EXHIBIT 4.2
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THIS NOTE OR THE SHARES OF COMMON STOCK UNDER SAID ACT OR AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO CARDIOGENESIS CORPORATION, THAT
SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, CARDIOGENESIS CORPORATION, a California
corporation (the "BORROWER"), hereby promises to pay to LAURUS MASTER FUND,
LTD., c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate
House, South Church Street, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the
"HOLDER") or its registered assigns or successors in interest, on order, without
demand, the outstanding principal amount of all loans made by the Holder to the
Borrower under the terms of this Note (each an "Advance" and collectively the
"Advances"). The aggregate principal amount of all Advances outstanding
hereunder shall not exceed TWO MILLION DOLLARS ($2,000,000), and no Advance
shall be made after March 26, 2006 (the "Maturity Date"). The amount and date of
each Advance shall be entered by the Holder into Holder's records, which records
shall be conclusive evidence of the subject matter thereof absent manifest
error.
Capitalized terms used herein without definition shall have
the meanings ascribed to such terms in the Purchase and Security Agreement
between the Borrower and the Holder dated the date hereof (the "PURCHASE
AGREEMENT").
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1 Interest Rate. Except as modified by Section 1.2
below, the Borrower shall pay interest at the Contract Rate on the unpaid
principal balance of the Note until such time as such balance or portion thereof
is collected in full in good funds in dollars of the United States of America.
Interest shall be payable in arrears commencing one month from the date hereof
and on the first business day of each consecutive calendar month thereafter, and
on the Maturity Date, accelerated or otherwise, due and payable as described
below.
1.2 Default Rate. After the Default Notice Period, the
Default Rate, as defined in the Purchase Agreement, shall apply to the amounts
owed hereunder.
ARTICLE II
ADVANCES UNDER NOTE
2.1 Authorized Person.
(a) Any officer of the Borrower who has been disclosed to
the Holder in writing as an authorized officer for such purposes (an "AUTHORIZED
PERSON") may request an Advance on any day other than a Saturday, Sunday or
other day when commercial banks located in New York, New York are not open for
commercial banking business. Such request shall be made in writing delivered to
the Holder by not later than 12:00 p.m. on the day of the requested Advance.
(b) The Borrower hereby authorizes the Holder to rely
upon the written instructions of any person identifying himself or herself as an
Authorized Person and upon any signature which the Holder believes to be
genuine, and the Borrower shall be bound thereby in the same manner as if such
person were authorized or such signature were genuine.
2.2 Limitation on Advances. It is expressly understood that the
Holder is under no obligation to make any Advance to the Borrower under this
Note (whether by reason of any provision hereof or otherwise) (i) if an Event of
Default, as hereinafter defined, has occurred and is continuing, or (ii) if such
Advance or any part thereof would cause the aggregate amount of all Advances
made hereunder to exceed the Accounts Availability.
ARTICLE III
CONVERSION RIGHTS
3.1. Conversion into the Borrower's Common Stock.
(a) To the extent that Advances have been made hereunder,
the Holder shall have the right, but not the obligation, from and after the date
hereof, and then at any time until the Maturity Date, to convert the principal
portion of the Advances made hereunder and/or interest and fees due and payable
into fully paid and nonassessable shares of common stock of the Borrower as such
stock exists on the date of issuance of this Note, or any shares of capital
stock of the Borrower into which such stock shall hereafter be changed or
reclassified (the "COMMON STOCK") at the Conversion Price as defined below. In
the event that the Holder elects to convert this Note into Common Stock (to the
extent permitted herein), the Holder shall give notice of such election by
delivering an executed and completed notice of conversion ("NOTICE OF
CONVERSION") to the Borrower and such Notice of Conversion shall provide a
breakdown in reasonable detail of the amount of Note principal, interest and
fees that are being converted. On each Conversion Date (as hereinafter defined)
and in accordance with its Notice of Conversion, the Holder shall make the
appropriate reduction to the Advances, interest and fees as entered in its
records and shall provide written notice thereof to the Borrower within 2
business days after the Conversion Date. Each date on which a Notice of
Conversion is
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delivered or telecopied to the Borrower in accordance with the provisions hereof
shall be deemed a Conversion Date (the "CONVERSION DATE"). A form of Notice of
Conversion that may be employed by the Holder is annexed hereto as Exhibit A.
