THIS NOTE AND THE SHARES OF COMMON STOCK UNDERLYING THIS
DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY, THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
OR NOT REQUIRED.
IQ BIOMETRIX, INC.
CONVERTIBLE DEBENTURE
$300,000.00
FOR VALUE RECEIVED, IQ Biometrix, Inc., a Delaware corporation (the
"COMPANY"), promises to pay to Platinum Partners Value Arbitrage Fund, LP, or
registered assigns (each a "HOLDER"), up to an aggregate Three Hundred Thousand
and No/100 Dollars ($300,000.00) in lawful money of the United States of America
on or before the Maturity Date as defined herein, with all Interest thereon as
defined and specified herein.
1. INTEREST. This Debenture shall bear interest ("INTEREST") at the
rate of six percent (6%) per annum from the Issue Date through the Maturity
Date. The Company shall pay such Interest, at the Company's election either in
cash or shares of the Company's Common Stock on the Maturity Date.
2. TERMS OF REPAYMENT.
2.1 Maturity Date. This Debenture shall be due and payable in
full, including all accrued Interest thereon, on September 18th, 2004 ("MATURITY
DATE").
2.2 Withholding. 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 laws or other applicable laws at the time of such payments, and
Xxxxxx shall execute and deliver all required documentation in connection
therewith.
3. RIGHT TO PURCHASE ADDITIONAL SHARES; CONVERSION RIGHT.
3.1 Conversion Price. At any time prior to the Maturity Date,
the Holder has the option, but not the obligation, to convert the principle and
interest under this Debenture into shares of the common stock of the Company
(the "Common Stock") at sixty-four cents ($0.64) per share.
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3.2 Adjustment Based Upon Stock Dividends, or Combination of
Shares. The Conversion Price shall be adjusted in the manner described in the
remainder of this Section 3.2 if the outstanding shares of the Common Stock
shall be subdivided into a greater number of shares or a dividend in Common
Stock shall be paid in respect of Common Stock, the Conversion Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall simultaneously with the effectiveness of such subdivision or immediately
after the record date of such dividend be proportionately reduced. If the
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
3.3 Adjustment Based Upon Merger, Consolidation or
Recapitalization. In case of any consolidation or merger to which the Company is
a party (other than a merger in which the Company is the surviving entity and
which does not result in any reclassification of or change in the outstanding
Common Stock of the Company), or in case of any sale or conveyance to another
person, firm, or corporation of the property of the Company as an entirety or
substantially as an entirety, or in case of any capital reorganization or
reclassification of the Common Stock (other than a change in par value or a
subdivision or combination as provided for in Section 3.2 immediately above),
the Holder shall have the right to convert this Debenture into the kind and
amount of securities and property (including cash) receivable upon such
consolidation, merger, sale, conveyance, reorganization or reclassification by a
holder of the number of shares of Common Stock into which such Debenture might
have been converted immediately prior thereto.
3.4 Exercise of Conversion Privilege. The conversion privilege
provided for in this Section 3 shall be exercisable by the Holder by written
notice to the Company or its successor and the surrender of this Debenture in
exchange for the number of shares (or other securities and property, including
cash, in the event of an adjustment of the Conversion Price) into which this
Debenture is convertible based upon the Conversion Price. Conversion rights
expire on the Maturity Date.
3.5 Exercise Conversion Method. The purchase right represented
by the conversion of this Debenture may be exercised by the Holder by
surrendering this Debenture at the principal office of the Company and by the
payment to the Company, either: (i) by certified or bank check, or by wire
transfer to an account designated by the Company in an amount equal to the then
applicable Conversion Price multiplied by the number of Shares then being
purchased, or (ii) by the delivery of that number of shares of Common Stock
having a value equal to the Conversion Price, which shares may be the Shares
underlying the conversion of the Debenture.
3.6 Company's Right to Mandatory Conversion. Any portion of the
principal balance and accrued interest of the Debenture not previously converted
as of the Maturity Date, shall be deemed to be automatically converted at the
Company's election, upon delivery of written notice of such election to convert
by the Company or any of its agents, employees or representatives, at any time
within thirty days prior to the Maturity Date at the Conversion Rate ("Mandatory
Conversion"), and the Company shall have no further obligation to repay the
Debentures.
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3.7 Corporate Status of Common Stock to be Issued. All Common
Stock (or other securities in the event of an adjustment of the Conversion
Price) which may be issued upon the conversion of this Debenture shall, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable.
