Contract
THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND IS BEING
OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF
THE SECURITIES ACT AND SUCH LAWS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE
SECURITIES ACT OR SUCH OTHER LAWS.
6
¼ % CONVERTIBLE DEBENTURE
Company:
3DIcon
Corporation
Company
Address: 0000
Xxxxxxxx Xxx., Xxxxx, Xxxxxxxx 00000
Closing
Date: November
3, 2006
Maturity
Date: November
3, 2009
Principal
Amount:
$1,250,000
First
Payment Due Date: January
15, 2007
3DIcon
Corporation, an Oklahoma corporation, and any successor or resulting corporation
by way of merger, consolidation, sale or exchange of all or substantially
all of
the assets or otherwise (the “Company”),
for
value received, hereby promises to pay to the Holder (as such term is
hereinafter defined), or such other Person (as such term is hereinafter defined)
upon order of the Holder, on the Maturity Date, the Principal Amount (as
such
term is hereinafter defined), as such sum may be adjusted pursuant to Article
3,
and to pay interest thereon from the Closing Date, monthly in arrears, on
the
15th
day of
each month (each an “Interest
Payment Due Date”
and
collectively, the “Interest
Payment Due Dates”),
commencing on the First Payment Due Date, at the rate of six and one-quarter
percent (6 ¼ %) per annum (the “Debenture
Interest Rate”),
until
the Principal Amount of this Debenture has been paid in full. All interest
payable on the Principal Amount of this Debenture shall be calculated on
the
basis of a 360-day year for the actual number of days elapsed. Payment of
interest on this Debenture shall be in cash or, at the option of the Holder,
in
shares of Common Stock of the Company valued at the then applicable Conversion
Price (as defined herein). This Debenture may not be prepaid without the
written
consent of the Holder.
ARTICLE
1
DEFINITIONS
SECTION
1.1 Definitions.
The
terms defined in this Article whenever used in this Debenture have the following
respective meanings:
(i) “Affiliate”
has the
meaning ascribed to such term in Rule 12b-2 under the Securities Exchange
Act of
1934, as amended.
(ii) “Bankruptcy
Code”
means
the United States Bankruptcy Code of 1986, as amended (11 U.S.C. §§ 101
et.
seq.).
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(iii) “Business
Day”
means a
day other than Saturday, Sunday or any day on which banks located in the
State
of California are authorized or obligated to close.
(iv) “Capital
Shares”
means
the Common Stock and any other shares of any other class or series of capital
stock, whether now or hereafter authorized and however designated, which
have
the right to participate in the distribution of earnings and assets (upon
dissolution, liquidation or winding-up) of the Company.
(v) “Common
Shares”
or
“Common
Stock”
means
shares of the Company’s Common Stock.
(vi) “Common
Stock Issued at Conversion”,
means
the Common Stock deliverable upon conversion of this Debenture, including
all
securities of any other class or series into which this Debenture may hereafter
be convertible, whether now or hereafter created and however
designated.
(vii) “Conversion”
or
“conversion”
means
the repayment by the Company of the Principal Amount of this Debenture (and,
to
the extent the Holder elects as permitted by Section 3.1, accrued and unpaid
interest thereon) by the delivery of Common Stock on the terms provided in
Section 3.2, and “convert,” “converted,” “convertible”
and like
words shall have a corresponding meaning.
(viii) “Conversion
Date”
means
any day on which all or any portion of the Principal Amount of this Debenture
is
converted in accordance with the provisions hereof.
(ix) “Conversion
Notice”
means a
written notice of conversion substantially in the form annexed hereto as
Exhibit
A.
(x) “Conversion
Price”
on any
date of determination means the applicable price for the conversion of this
Debenture into Common Shares on such day as set forth in Section
3.1(a).
(xi) “Current
Market Price”
on any
date of determination means the closing price of a Common Share on such day
as
reported on the “pink sheets” through the Interdealer Trading and Quotation
System; provided that, if such security is not traded on the over the counter
market via the pink sheets, then as reported on the NASDAQ OTCBB Exchange;
provided
that,
if
such security is not traded on the over the counter market via the pink sheets,
then as reported on the NASDAQ OTCBB, or if not so traded on the OTCBB, then
as
reported on the principal national security exchange or quotation system
on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange
or
quotation system, the closing bid price of such security on the over-the-counter
market on the day in question as reported by Bloomberg LP or a similar generally
accepted reporting service, as the case may be.
