Exhibit 4.7
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: October ___, 2005
Original Conversion Price (subject to adjustment herein): $0.40
$---------------
7% CONVERTIBLE DEBENTURE
DUE OCTOBER ___, 2008
THIS 7% CONVERTIBLE DEBENTURE is one of a series of duly authorized
and issued 7% Convertible Debentures of Intraop Medical Corporation, a Nevada
corporation, having a principal place of business at 000 Xxx Xxx Xxxxxx,
Xxxxxxxxx, XX 00000 (the "COMPANY"), designated as its 7% Convertible Debenture,
due October ___, 2008 (this debenture, the "DEBENTURE" and collectively with the
other such series of debentures, the "DEBENTURES").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "HOLDER"), or shall have
paid pursuant to the terms hereunder, the principal sum of $_______________ by
October ___, 2008, or such earlier date as this Debenture is required or
permitted to be repaid as provided hereunder (the "MATURITY DATE"), and to pay
interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture in accordance with the provisions hereof.
This Debenture is subject to the following additional provisions:
SECTION 1. DEFINITIONS. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
1
"ALTERNATE CONSIDERATION" shall have the meaning set forth in
Section 5(d).
"BASE CONVERSION PRICE" shall have the meaning set forth in
Section 5(b).
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday in the United States or a
day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
"BUY-IN" shall have the meaning set forth in Section 4(d)(v).
"CHANGE OF CONTROL TRANSACTION" means the occurrence after the
date hereof of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act), other than pursuant to the
Transaction Documents, of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 40% of the voting securities of the Company,
or (ii) the Company merges into or consolidates with any other Person,
or any Person merges into or consolidates with the Company and, after
giving effect to such transaction, the stockholders of the Company
immediately prior to such transaction own less than 60% of the
aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers its assets, as an
entirety or substantially as an entirety, to another Person and the
stockholders of the Company immediately prior to such transaction own
less than 60% of the aggregate voting power of the acquiring entity
immediately after the transaction, (iv) a replacement at one time or
within a three year period of more than one-half of the members of the
Company's board of directors which is not approved by a majority of
those individuals who are members of the board of directors on the date
hereof (or by those individuals who are serving as members of the board
of directors on any date whose nomination to the board of directors was
approved by a majority of the members of the board of directors who are
members on the date hereof), or (v) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i) or (iv).
"CLOSING PRICE" means on any particular date (a) the last
reported closing bid price per share of Common Stock on such date on
the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York
time), or (b) if there is no such price on such date, then the closing
bid price on the Trading Market on the date nearest preceding such date
(as reported by Bloomberg L.P. at 4:15 PM (New York time) for the
closing bid price for regular session trading on such day), or (c) if
the Common Stock is not then listed or quoted on the Trading Market and
if prices for the Common Stock are then reported in the "pink sheets"
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported, or (d) if the shares
of Common Stock are not then publicly traded the fair market value of a
share of Common Stock as determined by a qualified independent
appraiser selected in good faith by the Holders of a majority in
interest of the outstanding principal amount of Debentures.
2
"COMMON STOCK" means the common stock, par value $0.001 per
share, of the Company and stock of any other class of securities into
which such securities may hereafter have been reclassified or changed
into.
"CONVERSION DATE" shall have the meaning set forth in Section
4(a).
"CONVERSION PRICE" shall have the meaning set forth in Section
4(b).
"CONVERSION SHARES" means the shares of Common Stock issuable
upon conversion of this Debenture or as payment of interest in
accordance with the terms.
"DEBENTURE REGISTER" shall have the meaning set forth in
Section 2(c).
"DILUTIVE ISSUANCE" shall have the meaning set forth in
Section 5(b).
"DILUTIVE ISSUANCE NOTICE" shall have the meaning set forth in
Section 5(b).
"EFFECTIVENESS PERIOD" shall have the meaning given to such
term in the Registration Rights Agreement.
"EQUITY CONDITIONS" shall mean, during the period in question,
(i) the Company shall have duly honored all conversions and redemptions
scheduled to occur or occurring by virtue of one or more Notice of
Conversions of the Holder, if any, (ii) all liquidated damages and
other amounts owing to the Holder in respect of this Debenture shall
have been paid; (iii) there is an effective Registration Statement
pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that
such effectiveness will continue uninterrupted for the foreseeable
future), (iv) the Common Stock is trading on the Trading Market and all
of the shares issuable pursuant to the Transaction Documents are listed
for trading on a Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will
continue uninterrupted for the foreseeable future), (v) the daily
dollar trading volume of the Common Stock on the Trading Market for
each Trading Day during such period is at least $200,000, (vi) there is
a sufficient number of authorized but unissued and otherwise unreserved
shares of Common Stock for the issuance of all of the shares issuable
pursuant to the Transaction Documents, (vii) there is then existing no
Event of Default or event which, with the passage of time or the giving
of notice, would constitute an Event of Default, (viii) the issuance of
the shares in question to the Holder would not violate the limitations
set forth in Section 4(c)(ii) and (ix) no public announcement of a
pending or proposed Fundamental Transaction, Change of Control
Transaction or acquisition transaction has occurred that has not been
consummated.