The Borrower will cause the transfer agent to transmit the certificates
representing the shares of the Common Stock issuable upon conversion of the Note
to the Holder by crediting the account of the Holder's designated broker with
the Depository Trust Corporation ("DTC") through its Deposit Withdrawal Agent
Commission ("DWAC") system within three (3) business days after receipt by the
Borrower of the Notice of Conversion (the "DELIVERY DATE").
In the case of the exercise of the conversion rights set forth
herein the conversion privilege shall be deemed to have been exercised and the
shares of Common Stock issuable upon such conversion shall be deemed to have
been issued upon the date of receipt by the Borrower of the Notice of
Conversion. The Holder shall be treated for all purposes as the record holder of
such Common Stock, unless the Holder provides the Borrower written instructions
to the contrary.
(b) The Conversion Price per share shall be $.30 (the
"CONVERSION PRICE"); provided, however that for every $2 million of conversions
made hereunder, the Conversion Price thereafter shall be adjusted to equal 100%
of the average closing price for the three days prior to the last day of the
period during which such $2 million has been converted. The Conversion Price is
subject to further adjustment as provided in Section 3.1(e) hereof.
If after the Default Notice Period (as defined below) the
Borrower has not repaid in full the amounts then due hereunder or cured the
Event of Default, then the Conversion Price shall be reduced and shall be equal
to the lower of (i) the Conversion Price; or (ii) eighty percent (80%) of the
average of the three lowest closing prices for the Common Stock on NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the
time the principal trading exchange or market for the Common Stock, the
"PRINCIPAL MARKET"), or on any securities exchange or other securities market on
which the Common Stock is then being listed or traded, for the ten (10) trading
days prior to but not including the Conversion Date.
(c) Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to convert pursuant to the terms of
this Note an amount that would be convertible into that number of shares of
Common Stock which would exceed the difference between the number of shares of
Common Stock beneficially owned by such holder or issuable upon exercise of
warrants held by such holder and 4.99% of the outstanding shares of Common Stock
of the Borrower. For the purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and Regulation 13d-3 thereunder. The Holder may void the conversion
limitation described in this section upon an Event of Default hereunder.
(d) The Borrower understands that a delay in the delivery
of the shares of Common Stock in the form required pursuant to this Article
beyond the Delivery Date could result in economic loss to the Holder. As
compensation to the Holder for such loss, the Borrower agrees to pay late
payments to the Holder for late issuance of the such shares in the form required
pursuant to this Article III upon conversion of the Note, in the amount equal to
the greater of (i) $500 per business day after the Delivery Date and (ii) the
Borrower's actual damages from such delayed delivery. The Borrower shall pay any
payments incurred under this Section in immediately available funds upon demand
and, in the case of actual damages, accompanied by reasonable documentation of
the amount of such damages.
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(e) The Conversion Price and number and kind of shares or
other securities to be issued upon conversion shall be subject to adjustment
from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
X. Xxxxxx, Sale of Assets, etc. The Borrower at
any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the number of shares of Common Stock the Holder could have acquired
immediately prior to such consolidation, merger, sale or conveyance based on the
Conversion Price as of the closing date thereof. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
provisions of this Section shall apply to such securities of such successor or
purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at
any time shall, by reclassification or otherwise, change the Common Stock into
the same or a different number of securities of any class or classes, this Note,
as to the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of
such securities and kind of securities as would have been issuable as the result
of such change with respect to the number of shares of Common Stock into which
the Note would have been convertible immediately prior to such reclassification
or other change at the Conversion Price as of the effective date for such
reclassification or change.