(xii) “Deadline”
means
the date that is the 90th day from the Closing Date, provided, however, the
Deadline shall be extended by such time as is necessary for the Company to
respond to comments by the SEC, so long as the Company files the appropriate
registration statement within 30 days of the Closing Date and thereafter
responds to all SEC comments within 10 Business Days of receipt thereof,
and
provided, further, that such 10 Business Day period shall be extended to
a date
that is the second Business Day following the receipt by the Company of
information necessary to formulate such response to the SEC in the event
such
information must be provided by the Holder or an Affiliate of the Holder,
and
such information is not provided to the Company on or before eight Business
Days
from the original receipt of the SEC comments.
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(xiii) “Debenture”
or
“Debentures”
means
this Convertible Debenture of the Company or such other convertible debenture(s)
exchanged therefor as provided in Section 2.1.
(xiv) “Discount
Multiplier”
has
the
meaning set forth in Section 3.1(a).
(xv) “Event
of Default”
has the
meaning set forth in Section 6.1.
(xvi) “Holder”
means
Golden Gate Investors, Inc., any successor thereto, or any Person to whom
this
Debenture is subsequently transferred in accordance with the provisions
hereof.
(xvii) “Interest
Payment Due Date”
has the
meaning set forth in the opening paragraph of this Debenture.
(xviii) “Market
Disruption Event”
means
any event that results in a material suspension or limitation of trading
of the
Common Shares.
(xix) “Market
Price”
per
Common Share means the closing price of the Common Shares on any Trading
Day as
reported in the “pink sheets” through the Interdealer Trading Quotation System;
provided, if such security is not traded on the over the counter market via
the
pink sheets, then the closing price on the NASDAQ OTCBB; provided
further, that,
if
such security is not listed or admitted to trading on the NASDAQ OTCBB, as
reported on the principal national security exchange or quotation system
on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange
or
quotation system, the lowest price of the Common Shares during any Trading
Day
on the over-the-counter market as reported by Bloomberg LP or a similar
generally accepted reporting service, as the case may be.
(xx) “Maximum
Rate”
has the
meaning set forth in Section 6.4.
(xxi) “Outstanding”
when
used with reference to Common Shares or Capital Shares (collectively,
“Shares”)
means,
on any date of determination, all issued and outstanding Shares, and includes
all such Shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in such Shares; provided,
however,
that
any such Shares directly or indirectly owned or held by or for the account
of
the Company or any Subsidiary of the Company shall not be deemed “Outstanding”
for
purposes hereof.
(xxii) “Person”
means an
individual, a corporation, a partnership, an association, a limited liability
company, an unincorporated business organization, a trust or other entity
or
organization, and any government or political subdivision or any agency or
instrumentality thereof.
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(xxiii) “Principal
Amount”
means,
for any date of calculation, the principal sum set forth in the first paragraph
of this Debenture; provided (1) “Principal Amount” shall include only so much of
the amount which the Holder has actually advanced pursuant to the Securities
Purchase Agreement and which has actually been advanced to the Company out
of
the Escrow, and (2) “Principal Amount” shall not include any amount of the
Debenture with respect to which Xxxxxx has at the time furnished a Conversion
Notice in compliance with Section 3.2. Notwithstanding anything herein or
in the
Securities Purchase Agreement to the contrary, Holder shall never be entitled
to
convert any portion of the Debenture with respect to which Holder has not
yet
paid the Purchase Price and such portion of the Purchase Price has been released
to the Company from the Escrow, in accordance with the terms of the Securities
Purchase Agreement.
(xxiv) “Registration
Rights Agreement”
means
that certain Registration Rights Agreement of even date herewith by and between
the Company and Holder, as the same may be amended from time to
time.
(xxv) “SEC”
means
the United States Securities and Exchange Commission.
(xxvi) “Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations of
the SEC
thereunder, all as in effect at the time.
(xxvii) “Securities
Purchase Agreement”
means
that certain Securities Purchase Agreement of even date herewith by and among
the Company and Holder, as the same may be amended from time to
time.
(xxviii) “Subsidiary”
means
any entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are owned directly or indirectly by the
Company.
(xxix) “Trading
Day”
means
any day on which (i) purchases and sales of securities on the principal national
security exchange or quotation system on which the Common Shares are traded
are
reported thereon, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, as reported by Bloomberg
LP or
a similar generally accepted reporting service, as the case may be, (ii)
at
least one bid for the trading of Common Shares is reported and (iii) no Market
Disruption Event occurs.