3
"EVENT OF DEFAULT" shall have the meaning set forth in Section
8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FORCED CONVERSION" shall have the meaning set forth
in Section 6(c).
"FORCED CONVERSION NOTICE" shall have the meaning set forth
in Section 6(c).
"FORCED CONVERSION NOTICE DATE" shall have the meaning set
forth in Section 6(c).
"FUNDAMENTAL TRANSACTION" shall have the meaning set forth in
Section 5(d).
"INTEREST CONVERSION RATE" means the lesser of (a) the
Conversion Price and (b) 90% of the lesser of (i) the average of the 20
VWAPs immediately prior to the applicable Interest Payment Date or (ii)
the average of the 20 VWAPs immediately prior to the date the
applicable interest payment shares are issued and delivered if after
the Interest Payment Date.
"INTEREST CONVERSION SHARES" shall have the meaning set forth
in Section 2(a).
"INTEREST NOTICE PERIOD" shall have the meaning set forth in
Section 2(a).
"INTEREST PAYMENT DATE" shall have the meaning set forth in
Section 2(a).
"INTEREST SHARE AMOUNT" shall have the meaning set forth in
Section 2(a).
"LATE FEES" shall have the meaning set forth in Section 2(d).
"MANDATORY DEFAULT AMOUNT" shall equal the sum of (i) the
greater of: (A) 130% of the principal amount of this Debenture to be
prepaid, plus all accrued and unpaid interest thereon, or (B) the
principal amount of this Debenture to be prepaid, plus all other
accrued and unpaid interest hereon, divided by the Conversion Price on
(x) the date the Mandatory Default Amount is demanded or otherwise due
or (y) the date the Mandatory Default Amount is paid in full, whichever
is less, multiplied by the VWAP on (x) the date the Mandatory Default
Amount is demanded or otherwise due or (y) the date the Mandatory
Default Amount is paid in full, whichever is greater, and (ii) all
other amounts, costs, expenses and liquidated damages due in respect of
this Debenture.
4
"NEW YORK COURTS" shall have the meaning set forth in Section
9(d).
"NOTICE OF CONVERSION" shall have the meaning set forth in
Section 4(a).
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be
issued to evidence such Debenture.
"PERMITTED INDEBTEDNESS" shall mean the individual and
collective reference to the following: (a) up to, in the aggregate
during the term of this Debenture, $2,000,000 of new Indebtedness, (a)
an aggregate principal amount of $2,500,000 in 7% convertible
debentures and an aggregate principal amount of $2,000,000 in 10%
senior secured debentures issued on August 31, 2005,(c) Indebtedness
incurred in connection with the Purchase Agreement, (d) up to
approximately $974,614 of Indebtedness existing on the date of the
Purchase Agreement as described in SCHEDULE 3.1(AA) attached to the
Purchase Agreement, and (d) up to $3,000,000 in connection with the
Company's revolving inventory and sales contract financing agreement
with E.U. Capital.
"PERMITTED LIEN" shall mean the individual and collective
reference to the following: (a) Liens for taxes, assessments and other
governmental charges or levies not yet due or Liens for taxes,
assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Company) have been
established in accordance with GAAP; (b) Liens imposed by law which
were incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and
other similar Liens arising in the ordinary course of business, and (x)
which do not individually or in the aggregate materially detract from
the value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) which are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to
such Lien; and (c) Liens on Receivables and the Company's "inventory"
(as such term is used in the Security Agreement) incurred solely in
connection with a Permitted Indebtedness under clause (a) of the
definition of Permitted Indebtedness.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement,
dated as of October 25, 2005, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to
time in accordance with its terms.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
5
"REGISTRATION STATEMENT" means a registration statement
meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Conversion
Shares and naming the Holder as a "selling stockholder" thereunder.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SUBSIDIARY" shall have the meaning given to such term in the
Purchase Agreement.
"THRESHOLD PERIOD" shall have the meaning given to such term
in Section 6(c).
"TRADING DAY" means a day on which the Common Stock is traded
on a Trading Market.
"TRADING MARKET" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq SmallCap Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in
the Purchase Agreement.
"VWAP" shall have the meaning set forth in the Purchase
Agreement.