3.8 Issuance of Certificate. Upon the conversion of this
Debenture, the Company shall in due course issue to the Holder a certificate or
certificates representing the number of shares of Common Stock (or other
securities in the event of an adjustment of the Conversion Price) to which the
conversion relates.
3.9 Fractional Shares. No fractional shares will be issued. In
lieu thereof, the Company will pay cash in the amount of $0.64 for each
fractional share that would otherwise have been issued.
4. STATUS OF HOLDER OF DEBENTURE. This Debenture shall not entitle the
Holder to any voting rights or other rights as a shareholder of the Company or
to any rights whatsoever except the rights herein expressed, and no dividends
shall be payable or accrue in respect of this Debenture or the securities
issuable upon the conversion hereof unless and until this Debenture shall be
converted. Upon the conversion of this Debenture, the Holder shall, to the
extent permitted by law, be deemed to be the holder of record of the shares of
Common Stock issuable upon such conversion, notwithstanding that the stock
transfer books of the Company shall then be closed or that the certificates
representing such shares of Common Stock shall not then be actually delivered.
Immediately upon the conversion of this Debenture, the rights of Holder under
this Debenture shall cease except with regard to the right to receive the shares
of Common Stock issuable upon conversion. As promptly as practicable after
either the conversion or redemption of this Debenture, Holder shall surrender
this Debenture marked "Cancelled."
5. RESERVE OF SHARES OF COMMON STOCK. The Company shall reserve out of
its authorized shares of Common Stock (and other securities in the event of an
adjustment of the Conversion Price) a number of shares sufficient to enable it
to comply with its obligation to issue shares of Common Stock (and other
securities in the event of an adjustment of the Conversion Price) upon the
conversion of this Debenture.
6. POST CLOSING REGISTRATION. Company currently has on file with the
SEC form SB-2. Prior to the effective date of the SB-2, the SB-2 shall be
amended to provide that the Shares, and each of them, shall be registered in
such filing. While acting in a commercially reasonable fashion, Company shall,
either upon receipt of comments from the SEC or, in the event that no comments
are to be received on the SB-2 from the SEC, then prior to the Effective Date,
amend the SB-2 to indicate that up to 781,250 of the Shares are owned
beneficially and of record by Xxxxxx, which is the Selling Shareholder of such
shares.
7. POST REGISTRATION LIMITATION ON SALES. Upon the effective date of
the SB-2, and for the period running for twelve months from the effective date
of the SB-2, Xxxxxx agrees not to sell more than 5% of the daily volume on the
open market. Upon written request of Company, Holder shall deliver to Company
its trading records reflecting sales of the Shares within 72 hours of receipt of
such request.
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8. CALL RIGHTS OF COMPANY. At any time after the effective date of the
SB-2, the Company will have the option, but not the obligation, to "Call" the
investor's warrant (see Exhibit A) should the Company's closing stock price
equal or exceed $3.00 per share ("Call Trigger"). If the Call Trigger occurs,
the Investor will have ten (10) business days to deliver the necessary funds to
exercise the warrant. Upon receipt of the funds, the Company will issue to the
Investor the corresponding number of shares from the warrant exercise.
9. DEFAULT. The Company shall perform its obligations and covenants
hereunder and in each and every other agreement between the Company and Holder
pertaining to the indebtedness evidenced hereby. The following provisions shall
apply upon failure of the Company so to perform.
9.1 Event of Default. Any of the following events shall
constitute an "Event of Default" hereunder:
9.1.1 Failure by the Company to timely convert
outstanding principal into Common Stock, or to pay principal, or premium, if
any, of the Debenture when due and payable on the Maturity Date;
9.1.2 Failure of the Company to timely convert
outstanding Interest into Common Stock, or to pay Interest when due and payable
on the Maturity Date; or
9.1.3 Failure of the Company to perform any of
the covenants, conditions, provisions or agreements contained herein, or in any
other agreement between the Company and Holder pertaining to the indebtedness
evidenced hereby, which failure continues for a period of thirty (30) days after
written notice of default has been given to the Company by a Majority in
Interest of the Holders; provided, however, that if the nature of the Company's
obligation is such that more than thirty (30) days are required for performance,
then an Event of Default shall not occur if the Company commences performance
within such thirty (30) day period and thereafter diligently prosecutes the same
to completion; or
9.1.4 The entry of an order for relief under
Federal Bankruptcy Code as to the Company or entry of any order appointing a
receiver or trustee for the Company or approving a petition in reorganization or
other similar relief under bankruptcy or similar laws in the United States of
America or any other competent jurisdiction, and if such order, if involuntary,
is not satisfied or withdrawn within sixty (60) days after entry thereof; or the
filing of a petition by the Company seeking any of the foregoing, or consenting
thereto; or the filing of a petition to take advantage of any debtor's act; or
making a general assignment for the benefit of creditors; or admitting in
writing inability to pay debts as they mature.