(xxx) “Volume
Weighted Average Price” per
Common Share means the volume weighted average price of the Common Shares
during
any Trading Day as reported on the NASDAQ OTCBB; provided
that, if
such security is not listed or admitted to trading on the NASDAQ OTCBB, as
reported on the principal national security exchange or quotation system
on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange
or
quotation system, the volume weighted average price of the Common Shares
during
any Trading Day on the over-the-counter market as reported by Bloomberg LP
or a
similar generally accepted reporting service, as the case may be.
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All
references to “cash” or “$” herein means currency of the United States of
America.
ARTICLE
2
EXCHANGES,
TRANSFER AND REPAYMENT
SECTION
2.1 Registration
of Transfer of Debentures.
This
Debenture, when presented for registration of transfer, shall (if so required
by
the Company) be duly endorsed, or be accompanied by a written instrument
of
transfer in form reasonably satisfactory to the Company duly executed, by
the
Holder duly authorized in writing.
SECTION
2.2 Loss,
Theft, Destruction of Debenture.
Upon
receipt of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Debenture and, in the case of any such loss, theft
or
destruction, upon receipt of indemnity or security reasonably satisfactory
to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Debenture, the Company shall make, issue and deliver,
in
lieu of such lost, stolen, destroyed or mutilated Debenture, a new Debenture
of
like tenor and unpaid Principal Xxxxxx dated as of the date hereof (which
shall
accrue interest from the most recent Interest Payment Due Date on which an
interest payment was made in full). This Debenture shall be held and owned
upon
the express condition that the provisions of this Section 2.2 are exclusive
with
respect to the replacement of a mutilated, destroyed, lost or stolen Debenture
and shall preclude any and all other rights and remedies notwithstanding
any law
or statute existing or hereafter enacted to the contrary with respect to
the
replacement of negotiable instruments or other securities without the surrender
thereof.
SECTION
2.3 Who
Deemed Absolute Owner.
The
Company may deem the Person in whose name this Debenture shall be registered
upon the registry books of the Company to be, and may treat it as, the absolute
owner of this Debenture (whether or not this Debenture shall be overdue)
for the
purpose of receiving payment of or on account of the Principal Amount of
this
Debenture, for the conversion of this Debenture and for all other purposes,
and
the Company shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effectual to satisfy and
discharge the liability upon this Debenture to the extent of the sum or sums
so
paid or the conversion or conversions so made.
SECTION
2.4 Repayment
at Maturity.
At the
Maturity Date, the Company shall repay the outstanding Principal Amount of
this
Debenture in whole in cash, together with all accrued and unpaid interest
thereon, in cash, to the Maturity Date.
ARTICLE
3
CONVERSION
OF DEBENTURE
SECTION
3.1 Conversion;
Conversion Price; Valuation Event.
(a)
Subject to the limitations set forth in Section 3.5 hereof, and further subject
to the limitations on the obligation to either release funds from the Escrow
or
issue Conversion Shares pursuant to Section I.B of the Securities Purchase
Agreement, at the option of the Holder, this Debenture may be converted,
either
in whole or in part, up to the full Principal Amount hereof into Common Shares
(calculated as to each such conversion to the nearest 1/100th of a share),
at
any time and from time to time on any Business Day, subject to compliance
with
Section 3.2. The number of Common Shares into which this Debenture may be
converted is equal to the dollar amount of the Debenture being converted
divided
by the Conversion Price. The “Conversion
Price”
shall be
equal to the lesser of (i) $2.00, or (ii) 80% of the average of the five
lowest
Volume Weighted Average Prices during the twenty Trading Days prior to Holder’s
election to convert (the percentage figure being a “Discount
Multiplier”);
provided,
that in
the event the Registration Statement has not been declared effective by the
SEC
by the Deadline then the applicable Discount Multiplier shall decrease by
three
percentage points for each month or partial month occurring after the Deadline
that the Registration Statement is not effective or, if the Registration
Statement has theretofore been declared effective but is not thereafter
effective, then the applicable Discount Multiplier shall decrease by three
percentage points for each week or partial week occurring after the Deadline
that the Registration Statement is not effective. In addition, if the
Registration Statement has theretofore been declared effective but is not
thereafter effective, Holder, at its option, shall be entitled to the Conversion
Price on the date that the Registration Statement is no longer effective,
for a
period beginning on the date that the Registration Statement is declared
effective and continuing for the number of days that a Registration Statement
was not effective. The Company reserves the right to increase the number
of
Trading Days in clause (ii) above, as it deems appropriate.