SECTION 2. INTEREST.
a) PAYMENT OF INTEREST IN CASH OR KIND. The Company shall pay
interest to the Holder on the aggregate unconverted and then
outstanding principal amount of this Debenture at the rate of 7% per
annum, payable quarterly on January 1, April 1, July 1 and October 1,
beginning on the first such date after the Original Issue Date, on each
Conversion Date (as to that principal amount then being converted) and
on the Maturity Date (except that, if any such date is not a Business
Day, then such payment shall be due on the next succeeding Business
Day) (each such date, an "INTEREST PAYMENT DATE"), in cash or shares of
Common Stock at the Interest Conversion Rate, or a combination thereof
(the amount to be paid in shares, the "INTEREST SHARE AMOUNT");
PROVIDED, HOWEVER, (i) payment in shares of Common Stock may only occur
if during the 10 Trading Days immediately prior to the applicable
Interest Payment Date (the "INTEREST NOTICE PERIOD") and through and
including the date such shares of Common Stock are issued to the Holder
all of the Equity Conditions, unless waived by the Holder in writing,
have been met and the Company shall have given the Holder notice in
accordance with the notice requirements set forth below, (ii) the VWAP
is equal to or greater than 115% of the then applicable Conversion
Price for each of the 10 Trading Days immediately prior to the
applicable Interest Payment Date and through and including the date
such shares of Common Stock are issued to the Holder and (iii) as to
such Interest Payment Date, prior to the such Interest Notice Period
(but not more 5 Trading Days prior to the commencement of the Interest
Notice Period), the Company shall have delivered to the Holder's
account with The Depository Trust Company a number of shares of Common
Stock to be applied against such Interest Share Amount equal to the
quotient of (x) the applicable Interest Share Amount divided by (y) the
then Conversion Price (the "INTEREST CONVERSION SHARES").
6
b) COMPANY'S ELECTION TO PAY INTEREST IN KIND. Subject to the
terms and conditions herein, the decision whether to pay interest
hereunder in shares of Common Stock or cash shall be at the discretion
of the Company. Prior to the commencement of an Interest Notice Period,
the Company shall provide the Holder with written notice of its
election to pay interest hereunder on the applicable Interest Payment
Date either in cash, shares of Common Stock or a combination thereof
(the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised) and the
Interest Share Amount as to the applicable Interest Payment Date.
During any Interest Notice Period, the Company's election (whether
specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely provide such written
notice shall be deemed an election by the Company to pay the interest
on such Interest Payment Date in cash. At any time the Company delivers
a notice to the Holder of its election to pay the interest in shares of
Common Stock, the Company shall file a prospectus supplement pursuant
to Rule 424 disclosing such election. The aggregate number of shares of
Common Stock otherwise issuable to the Holder on an Interest Payment
Date shall be reduced by the number of Interest Conversion Shares
previously issued to the Holder in connection with such Interest
Payment Date.
c) INTEREST CALCULATIONS. Interest shall be calculated on the
basis of a 360-day year and shall accrue daily commencing on the
Original Issue Date until payment in full of the principal sum,
together with all accrued and unpaid interest and other amounts which
may become due hereunder, has been made. Payment of interest in shares
of Common Stock (other than the Interest Conversion Shares issued prior
to an Interest Notice Period) shall otherwise occur pursuant to Section
4(d)(ii) and only for purposes of the payment of interest in shares,
the Interest Payment Date shall be deemed the Conversion Date. Interest
shall cease to accrue with respect to any principal amount converted,
provided that the Company in fact delivers the Conversion Shares within
the time period required by Section 4(d)(ii). Interest hereunder will
be paid to the Person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of this
Debenture (the "DEBENTURE REGISTER"). Except as otherwise provided
herein, if at any time the Company pays interest partially in cash and
partially in shares of Common Stock to the holders of the Debentures,
then such payment shall be distributed ratably among the holders of the
Debentures based on their (or their predecessor's initial purchases of
Debentures pursuant to the Purchase Agreement.
7
d) LATE FEE. All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at the rate of 18% per annum (or
such lower maximum amount of interest permitted to be charged under
applicable law) ("LATE FEES") which will accrue daily, from the date
such interest is due hereunder through and including the date of
payment. Notwithstanding anything to the contrary contained herein, if
on any Interest Payment Date the Company has elected to pay interest in
Common Stock and is not able to pay accrued interest in the form of
Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then, at the
option of the Holder, the Company, in lieu of delivering either shares
of Common Stock pursuant to this Section 2 or paying the regularly
scheduled cash interest payment, shall deliver, within three Trading
Days of each applicable Interest Payment Date, an amount in cash equal
to the product of the number of shares of Common Stock otherwise
deliverable to the Holder in connection with the payment of interest
due on such Interest Payment Date and the highest VWAP during the
period commencing on the Interest Payment Date and ending on the
Trading Day prior to the date such payment is made. If any Interest
Conversion Shares are issued to the Holder in connection with an
Interest Payment Date and are not applied against an Interest Share
Amount, then the Holder shall promptly return such excess shares to the
Company.
e) PREPAYMENT. Except as otherwise set forth in this
Debenture, the Company may not prepay any portion of the principal
amount of this Debenture without the prior written consent of the
Holder.