C. Stock Splits, Combinations and Dividends. If
the shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Conversion Price shall be proportionately reduced
in case of subdivision of shares or stock dividend or proportionately increased
in the case of combination or smaller number of shares, in each such case by the
ratio which the total number of shares of Common Stock outstanding immediately
after such event bears to the total number of shares of Common Stock outstanding
immediately prior to such event.
D. Share Issuance. Subject to the provisions of
this Section, if the Borrower at any time shall issue any shares of Common Stock
prior to the conversion of the portion of the principal amount of the Note
permitted by Section 3.1(a) (otherwise than as: (i) provided in Sections
3.1(e)A, 3.1(e)B or 3.1(e)C or this subparagraph D; or (ii) pursuant to warrants
or options that may be granted in the future under any option plan of the
Borrower, or any employment agreement, joint venture, credit, leasing or other
financing agreement or any joint venture or other strategic arrangement, in each
case now or hereinafter entered into by the Borrower, (iii) pursuant to any
agreement entered into by the Company or any of its subsidiaries for the
acquisition of another business (whether by stock purchase or asset purchase,
merger or otherwise; ((i), (ii) and (iii) above, are hereinafter referred to as
the "EXCLUDED ISSUANCES")) for a consideration less than the Conversion Price
that would be in effect at the time of such issue, then, and thereafter
successively upon each such issue, the Conversion Price shall be reduced as
follows: (i) the number of shares of Common Stock outstanding immediately prior
to such issue shall be multiplied by the Conversion Price in effect at the time
of such issue and the product shall be added to the aggregate consideration, if
any, received by the Borrower upon such issue of additional shares of Common
Stock; and (ii) the sum so obtained shall be divided by the number of shares of
Common Stock outstanding immediately after such issue. The resulting quotient
shall be the adjusted Conversion Price. Except for the Excluded Issuances for
purposes of this adjustment, the issuance of
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any security of the Borrower carrying the right to convert such security into
shares of Common Stock or of any warrant, right or option to purchase Common
Stock shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(f) During the period the conversion right exists, the
Borrower will reserve from its authorized and unissued Common Stock 5,000,000
shares of its Common Stock. The Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable. The
Borrower agrees that the Borrower's issuance of this Note shall constitute full
authority to the Borrower's officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for shares of Common Stock upon the conversion
of this Note.
3.2 Registration Rights. The Holder has been granted
registration rights with respect to the shares of Common Stock issuable upon
conversion of this Note as more fully set forth in a Registration Rights
Agreement dated the date hereof (the "REGISTRATION RIGHTS AGREEMENT.")
3.3 Required Conversion. In the event that the Common
Stock trades on the Principal Market at a price greater than 120% of the
Conversion Price for a period of at least 11 consecutive trading days, then the
Borrower may, at its sole option, provide the Holder irrevocable written notice
("CALL NOTICE") requiring the conversion at the Conversion Price of all or a
portion of the Note held by the Holder as of the date set forth in such Call
Notice (the "CALL DATE"), which such date shall be at least 11 trading days
following the date of the Call Notice, provided a registration statement
covering resales of that number of shares of Common Stock then issuable upon
conversion of this Note pursuant to such Call Notice has been declared effective
and is available for use. The amount of Common Stock to be issued in connection
with any such conversion pursuant to a particular Call Notice pursuant to this
Section 3.3 shall not exceed 25% of the aggregate dollar trading volume of the
Common Stock for the 11 trading days immediately preceding the Call Date. If the
price of the Common Stock falls below 120% of the Conversion Price during the 11
trading day period preceding the Call Date, then the Holder will no longer be
required to convert the Note pursuant to such Call Notice.