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If
the
Holder elects to convert a portion of the Debenture and, on the day that
the
election is made, the Volume Weighted Average Price is below $0.75, the Company
shall have the right to prepay that portion of the Debenture that Holder
elected
to convert, plus any accrued and unpaid interest, at 135% of such amount.
In the
event that the Company elects to prepay that portion of the Debenture, Holder
shall have the right to withdraw its Conversion Notice. If, at anytime during
the month, the Volume Weighted Average Price is below $0.75, Holder shall
not be
obligated to convert any portion of the Debenture during that month.
(b) Notwithstanding
the provisions of Section 3.1(a), in the event the Company’s Registration
Statement has not been declared effective by the Deadline or, if the
Registration Statement has theretofore been declared effective but is not
thereafter effective, the following will also apply in addition to any damages
incurred by the Holder as a result thereof:
(i) The
Holder may demand repayment of one hundred and fifteen percent (115%) of
the
Principal Amount of the Debenture, together with all accrued and unpaid interest
on the Principal Amount of the Debenture, in cash, at any time after the
Deadline but prior to the Company’s Registration Statement being declared
effective by the SEC or during the period that the Company’s Registration
Statement is not effective, such repayment to be made within three (3) business
days of such demand. In the event that the Debenture is so accelerated, in
addition to the repayment of one hundred and fifteen percent (115%) of the
Principal Amount together with accrued interest as aforesaid, the Company
shall
immediately issue and pay, as the case may be, to the Holder 25,000 Shares
of
Common Stock and $15,000 for each thirty (30) day period, or portion thereof,
during which the Principal Amount, including interest thereon, remains unpaid
following demand, with the monthly payment amount to increase to $20,000
for
each thirty (30) day period, or portion thereof, after the first ninety (90)
day
period;
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(ii) If
the
SEC indicates that the Company’s Registration Statement will be declared
effective upon request by the Company, and the Company does not, within 3
business days of the SEC indication, request that the Registration Statement
become effective, the amounts set forth in subsection (i) above shall
double.
SECTION
3.2 Exercise
of Conversion Privilege.
(a)
Conversion of this Debenture may be exercised on any Business Day by the
Holder
by telecopying an executed and completed Conversion Notice to the Company.
Each
date on which a Conversion Notice is telecopied to the Company in accordance
with the provisions of this Section 3.2 shall constitute a Conversion Date.
The
Company shall convert this Debenture and issue the Common Stock Issued at
Conversion in the manner provided below in this Section 3.2, and all voting
and
other rights associated with the beneficial ownership of the Common Stock
Issued
at Conversion shall vest with the Holder, effective as of the Conversion
Date at
the time specified in the Conversion Notice. The Conversion Notice also shall
state the name or names (with addresses) of the persons who are to become
the
holders of the Common Stock Issued at Conversion in connection with such
conversion. As promptly as practicable after the receipt of the Conversion
Notice as aforesaid, but in any event not more than two (2) Business Days
after
the Company’s receipt of such Conversion Notice, the Company shall (i) issue the
Common Stock Issued at Conversion in accordance with the provisions of this
Article 3 and (ii) cause to be mailed for delivery by overnight courier,
or if a
Registration Statement covering the Common Stock has been declared effective
by
the SEC cause to be electronically transferred, to Holder (x) a certificate
or
certificate(s) representing the number of Common Shares to which the Holder
is
entitled by virtue of such conversion, (y) cash, as provided in Section 3.3,
in
respect of any fraction of a Common Share deliverable upon such conversion
and
(z) cash or shares of Common Stock, as applicable, representing the amount
of
accrued and unpaid interest on this Debenture as of the Conversion Date.
Such
conversion shall be deemed to have been effected as of the Conversion Date,
and
at such time the rights of the Holder of this Debenture, as such (except
if and
to the extent that any Principal Amount thereof remains unconverted), shall
cease and the Person and Persons in whose name or names the Common Stock
issued
at Conversion shall be issuable shall be deemed to have become the holder
or
holders of record of the Common Shares represented thereby, and all voting
and
other rights associated with the beneficial ownership of such Common Shares
shall at such time vest with such Person or Persons. The Conversion Notice
shall
constitute a contract between the Holder and the Company, whereby the Holder
shall be deemed to subscribe for the number of Common Shares which it will
be
entitled to receive upon such conversion and, in payment and satisfaction
of
such subscription (and for any cash adjustment to which it is entitled pursuant
to Section 3.4), to surrender this Debenture and to release the Company from
all
liability thereon (except if and to the extent that any Principal Amount
thereof
remains unconverted). No cash payment aggregating less than $1.00 shall be
required to be given unless specifically requested by the Holder.