SECTION 3. REGISTRATION OF TRANSFERS AND EXCHANGES.
a) DIFFERENT DENOMINATIONS. This Debenture is exchangeable for
an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the
same; PROVIDED, HOWEVER, the Company shall not be required to exchange
this Debenture for denominations of less than the greater of $50,000
and the principal amount of this Debenture then outstanding. No service
charge will be made for such registration of transfer or exchange.
b) INVESTMENT REPRESENTATIONS. This Debenture has been issued
subject to certain investment representations of the original Holder
set forth in the Purchase Agreement and may be transferred or exchanged
only in compliance with the Purchase Agreement and applicable federal
and state securities laws and regulations.
c) RELIANCE ON DEBENTURE REGISTER. Prior to due presentment to
the Company for transfer of this Debenture, the Company and any agent
of the Company may treat the Person in whose name this Debenture is
duly registered on the Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
8
SECTION 4. CONVERSION.
a) VOLUNTARY CONVERSION. At any time after the Original Issue
Date until this Debenture is no longer outstanding, this Debenture
shall be convertible into shares of Common Stock at the option of the
Holder, in whole or in part at any time and from time to time (subject
to the limitations on conversion set forth in Section 4(c) hereof). The
Holder shall effect conversions by delivering to the Company the form
of Notice of Conversion attached hereto as ANNEX A (a "NOTICE OF
Conversion"), specifying therein the principal amount of this Debenture
to be converted and the date on which such conversion is to be effected
(a "CONVERSION DATE"). If no Conversion Date is specified in a Notice
of Conversion, the Conversion Date shall be the date that such Notice
of Conversion is provided hereunder. To effect conversions hereunder,
the Holder shall not be required to physically surrender this Debenture
to the Company unless the entire principal amount of this Debenture
plus all accrued and unpaid interest thereon has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing
the principal amount converted and the date of such conversions. The
Company shall deliver any objection to any Notice of Conversion within
1 Business Day of receipt of such notice. In the event of any dispute
or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any
assignee, by acceptance of this Debenture, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of
a portion of this Debenture, the unpaid and unconverted principal
amount of this Debenture may be less than the amount stated on the face
hereof.
b) CONVERSION PRICE. The conversion price in effect on any
Conversion Date shall be equal to $0.40 (subject to adjustment
herein)(the "CONVERSION PRICE").
c) CONVERSION LIMITATIONS.
i. RESERVED.
ii. HOLDER'S RESTRICTION ON CONVERSION. The Company shall not
effect any conversion of this Debenture, and the Holder shall not have
the right to convert any portion of this Debenture, pursuant to Section
4(a) or otherwise, to the extent that after giving effect to such
conversion, the Holder (together with the Holder's affiliates), as set
forth on the applicable Notice of Conversion, would beneficially own in
excess of 4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to such conversion. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially
owned by the Holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Debenture with
respect to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted portion of
this Debenture beneficially owned by the Holder or any of its
affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including,
without limitation, any other Debentures or the Warrants) subject to a
9
limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 4(c)(ii), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act. To the extent that
the limitation contained in this section applies, the determination of
whether this Debenture is convertible (in relation to other securities
owned by the Holder) and of which a portion of this Debenture is
convertible shall be in the sole discretion of such Holder. To ensure
compliance with this restriction, the Holder will be deemed to
represent to the Company each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Company shall have no obligation to
verify or confirm the accuracy of such determination. For purposes of
this Section 4(c)(ii), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding
shares of Common Stock as reflected in (x) the Company's most recent
Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent
public announcement by the Company or (z) any other notice by the
Company or the Company's Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral request of
the Holder, the Company shall within two Trading Days confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Debenture, by the
Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this
Section 4(c) may be waived by the Holder, at the election of the
Holder, upon not less than 61 days' prior notice to the Company, and
the provisions of this Section 4(c) shall continue to apply until such
61st day (or such later date, as determined by the Holder, as may be
specified in such notice of waiver).
d) MECHANICS OF CONVERSION
i. CONVERSION SHARES ISSUABLE UPON CONVERSION OF PRINCIPAL
AMOUNT. The number of shares of Common Stock issuable upon a conversion
hereunder shall be determined by the quotient obtained by dividing (x)
the outstanding principal amount of this Debenture to be converted by
(y) the Conversion Price. i.
ii. DELIVERY OF CERTIFICATE UPON CONVERSION. Not later than
three Trading Days after any Conversion Date, the Company will deliver
or cause to be delivered to the Holder (A) a certificate or
certificates representing the Conversion Shares which shall be free of
restrictive legends and trading restrictions (other than those required
by the Purchase Agreement) representing the number of shares of Common
Stock being acquired upon the conversion of this Debenture (including,
if the Company has given continuous notice pursuant to Section 2(b) for
payment of interest in shares of Common Stock at least 20 Trading Days
prior to the date on which the Conversion Notice is delivered to the
Company, shares of Common Stock representing the payment of accrued
interest otherwise determined pursuant to Section 2(a) but assuming
that the Interest Payment Period is the 20 Trading Days period
immediately prior to the date on which the Conversion Notice is
delivered to the Company and excluding for such issuance the condition
that the Company deliver Interest Conversion Shares as to such interest
payment) and (B) a bank check in the amount of accrued and unpaid
interest (if the Company is required to pay accrued interest in cash).
The Company shall, if available and if allowed under applicable
securities laws, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions.