ARTICLE IV
EVENTS OF DEFAULT
The occurrence of any of the following events is an Event of
Default ("EVENT OF DEFAULT"):
4.1 Failure to Deliver Common Stock. The Borrower's
failure to timely deliver Common stock to the Holder pursuant to and in the form
required by this Note.
4.2 Stop Trade. An SEC stop trade order or Principal
Market trading suspension of the Common Stock for 5 consecutive days or 5 days
during a period of 10 consecutive days, excluding in all cases a suspension of
all trading on a Principal Market.
4.3 Default Under Related Agreement. An Event of Default
occurs under and as defined in Purchase and Security Agreement between the
Borrower and the Holder as such agreement may
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be amended, modified and supplemented from time to time.
ARTICLE V
DEFAULT PAYMENT
5.1 Default Payment. If an Event of Default occurs, the
Holder, at its option, may elect to require the Borrower to make a Default
Payment ("DEFAULT PAYMENT"). The Default Payment shall be 120% of the
outstanding principal amount of the Note, plus accrued but unpaid interest, all
other fees then remaining unpaid, and all other amounts payable hereunder.
5.2 Default Payment Date and Default Notice Period. The
Default Payment shall be due and payable on the fifth business day after the
date written notice is sent from the Holder to the Borrower of an Event of
Default as defined in Article IV ("DEFAULT PAYMENT DATE"). The period between
the date of the written notice from the Holder to the Borrower of an Event of
Default and the Default Payment Date shall be the "DEFAULT NOTICE PERIOD." If
during the Default Notice Period, the Borrower cures the Event of Default, the
Event of Default will no longer exist and any rights the Holder had pertaining
to the Event of Default will no longer exist. If the Event of Default is not
cured during the Default Notice Period, all amounts payable hereunder shall be
due and payable on the Default Payment Date, all without further demand,
presentment or notice, or grace period, all of which hereby are expressly
waived.
5.3 Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE VI
MISCELLANEOUS
6.1 Failure or Indulgence Not Waiver. No failure or delay
on the part of the Holder hereof in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
6.2 Notices. Any notice herein required or permitted to
be given shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day, (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to (i) the Borrower at the address as set forth on the signature page to the
Purchase Agreement executed in connection herewith and, as the case may be, to
the Borrower at the address as set forth in Section 6(g) of the Registration
Rights Agreement, in each case, and (ii)
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the Holder at the address set forth on the signature page to the Purchase
Agreement for such Holder, with a copy to Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx
Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, xxxxxxxxx number (000) 000-0000, or
at such other address as the Borrower, the Borrower or the Holder may designate
by ten days advance written notice to the other parties hereto made and
delivered in accordance with this Section 5.2.
6.3 Amendment Provision. The term "Note" and all
reference thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
6.4 Assignability. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder.
6.5 Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws. Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York; provided, however that the Purchaser may choose to waive
this provision and bring an action outside the state of New York. Both parties
and the individual signing this Note on behalf of the Borrower, the Borrower and
the Holder agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note.
6.6 Maximum Payments. Nothing contained herein shall be
deemed to establish or require the payment of a rate of interest or other
charges in excess of the maximum permitted by applicable law. In the event that
the rate of interest required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Borrower to the Holder and thus refunded to
the Borrower.
6.7 Security Interest. The holder of this Note has been
granted a security interest in certain assets of the Borrower more fully
described in the Purchase Agreement.
6.8 Construction. Each party acknowledges that its legal
counsel participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Note to favor
any party against the other.
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its name effective as of this 27th day of March, 2003.
CARDIOGENESIS CORPORATION
By:________________________________
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NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by CARDIOGENESIS
CORPORATION on March 27, 2003 into Shares of Common Stock of CARDIOGENESIS
CORPORATION (the "Company") according to the conditions set forth in such Note,
as of the date written below.
Date of Conversion:_____________________________________________________________
Conversion Price:_______________________________________________________________
Shares To Be Delivered:_________________________________________________________
DTC Number:_____________________________________________________________________
Account Number:_________________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
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