(b) If,
at
any time after the date of this Debenture, (i) the Company wrongfully
challenges, disputes or denies the right of the Holder hereof to effect the
conversion of this Debenture into Common Shares or otherwise wrongfully
dishonors or rejects any Conversion Notice delivered in accordance with this
Section 3.2 or (ii) any third party who is not and has never been an Affiliate
of the Holder commences any lawsuit or legal proceeding or otherwise asserts
any
claim before any court or public or governmental authority which seeks to
challenge, deny, enjoin, limit, modify, delay or dispute the right of the
Holder
hereof to effect the conversion of this Debenture into Common Shares, then
the
Holder shall have the right, but not the obligation, by written notice to
the
Company, to require the Company to promptly redeem this Debenture for cash
at
one hundred and thirty-five (135%) of the Principal Amount thereof, together
with all accrued and unpaid interest thereon to the date of redemption. Under
any of the circumstances set forth above, the Company shall be responsible
for
the payment of all costs and expenses of the Holder, including reasonable
legal
fees and expenses, as and when incurred in defending itself in any such action
or pursuing its rights hereunder (in addition to any other rights of the
Holder).
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(c) To
the
fullest extent permitted by law, the Holder shall be entitled to exercise
its
conversion privilege notwithstanding the commencement of any case under the
Bankruptcy Code. In the event the Company is a debtor under the Bankruptcy
Code,
the Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. § 362 in respect of the Holder’s conversion
privilege. The Company hereby waives to the fullest extent permitted any
rights
to relief it may have under 11 U.S.C. § 362 in respect of the conversion of this
Debenture. The Company agrees, without cost or expense to the Holder, to
take or
consent to any and all action necessary to effectuate relief under 11 U.S.C.
§
362.
SECTION
3.3 Fractional
Shares.
No
fractional Common Shares or scrip representing fractional Common Shares shall
be
delivered upon conversion of this Debenture. Instead of any fractional Common
Shares which otherwise would be delivered upon conversion of this Debenture,
the
Company shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction multiplied by the Current Market Price on the
Conversion Date. No cash payment of less than $1.00 shall be required to
be
given unless specifically requested by the Holder.
SECTION
3.4 Adjustments.
The
Conversion Price and the number of shares deliverable upon conversion of
this
Debenture are subject to adjustment from time to time as follows:
(i) Reclassification,
Etc.
In case
the Company shall reorganize its capital, reclassify its capital stock,
consolidate or merge with or into another Person (where the Company is not
the
survivor or where there is a change in or distribution with respect to the
Common Stock of the Company), sell, convey, transfer or otherwise dispose
of all
or substantially all its property, assets or business to another Person,
or
effectuate a transaction or series of related transactions in which more
than
fifty percent (50%) of the voting power of the Company is disposed of (each,
a
“Fundamental
Corporate Change”)
and,
pursuant to the terms of such Fundamental Corporate Change, shares of common
stock of the successor or acquiring corporation, or any cash, shares of stock
or
other securities or property of any nature whatsoever (including warrants
or
other subscription or purchase rights) in addition to or in lieu of common
stock
of the successor or acquiring corporation (“Other
Property”)
are to
be received by or distributed to the holders of Common Stock of the Company,
then the Holder of this Debenture shall have the right thereafter, at its
sole
option, to (x) receive the number of shares of common stock of the successor
or
acquiring corporation or of the Company, if it is the surviving corporation,
and
Other Property as is receivable upon or as a result of such
Fundamental Corporate Change by a holder of the number of shares of Common
Stock
into which the outstanding portion of this Debenture may be converted at
the
Conversion Price applicable immediately prior to such Fundamental Corporate
Change or (y) require the Company, or such successor, resulting or
purchasing corporation, as the case may be, to, without benefit of any
additional consideration therefor, execute and deliver to the Holder a debenture
with substantial identical rights, privileges, powers, restrictions and other
terms as this Debenture in an amount equal to the amount outstanding under
this
Debenture immediately prior to such Fundamental Corporate Change. For purposes
hereof, “common
stock of the successor or acquiring corporation”
shall
include stock of such corporation of any class which is not preferred as
to
dividends or assets over any other class of stock of such corporation and
which
is not subject to prepayment and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into
or
exchangeable for any such stock, either immediately or upon the arrival of
a
specified date or the happening of a specified event and any warrants or
other
rights to subscribe for or purchase any such stock. The foregoing provisions
shall similarly apply to successive Fundamental Corporate Changes.