10
iii. FAILURE TO DELIVER CERTIFICATES. If in the case of any
Notice of Conversion such certificate or certificates are not delivered
to or as directed by the applicable Holder by the fifth Trading Day
after a Conversion Date, the Holder shall be entitled by written notice
to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event
the Company shall immediately return the certificates representing the
principal amount of this Debenture tendered for conversion.
iv. OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES. If the
Company fails for any reason to deliver to the Holder such certificate
or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day
after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, for each $1000 of
principal amount being converted, $10 per Trading Day (increasing to
$20 per Trading Day after 5 Trading Days after such damages begin to
accrue) for each Trading Day after such fifth Trading Day until such
certificates are delivered. The Company's obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture in
accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the
same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce
the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other person, and irrespective of
any other circumstance which might otherwise limit such obligation of
the Company to the Holder in connection with the issuance of such
Conversion Shares; PROVIDED, HOWEVER, such delivery shall not operate
as a waiver by the Company of any such action the Company may have
against the Holder. In the event the Holder of this Debenture shall
elect to convert any or all of the outstanding principal amount hereof,
the Company may not refuse conversion based on any claim that the
Holder or any one associated or affiliated with the Holder has been
engaged in any violation of law, agreement or for any other reason,
unless, an injunction from a court, on notice, restraining and or
enjoining conversion of all or part of this Debenture shall have been
sought and obtained and the Company posts a surety bond for the benefit
of the Holder in the amount of 150% of the principal amount of this
Debenture outstanding, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration/litigation
of the dispute and the proceeds of which shall be payable to such
Holder to the extent it obtains judgment. In the absence of an
injunction precluding the same, the Company shall issue Conversion
Shares or, if applicable, cash, upon a properly noticed conversion.
Nothing herein shall limit a Xxxxxx's right to pursue actual damages or
declare an Event of Default pursuant to Section 8 herein for the
Company's failure to deliver Conversion Shares within the period
specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
The exercise of any such rights shall not prohibit the Holder from
seeking to enforce damages pursuant to any other Section hereof or
under applicable law.
11
v. COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
CERTIFICATES UPON CONVERSION. In addition to any other rights available
to the Holder, if the Company fails for any reason to deliver to the
Holder such certificate or certificates pursuant to Section 4(d)(ii) by
the fifth Trading Day after the Conversion Date, and if after such
fifth Trading Day the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by such Holder of the Conversion
Shares which the Holder anticipated receiving upon such conversion (a
"BUY-IN"), then the Company shall (A) pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common
Stock that such Holder anticipated receiving from the conversion at
issue multiplied by (2) the actual sale price of the Common Stock at
the time of the sale (including brokerage commissions, if any) giving
rise to such purchase obligation and (B) at the option of the Holder,
either reissue (if surrendered) this Debenture in a principal amount
equal to the principal amount of the attempted conversion or deliver to
the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its delivery requirements
under Section 4(d)(ii). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of this Debenture with respect to
which the actual sale price of the Conversion Shares at the time of the
sale (including brokerage commissions, if any) giving rise to such
purchase obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
Notwithstanding anything contained herein to the contrary, if a Holder
requires the Company to make payment in respect of a Buy-In for the
failure to timely deliver certificates hereunder and the Company timely
pays in full such payment, the Company shall not be required to pay
such Holder liquidated damages under Section 4(d)(iv) in respect of the
certificates resulting in such Buy-In.
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vi. RESERVATION OF SHARES ISSUABLE UPON CONVERSION. The
Company covenants that it will at all times reserve and keep available
out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture and payment
of interest on this Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holder (and the other holders of the
Debentures), not less than such number of shares of the Common Stock as
shall (subject to the terms and conditions set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder.
The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Registration Statement is then
effective under the Securities Act, registered for public sale in
accordance with such Registration Statement.
vii. FRACTIONAL SHARES. Upon a conversion hereunder the
Company shall not be required to issue stock certificates representing
fractions of shares of the Common Stock, but may if otherwise
permitted, make a cash payment in respect of any final fraction of a
share based on the VWAP at such time. If the Company elects not, or is
unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of
Common Stock.
viii. TRANSFER TAXES. The issuance of certificates for shares
of the Common Stock on conversion of this Debenture shall be made
without charge to the Holder hereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery
of such certificate, provided that the Company shall not be required to
pay any tax that may be payable in respect of any transfer involved in
the issuance and delivery of any such certificate upon conversion in a
name other than that of the Holder of this Debenture so converted and
the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
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SECTION 5. CERTAIN ADJUSTMENTS.
a) STOCK DIVIDENDS AND STOCK SPLITS. If the Company, at any
time while this Debenture is outstanding: (A) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common
Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company pursuant to
this Debenture, including as interest thereon), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares
of Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital
stock of the Company, then the Conversion Price shall be multiplied by
a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the
number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the case
of a subdivision, combination or re-classification.