9.2 Acceleration. Upon any Event of Default (in addition to
any other rights or remedies provided for under this Debenture), the Holder then
outstanding, all sums evidenced hereby, including all principal, premium, if
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any, accrued but unpaid Interest, fees and all other amounts due hereunder shall
become immediately due and payable. In the Event of a Default due to a breach of
any other covenant or term, Holder of the Debentures may take action to
accelerate the Debentures. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company or any Subsidiary occurs
and is continuing, the principal of and premium, if any, and accrued Interest on
all the Debentures will become and be immediately due and payable without any
declaration or other act on the part of Holder of the Debentures.
9.3 Notice by Company. Upon the happening of any Event of
Default specified in this paragraph that is not cured within the respective
periods prescribed above, the Company will give prompt written notice thereof to
the Holder of this Debenture.
9.4 No Waiver. Failure of the Holder to exercise any right or
remedy hereunder shall not constitute a waiver of the right to exercise the same
in the event of any subsequent Event of Default, or in the event of continuance
of any existing Event of Default after demand or performance thereof.
9.5 Pursuit of any Remedy. The Holders have the right to
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Holders under the Debentures.
10. REPRESENTATIONS AND COVENANTS OF HOLDER
10.1 Investment Representations.
10.1.1 The Holder, by acceptance of this Debenture,
represents that this Debenture and any shares of Common Stock issuable upon
conversion of this Debenture are being and will be acquired for the Holder's own
account for investment and not with a view to, or for resale in connection with,
the distribution thereof in violation of applicable securities laws, and that
the Holder has no present intention of distributing or reselling this Debenture
or any such shares of Common Stock. The Holder, by acceptance of this Debenture,
further represents that it has not offered or sold this Debenture, or any shares
of Common Stock into which this Debenture is convertible, directly or indirectly
to any other person, and that the Holder is not acquiring this Debenture or any
such Common Stock for the account of any other person. Certificates evidencing
shares of Common Stock issuable upon conversion of this Debenture shall bear the
following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN
TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE
DISTRIBUTION THEREOF IN VIOLATION OF APPLICABLE SECURITIES
LAWS, AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY)
REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT.
5
10.1.2 Until the shares issued hereunder are registered, no
Holder of this Debenture may assign, transfer, hypothecate or sell all or any
part of this Debenture (or any of the shares of Common Stock issuable upon
conversion of this Debenture) or in any way alienate or encumber the Debenture
(or any of the shares of Common Stock issuable upon conversion of this
Debenture) without the express prior written consent of the Company, the
granting of which may be withheld in the Company's sole discretion. Any attempt
to effect such transfer without the consent of the Company shall be null and
void. Notwithstanding the Company's obligation to register the shares under
Section 6, as of the Issue Date, the Company has not registered this Debenture
(or any of the shares of Common Stock issuable upon conversion of this
Debenture) under the Act or the applicable securities laws of any state in
reliance on exemptions from registration. Such exemptions depend upon the
investment intent of the Holder at the time he acquires his Debenture or such
shares of Common Stock. Each Holder has acquired his Debenture (and will acquire
the shares of Common Stock issuable upon conversion of this Debenture) for his
own account for investment purposes only and not with a view toward distribution
or resale of such Debenture or such shares within the meaning of the Act and the
applicable securities laws of any state. Until the shares issued hereunder are
registered, the Company may require the Holder to provide, at Company's expense,
an opinion of counsel satisfactory to the Company to the effect that any
proposed transfer or other assignment of the Debenture (or any of the shares of
Common Stock issuable upon conversion of this Debenture) will not result in a
violation of the applicable federal or state securities laws or any other
applicable federal or state laws or regulations.
10.1.3 INFORMATION CONCERNING THE COMPANY. Xxxxxx has been
afforded access to (a) information concerning the Company and (b) the Company's
managing members. Xxxxxx has been afforded the opportunity to ask questions of
the Company and has received complete and satisfactory answers to any such
inquiries. Xxxxxx has received information concerning the Company, the Company's
proposed plan of operations, the Units, and the Offering and has reached an
informed and knowledgeable decision to acquire the Units. In furtherance of the
foregoing, Xxxxxx acknowledges that it has reviewed all of the Company's filings
under the 1934 Act filed within the past twelve months, and in particular has
reviewed and understands the risk factors articulated in such filings, including
risk factors which may affect the future results of operations.
