contrary, if at any time the applicable interest rate as provided for herein
shall exceed the maximum lawful rate which may be contracted for, charged, taken
or received by the Holder in accordance with any applicable law (the "MAXIMUM
RATE"), the rate of interest applicable to this Debenture shall be limited to
the Maximum Rate. To the greatest extent permitted under applicable law, the
Company hereby waives and agrees not to allege or claim that any provisions of
this Note could give rise to or result in any actual or potential violation of
any applicable usury laws.
SECTION 6.5 Remedies Not Waived. No course of dealing between the
---------------------
Company and the Holder or any delay in exercising any rights hereunder shall
operate as a waiver by the Holder.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Notice of Certain Events. In the case of the occurrence of
------------------------
any event described in Section 3.4 of this Debenture, the Company shall cause to
be mailed to the Holder of this Debenture at its last address as it appears in
the Company's security registry, at least twenty (20) days following the
applicable record, effective or expiration date hereinafter specified (or, if
such twenty (20) days' notice is not possible, at the earliest possible date
prior to any such record, effective or expiration date), a notice thereof,
including, if applicable, a statement of (y) the date on which a record is to be
taken for the purpose of such dividend, distribution, issuance or granting of
rights, options or warrants, or if a record is not to be taken, the date as of
which the holders of record of Common Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (z) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Common Stock will be entitled to exchange their shares for securities, cash
or other property deliverable upon such reclassification, consolidation, merger,
sale transfer, dissolution, liquidation or winding-up.
SECTION 7.2 Register. The Company shall keep at its principal office a
--------
register in which the Company shall provide for the registration of this
12
Debenture. Upon any transfer of this Debenture in accordance with Articles 2 and
4 hereof, the Company shall register such transfer on the Debenture register.
SECTION 7.3 Withholding. To the extent required by applicable law, the
-----------
Company may withhold amounts for or on account of any taxes imposed or levied by
or on behalf of any taxing authority in the United States having jurisdiction
over the Company from any payments made pursuant to this Debenture.
SECTION 7.4 Transmittal of Notices. Except as may be otherwise
------------------------
provided herein, any notice or other communication or delivery required or
permitted hereunder shall be in writing and shall be delivered personally, or
sent by telecopier machine or by a nationally recognized overnight courier
service, and shall be deemed given when so delivered personally, or by
telecopier machine or overnight courier service as follows:
(1) if to the Company, to:
Thinka Weight-Loss Corporation
00000 Xxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
with a copy to:
XXX XXXXXXX LLP
00000 Xxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
(2) if to the Holder, to:
La Jolla Cove Investors, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each of the Holder or the Company may change the foregoing address by notice
given pursuant to this Section 7.4.
SECTION 7.5 Attorneys' Fees. Should any party hereto employ an
----------------
attorney for the purpose of enforcing or construing this Agreement, or any
judgment based on this Agreement, in
13
any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration,
declaratory relief or other litigation, the prevailing party shall be entitled
to receive from the other party or parties thereto reimbursement for all
reasonable attorneys' fees and all reasonable costs, including but not limited
to service of process, filing fees, court and court reporter costs,
investigative costs, expert witness fees, and the cost of any bonds, whether
taxable or not, and that such reimbursement shall be included in any judgment or
final order issued in that proceeding. The "prevailing party" means the party
determined by the court to most nearly prevail and not necessarily the one in
whose favor a judgment is rendered.
SECTION 7.6 Governing Law. This Debenture shall be governed by, and
--------------
construed in accordance with, the laws of the State of California (without
giving effect to conflicts of laws principles). With respect to any suit, action
or proceedings relating to this Debenture, the Company irrevocably submits to
the exclusive jurisdiction of the courts of the State of California sitting in
San Diego and the United States District Court located in the City of San Diego
and hereby waives, to the fullest extent permitted by applicable law, any claim
that any such suit, action or proceeding has been brought in an inconvenient
forum. Subject to applicable law, the Company agrees that final judgment against
it in any legal action or proceeding arising out of or relating to this
Debenture shall be conclusive and may be enforced in any other jurisdiction
within or outside the United States by suit on the judgment, a certified copy of
which judgment shall be conclusive evidence thereof and the amount of its
indebtedness, or by such other means provided by law.
SECTION 7.7 Headings. The headings of the Articles and Sections of this
--------
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.
SECTION 7.8 Payment Dates. Whenever any payment hereunder shall be due
-------------
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
SECTION 7.9 Binding Effect. Each Holder by accepting this Debenture
---------------
agrees to be bound by and comply with the terms and provisions of this
Debenture.
SECTION 7.10 No Stockholder Rights, Except as otherwise provided
-----------------------
herein, this Debenture shall not entitle the Holder to any of the rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Company, unless
and to the extent converted into shares of Common Stock in accordance with the
terms hereof.
SECTION 7.11 Facsimile Execution. Facsimile execution shall be deemed
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originals.
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IN WITNESS WHEREOF, the Company has caused this Debenture to be signed by
its duly authorized officer on the date of this Debenture.
Thinka Weight-Loss Corporation
By:______________________________
Title:______________________________
15
EXHIBIT A
DEBENTURE CONVERSION NOTICE
TO: Thinka Weight-Loss Corporation
The undersigned owner of this 8% Convertible Debenture due January 29, 2005
(the "DEBENTURE") issued by Thinka Weight-Loss Corporation (the "COMPANY")
hereby irrevocably exercises its option to convert $ _________ Principal Amount
of the Debenture [and accrued and unpaid interest thereon to the date of this
Notice] into shares of Common Stock in accordance with the terms of the
Debenture. The undersigned hereby instructs the Company to convert the portion
of the Debenture specified above into shares of Common Stock Issued at
Conversion in accordance with the provisions of Article 3 of the Debenture. The
undersigned directs that the Common Stock and certificates therefor deliverable
upon conversion, the Debenture reissued in the Principal Amount not being
surrendered for conversion hereby, [the check or shares of Common Stock in
payment of the accrued and unpaid interest thereon to the date of this Notice,]
together with any check in payment for fractional Common Stock, be registered in
the name of and/or delivered to the undersigned unless a different name has been
indicated below. All capitalized terms used and not defined herein have the
respective meanings assigned to them in the Debenture. The conversion pursuant
hereto shall be deemed to have been effected at the date and time specified in
the Debenture, and at such time the rights of the undersigned as a Holder of the
Principal Amount of the Debenture set forth above shall cease and the Person or
Persons in whose name or names the Common Stock Issued at Conversion shall be
registered shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time vest with
such Person or Persons.
Date and time:____________________________
__________________________________________
By:_______________________________________
Title:____________________________________
Fill in for registration of Debenture:
Please print name and address
(including ZIP code number):
__________________________________________
__________________________________________
__________________________________________
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