b) SUBSEQUENT EQUITY SALES. If the Company or any Subsidiary
thereof, as applicable, at any time while this Debenture is
outstanding, shall offer, sell, grant any option to purchase or offer,
sell or grant any right to reprice its securities, or otherwise dispose
of or issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock, at
an effective price per share less than the then Conversion Price (such
lower price, the "BASE CONVERSION PRICE" and such issuances
collectively, a "DILUTIVE ISSUANCE"), as adjusted hereunder (if the
holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share which is less than the
Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price on such date of the Dilutive Issuance),
then the Conversion Price shall be reduced to equal the Base Conversion
Price. Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of an Exempt
Issuance. The Company shall notify the Holder in writing, no later than
the Business Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this section, indicating therein the
applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms (such notice the
"DILUTIVE ISSUANCE NOTICE"). For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice pursuant to this
Section 5(b), upon the occurrence of any Dilutive Issuance, after the
date of such Dilutive Issuance the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price
regardless of whether the Holder accurately refers to the Base
Conversion Price in the Notice of Conversion.
14
c) PRO RATA DISTRIBUTIONS. If the Company, at any time while
this Debenture is outstanding, shall distribute to all holders of
Common Stock (and not to the holders of the Debenture) evidences of its
indebtedness or assets (including cash and cash dividends) or rights or
warrants to subscribe for or purchase any security, then in each such
case the Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such distribution
by a fraction of which the denominator shall be the VWAP determined as
of the record date mentioned above, and of which the numerator shall be
such VWAP on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of the Common Stock
as determined by the Board of Directors in good faith. In either case
the adjustments shall be described in a statement provided to the
Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date mentioned above.
d) FUNDAMENTAL TRANSACTION. If, at any time while this
Debenture is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the
Company effects any sale of all or substantially all of its assets in
one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (in any such case, a "FUNDAMENTAL TRANSACTION"), then upon any
subsequent conversion of this Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been
issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction, the same kind and amount of securities,
cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of one share of
Common Stock (the "ALTERNATE CONSIDERATION"). For purposes of any such
conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based
on the amount of Alternate Consideration issuable in respect of one
share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different
components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given
the same choice as to the Alternate Consideration it receives upon any
conversion of this Debenture following such Fundamental Transaction. To
the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new debenture consistent with
the foregoing provisions and evidencing the Holder's right to convert
such debenture into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to comply with
the provisions of this paragraph (d) and insuring that this Debenture
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
15
e) CALCULATIONS. All calculations under this Section 5 shall
be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 5, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
f) NOTICE TO THE HOLDER.
i. ADJUSTMENT TO CONVERSION PRICE. Whenever the Conversion
Price is adjusted pursuant to any of this Section 5, the Company shall
promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. If the Company issues a variable rate
security, despite the prohibition thereon in the Purchase Agreement,
the Company shall be deemed to have issued Common Stock or Common Stock
Equivalents at the lowest possible conversion or exercise price at
which such securities may be converted or exercised in the case of a
Variable Rate Transaction (as defined in the Purchase Agreement).
ii. NOTICE TO ALLOW CONVERSION BY HOLDER. If (A) the Company
shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of
the Common Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets
of the Company, of any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; (E) the
Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company; then, in each
case, the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last addresses as it shall
appear upon the stock books of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter specified,
a notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants,
or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger,
sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of
the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or
share exchange; PROVIDED, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity
of the corporate action required to be specified in such notice. The
Holder is entitled to convert this Debenture during the 20-day period
commencing the date of such notice to the effective date of the event
triggering such notice.
16
SECTION 6. FORCED CONVERSION.
a) [RESERVED]
b) [RESERVED]
c) FORCED CONVERSION. Notwithstanding anything herein to the
contrary, if after the 11 month anniversary of the Original Issue Date
each of the Closing Prices for any 30 consecutive Trading Days (such
period commencing only after the 11 month anniversary of the Original
Issue Date, such period the "THRESHOLD PERIOD")) exceeds the then
Conversion Price by 250%, the Company may, within 1 Trading Day of the
end of any such period, deliver a notice to the Holder (a "FORCED
CONVERSION Notice" and the date such notice is received by the Holder,
the "FORCED CONVERSION NOTICE DATE") to cause the Holder to immediately
convert all or part of the then outstanding principal amount of
Debentures pursuant to Section 4. The Company may only effect a Forced
Conversion Notice if all of the Equity Conditions are met through the
applicable Threshold Period until the later of the date of the
applicable Forced Conversion and the date shares of Common Stock are
actually delivered to the Holders. Any Forced Conversion shall be
applied ratably to all Holders based on their initial purchases of
Debentures pursuant to the Purchase Agreement. For purposes of
clarification, a Forced Conversion shall be subject to all of the
provisions of Section 4, including, without limitation, the provision
requiring payment of liquidated damages and limitations on conversions.