10.1.4 Holder represents that it neither is nor will be
obligated for any commission nor is it aware of any such commission payable in
connection with this transaction. Xxxxxx agrees to indemnify and to hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which such Holder or any of its
officers, partners, employees, or representatives is responsible.
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10.1.5 Holder hereby represents, covenants and agrees, on
behalf of its self and its affiliates that it has not for a period of 30 days
prior to the date of this Agreement, and shall not from this date forward, short
sell, initiate any short sale or maintain any short position in the Company or
its stock, whether directly or indirectly.
10.1.6 Holder hereby covenants and agrees that upon the
effectiveness of the Registration Statement that it will limit its aggregate
daily sales of shares of Common Stock to 5% of the current day's trading volume
for the shares of Common Stock on the OTC - Bulletin Board (or an exchange if
the shares of Common Stock or then trading on an exchange). This volume
restriction is expressly agreed to by Xxxxxx in order to preclude Holder from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a disposition of the shares of Common Stock in
excess of said 5% of daily trading volume even if said shares of Common Stock
would be disposed of by someone other than Holder. Such prohibited hedging or
other transactions would include, without limitation, any short sale (whether or
not against the "box") or any purchase, sale or grant of any right (including
without limitation any put or call option) with respect to any shares of Common
Stock or with respect to any security (other than a broad based market basket or
index) that includes, relates to or derives any significant part of its value
from shares of Common Stock. Upon written request of Company, Holder shall
deliver to Company its trading records reflecting sales of the shares of Common
Stock within three (3) business days of receipt of such request. This covenant
contained in this Section 10.1.6 shall only be effective provided Company has
obtained a covenant of the same substance and nature from Forte Capital Partners
LLC and The Xxxxx family and their affiliated entities.
10.1.7. Holder has not seen or received any form of general
solicitation or general advertising with respect to the offering or the Common
Stock, and Xxxxxx did not hear of the offering at any seminar or meeting
attended by Xxxxxxxxx and for which attendees were invited by means of a general
solicitation or general advertising.
10.2 Expenses. All expenses, including reasonable legal fees incurred
by the Company in connection with any permitted transfer, assignment or pledge
of this Debenture will be paid by the Holder requesting such transfer,
assignment or pledge.
10.3 Loss, Theft or Mutilation of Debenture. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Debenture and, in the case of any such loss, theft or
destruction of any Debenture, upon delivery of an indemnity bond in such
reasonable amount as the Company may determine (or, in the case of any Debenture
held by the original Debenture-holder, of an indemnity agreement reasonably
satisfactory to the Company), or, in the case of any such mutilation, upon the
surrender of such Debenture to the Company at its principal office for
cancellation, the Company, at the expense of the Holder requesting such
replacement Debenture, will execute and deliver, in lieu thereof, a new
7
Debenture of like tenor, dated the date to which interest hereunder shall have
been paid on such lost, stolen, destroyed or mutilated Debenture.
10.4 Ownership. The Company may treat the person in whose name this
Debenture is registered as the owner and Holder of this Debenture for the
purpose of receiving payment of all principal of and all Interest on this
Debenture, and for all other purposes whatsoever, whether or not such Debenture
shall be overdue and, except for transfers effected in accordance with this
subparagraph, the Company shall not be affected by notice to the contrary.
11. MODIFICATIONS AND AMENDMENTS. Modifications and amendments to the
Debentures may be made by the Company only with the consent of the Holder(s) of
the Debentures then outstanding; provided, that no such modification or
amendment may, without the consent of the holder of each Debenture then
outstanding affected thereby, (i) reduce the percentage of principal amount of
Debentures whose holders may consent to an amendment, supplement or waiver; (ii)
reduce the rate or change the time for payment of Interest, including default
interest, on any Debenture; (iii) reduce the principal amount of any Debenture
or change the Maturity Date of the Debentures; or (iv) reduce the redemption
price, including premium, if any, payable upon redemption of any Debenture or
change the time at which any Debenture may or shall be redeemed; (v) reduce the
repurchase price, including premium, if any, payable upon the repurchase of any
Debenture or change the time at which any Debenture may or shall be repurchase;
(vi) make any Debenture payable in money other than that stated in the
Debenture; (vii) impair the right to institute suit for the enforcement of any
payment of principal of, or premium, if any, or interest on, any Debenture;
(viii) make any change in the percentage of principal amount of Debentures
necessary to waive compliance with certain provisions of the Debenture; or (ix)
waive a continuing Default or Event of Default in the payment of principal of,
premium, if any, or interest on the Debentures.