SECTION 7. NEGATIVE COVENANTS. So long as any portion of this Debenture
is outstanding, the Company will not and will not permit any of its Subsidiaries
to directly or indirectly:
a) Except for Permitted Indebtedness, other than Indebtedness
incurred in connection with the Regenmacher Transaction, enter into,
create, incur, assume, guarantee or suffer to exist any indebtedness
for borrowed money of any kind, including but not limited to, a
guarantee, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or
profits therefrom;
17
b) Except for Permitted Liens, other than Liens incurred in
connection with the Regenmacher Transaction, enter into, create, incur,
assume or suffer to exist any liens of any kind, on or with respect to
any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom;
c) amend its certificate of incorporation, bylaws or other
charter documents so as to materially and adversely affect any rights
of the Holder;
d) other than with respect to the Conversion Shares to the
extent permitted or required under the Transaction Documents or other
than repurchases of, up to, in the aggregate among all shareholders,
$130,000 of Common Stock from dissenting shareholders in the reverse
merger, repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a DE MINIMIS number of shares of its Common Stock or
Common Stock Equivalents;
e) enter into any agreement with respect to any of the
foregoing; or
f) pay cash dividends or distributions on any equity
securities of the Company.
SECTION 8. EVENTS OF DEFAULT.
a) "EVENT OF DEFAULT", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of
any Debenture, or (B) interest (including Late Fees) on, or liquidated
damages in respect of, any Debenture, as and when the same shall become
due and payable (whether on a Conversion Date or the Maturity Date or
by acceleration or otherwise) which default, solely in the case of an
interest payment or other default under clause (B) above, is not cured,
within 5 Trading Days;
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Debenture or any other
Debenture (other than a breach by the Company of its obligations to
deliver shares of Common Stock to the Holder upon conversion which
breach is addressed in clause (xi) below) which failure is not cured,
if possible to cure, within the earlier to occur of (A) 15 Trading Days
after notice of such default sent by the Holder or by any other Holder
and (B) 20 Trading Days after the Company shall become or should have
become aware of such failure;
18
iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction Documents, or
(B) any other material agreement, lease, document or instrument to
which the Company or any Subsidiary is bound and which default or event
of default could have a Material Adverse Effect on the Company;
iv. any representation or warranty made herein, in any other
Transaction Documents shall be untrue or incorrect in any material
respect as of the date when made or deemed made;
v. (i) the Company or any of its Subsidiaries shall commence a
case, as debtor, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the
Company or any Subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company
or any Subsidiary thereof or (ii) there is commenced a case against the
Company or any Subsidiary thereof, under any applicable bankruptcy or
insolvency laws, as now or hereafter in effect or any successor thereto
which remains undismissed for a period of 60 days; or (iii) the Company
or any Subsidiary thereof is adjudicated by a court of competent
jurisdiction insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or (iv) the
Company or any Subsidiary thereof suffers any appointment of any
custodian or the like for it or any substantial part of its property
which continues undischarged or unstayed for a period of 60 days; or
(v) the Company or any Subsidiary thereof makes a general assignment
for the benefit of creditors; or (vi) the Company shall fail to pay, or
shall state that it is unable to pay, or shall be unable to pay, its
debts generally as they become due; or (vii) the Company or any
Subsidiary thereof shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or
(viii) the Company or any Subsidiary thereof shall by any act or
failure to act expressly indicate its consent to, approval of or
acquiescence in any of the foregoing; or (ix) any corporate or other
action is taken by the Company or any Subsidiary thereof for the
purpose of effecting any of the foregoing;
vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount
exceeding $150,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness
becoming or being declared due and payable prior to the date on which
it would otherwise become due and payable;
19
vii. the Common Stock shall not be eligible for quotation on
or quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or dispose
of all or in excess of 33% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control
Transaction) or shall redeem or repurchase more than a de minimis
number of its outstanding shares of Common Stock or other equity
securities of the Company (other than redemptions of Conversion Shares
and repurchases of shares of Common Stock or other equity securities of
departing officers and directors of the Company; provided such
repurchases shall not exceed $130,000, in the aggregate, for all
officers and directors during the term of this Debenture);
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 180th calendar day after
the Closing Date;
x. any breach by the Company or any creditor of the Company
with respect to the payoffs, satisfactions and/or conversions of
indebtedness referred to in Section 2.3(b)(vii) of the Purchase
Agreement, including any claim by any such pre-Closing creditor related
to such prior indebtedness;
xi. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the Registration
Statement lapses for any reason or the Holder shall not be permitted to
resell Registrable Securities (as defined in the Registration Rights
Agreement) under the Registration Statement, in either case, for more
than 60 consecutive Trading Days or 90 non-consecutive Trading Days
during any 12 month period; PROVIDED, HOWEVER, that in the event that
the Company is negotiating a merger, consolidation, acquisition or sale
of all or substantially all of its assets or a similar transaction and
in the written opinion of counsel to the Company, the Registration
Statement, would be required to be amended to include information
concerning such transactions or the parties thereto that is not
available or may not be publicly disclosed at the time, the Company
shall be permitted an additional 10 consecutive Trading Days during any
12 month period relating to such an event; and
xii. the Company shall fail for any reason to deliver
certificates to a Holder prior to the seventh Trading Day after a
Conversion Date or any Forced Conversion Date pursuant to and in
accordance with Section 4(d) or the Company shall provide notice to the
Holder, including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of any Debentures
in accordance with the terms hereof.
20
b) REMEDIES UPON EVENT OF DEFAULT. If any Event of Default
occurs, the full principal amount of this Debenture, together with
interest and other amounts owing in respect thereof, to the date of
acceleration shall become, at the Holder's election, immediately due
and payable in cash. The aggregate amount payable upon an Event of
Default shall be equal to the Mandatory Default Amount. Commencing 5
days after the occurrence of any Event of Default that results in the
eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at the rate of 18% per annum, or such lower
maximum amount of interest permitted to be charged under applicable
law. Upon the payment in full of the Mandatory Default Amount on this
entire Debenture the Holder shall promptly surrender this Debenture to
or as directed by the Company. The Holder need not provide and the
Company hereby waives any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of
any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law.
Such declaration may be rescinded and annulled by Xxxxxx at any time
prior to payment hereunder and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under
this Section shall have been received by it. No such rescission or
annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.
SECTION 9. MISCELLANEOUS.
a) NOTICES. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight
courier service, addressed to the Company, at the address set forth
above, facsimile number 408.636.0222, Attn: Xxxxxx X. Xxxx, CEO, or
such other address or facsimile number as the Company may specify for
such purposes by notice to the Holder delivered in accordance with this
Section. Any and all notices or other communications or deliveries to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile telephone
number or address of such Xxxxxx appearing on the books of the Company,
or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 5:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the second Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required
to be given.
b) ABSOLUTE OBLIGATION. Except as expressly provided herein,
no provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal
of, interest and liquidated damages (if any) on, this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed.
This Debenture is a direct debt obligation of the Company. This
Debenture ranks PARI PASSU with all other Debentures now or hereafter
issued under the terms set forth herein. This Debenture is expressly
subordinated in right of payment of principal (but, in the absence of
an Event of Default under the Regenmacher Xxxxxxxxx, not in right of
payment of interest) to the Company's prior repayment of the
Regenmacher Debenture.
21
c) LOST OR MUTILATED DEBENTURE. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the principal amount
of this Debenture so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested,
all reasonably satisfactory to the Company.
d) GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the
state and federal courts sitting in the City of New York, Borough of
Manhattan (the "NEW YORK COURTS"). Each party hereto ----------------
hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding
by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Debenture and agrees that such
service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted
by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Debenture, then
the prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorneys fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such
action or proceeding.
22
e) WAIVER. Any waiver by the Company or the Holder of a breach
of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach
of any other provision of this Debenture. The failure of the Company or
the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
f) SEVERABILITY. If any provision of this Debenture is
invalid, illegal or unenforceable, the balance of this Debenture shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other
persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest
on this Debenture as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefits or advantage of
any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted
to the Holder, but will suffer and permit the execution of every such
as though no such law has been enacted.
g) NEXT BUSINESS DAY. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.
h) HEADINGS. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
i) ASSUMPTION. Any successor to the Company or surviving
entity in a Fundamental Transaction shall (i) assume in writing all of
the obligations of the Company under this Debenture and the other
Transaction Documents pursuant to written agreements in form and
substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) prior to such Fundamental Transaction
and (ii) to issue to the Holder a new debenture of such successor
entity evidenced by a written instrument substantially similar in form
and substance to this Debenture, including, without limitation, having
a principal amount and interest rate equal to the principal amounts and
the interest rates of the Debentures held by the Holder and having
similar ranking to this Debenture, and satisfactory to the Holder (any
such approval not to be unreasonably withheld or delayed). The
provisions of this Section 9(i) shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard
to any limitations of this Debenture.
***************************
23
27
20143207.1
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
INTRAOP MEDICAL CORPORATION
By: Xxxxxx X. Xxxx
----------------------------------------------------
Name: Xxxxxx X. Xxxx
Title: Chief Executive Officer and President
24
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 7 %
Convertible Debenture of Intraop Medical Corporation, a Nevada corporation (the
"COMPANY"), due on October ___, 2008, into shares of common stock, par value
$0.001 per share (the "COMMON STOCK"), of the Company according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents
and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts determined in accordance with Section 13(d) of the Exchange
Act, specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery
requirements under the applicable securities laws in connection with any
transfer of the aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on
Account of Conversion at Issue.
Number of shares of Common Stock to
be issued:
Signature:
Name:
Address:
25
SCHEDULE 1
CONVERSION SCHEDULE
The 7% Convertible Debentures due on October ___, 2008, in the aggregate
principal amount of $____________ issued by Intraop Medical Corporation, a
Nevada corporation. This Conversion Schedule reflects conversions made under
Section 4 of the above referenced Debenture.
Dated:
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Aggregate
Principal
Amount
Remaining
Subsequent to
Date of Conversion to Conversion
(or for first entry, Amount of (or original
Original Issue Date) Conversion Principal Amount Company Attest
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