12. NOTICES. All notices provided for herein shall be validly given if
in writing and delivered personally or sent by certified mail, postage prepaid,
(in the case of the Company) to the office of the Company or such other address
as the Company may from time to time designate in writing sent by certified
mail, postage prepaid, or (in the case of the Holder) to the Holder at his
address set forth below or such other address as the Holder may from time to
time designate in writing to the Company by certified mail, postage prepaid.
13. BINDING EFFECT. This Debenture shall be binding upon the parties
hereto and their respective heirs, executors, administrators, representatives,
successors and permitted assigns.
14. COLLECTION FEES. Except as otherwise provided herein, the Company
shall pay all costs of collection, including reasonable attorneys' fees and all
costs of suit and preparation for such suit (and whether at trial or appellate
level), in the event the unpaid principal amount of this Debenture, or any
payment of Interest is not paid when due, or in the event Holder is made party
to any litigation because of the existence of the Indebtedness evidenced by this
Debenture, or if at any time Holder should incur any attorneys' fees in any
proceeding under the Federal Bankruptcy Code (or other similar laws for the
protection of debtors generally) in order to collect any Indebtedness hereunder
or to preserve, protect or realize upon any security for, or guarantee or surety
8
of, such Indebtedness whether suit be brought or not, and whether through courts
of original jurisdiction, as well as in courts of appellate jurisdiction, or
through a bankruptcy court or other legal proceedings.
15. CONSTRUCTION. This Debenture shall be governed as to its validity,
interpretation, construction, effect and in all other respects by and in
accordance with the laws and interpretations thereof of the State of California.
Unless the context otherwise requires, the use of terms in singular and
masculine form shall include in all instances singular and plural number and
masculine, feminine and neuter gender.
16. SEVERABILITY. In the event any one or more of the provisions
contained in this Debenture or any future amendment hereto shall for any reason
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Debenture or such other agreement, and in lieu of each such invalid, illegal or
unenforceable provision there shall be added automatically as a part of this
Debenture a provision as similar in terms to such invalid, illegal or
unenforceable provision as may be possible and be valid, legal and enforceable.
17. DEFINITIONS.
17.1 "Person" means any individual, corporation, partnership,
joint venture, trust, estate, unincorporated organization or government or any
agency or political subdivision thereof.
17.2 A "Subsidiary" of any Person means (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more subsidiaries of such Person or by such Person and
one or more subsidiaries of such Person, (ii) a partnership in which such Person
or a subsidiary of such Person is, at the date of determination, a general or
limited partner of such partnership, but only if such Person or its subsidiary
is entitled to receive more than fifty percent (50%) of the assets of such
partnership upon its dissolution, or (iii) any other Person (other than a
corporation or partnership) in which such Person, directly or indirectly, at the
date of determination thereof, has (x) at least a majority ownership interest or
(y) the power to elect or direct the election of a majority of directors or
other governing body of such Person.
18. CONFIDENTIALITY. The Terms of this Agreement and all other
information relating hereto are henceforth to be kept confidential and not to be
disclosed or disseminated to anyone except as reasonably necessary to respond to
inquiries initiated by government agencies such as the Internal Revenue Service,
as may be required for financial reporting or disclosure purposes in the
ordinary course of business, or as otherwise required by law.
19. MISCELLANEOUS. Except as otherwise provided herein, the Company
waives demand, diligence, presentment for payment and protest, notice of
extension, dishonor, maturity and protest. Time is of the essence with respect
to the performance of each and every covenant, condition, term and provision
hereof.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, this Debenture has been issued on the 19th
day of September, 2003.
IQ BIOMETRIX, INC.
By
------------------------------------------
Xxxxxxx Xxxxxxxxx, Chief Executive Officer
Date: September 19th, 2003
Platinum Partners Value Arbitrage Fund, LP
By:_______________________________________
Xxxx Xxxxxxxxx, Managing Partner
Address:
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Date: September 22nd, 2003
Amount: $300,000.00
[Signature Page to Debenture]
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EXHIBIT A
FORM OF WARRANT
(attached)
11