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SECTION
3.5 Certain
Conversion Limits.
So
long
as any of the Principal Amount of this Debenture is outstanding, the Holder
shall not have the right, and the Company shall not have the obligation,
to
convert any portion of this Debenture if, following a Conversion Notice from
the
Holder, the result would be that the Holder would be deemed the beneficial
owner
of more than 9.99% of the then Outstanding shares of Common Stock. Further,
for
a period of one year after the Closing Date, if and to the extent that, on
any
date, the mere holding by the Holder of this Debenture (regardless of the
actual
conversion of any portion thereof) would result in the Holder’s being deemed the
beneficial owner of
more
than 9.99% of the then Outstanding shares of Common Stock, then in addition
to
the Holder having no right, and the Company having no obligation, to convert
any
portion of this Debenture as shall cause such Holder to be deemed the beneficial
owner of more than 9.99% of the then Outstanding shares of Common Stock if
any
court of competent jurisdiction shall determine that the foregoing limitation
is
ineffective to prevent the Holder, by mere ownership of the Debenture, from
being deemed the beneficial owner of more than 9.99% of the then Outstanding
shares of Common Stock, then the Company shall prepay such portion of this
Debenture as shall cause such Holder not to be deemed the beneficial owner
of
more than 9.99% of the then Outstanding shares of Common Stock. Upon such
determination by a court of competent jurisdiction, the Holder shall have
no
interest in or rights under such portion of the Debenture. Any and all interest
paid on or prior to the date of such determination shall be deemed interest
paid
on the remaining portion of this Debenture held by the Holder.
SECTION
3.6 Surrender
of Debentures.
Upon
any redemption of this Debenture pursuant to Sections 3.2, 3.5 or 6.2, or
upon
maturity pursuant to Section 2.4, the Holder shall either deliver this Debenture
by hand to the Company at its principal executive offices or surrender the
same
to the Company at such address by nationally recognized overnight courier.
Payment of the redemption price or the amount due on maturity specified in
Section 2.4, shall be made by the Company to the Holder against receipt of
this
Debenture (as provided in this Section 3.5) by wire transfer of immediately
available funds to such account(s) as the Holder shall specify by written
notice
to the Company. If payment of such redemption price is not made in full by
the
redemption date, or the amount due on maturity is not paid in full by the
Maturity Date, the Holder shall again have the right to convert this Debenture
as provided in Article 3 hereof or to declare an Event of Default.
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ARTICLE
4
STATUS;
RESTRICTIONS ON TRANSFER
SECTION
4.1 Status
of Debenture.
This
Debenture constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms subject, as to enforceability, to
general principles of equity and to principles of bankruptcy, insolvency,
reorganization and other similar laws of general applicability relating to
or
affecting creditors’ rights and remedies generally.
SECTION
4.2 Restrictions
on Transfer.
This
Debenture, and any Common Shares deliverable upon the conversion hereof,
have
not been registered under the Securities Act. The Holder by accepting this
Debenture agrees that this Debenture and the shares of Common Stock to be
acquired as interest on and upon conversion of this Debenture may not be
assigned or otherwise transferred unless and until (i) the Company has received
an opinion of counsel for the Company that this Debenture or such shares
may be
sold pursuant to an exemption from registration under the Securities Act
or (ii)
a registration statement relating to this Debenture or such shares has been
filed by the Company and declared effective by the SEC.
Each
certificate for shares of Common Stock deliverable hereunder shall bear a
legend
as follows unless and until such securities have been sold pursuant to an
effective registration statement under the Securities Act:
“The
securities represented by this certificate have not been registered under
the
Securities Act of 1933, as amended (the “Securities Act”). The securities may
not be offered for sale, sold or otherwise transferred except (i) pursuant
to an
effective registration statement under the Securities Act or (ii) pursuant
to an
exemption from registration under the Securities Act in respect of which
the
issuer of this certificate has received an opinion of counsel satisfactory
to
the issuer of this certificate to such effect. The securities are further
subject to the terms of a Securities Purchase Agreement dated November ___,
2006, copies of which may be obtained at no cost by written request made
by the
holder of record of this certificate to the Secretary of the issuer of this
certificate at the principal executive offices of the issuer of this
certificate.”
ARTICLE
5
COVENANTS
SECTION
5.1 Conversion.
The
Company shall cause the transfer agent, not later than two (2) Business Days
after the Conversion Date, to issue and deliver to the Holder the requisite
shares of Common Stock Issued at Conversion. Such delivery shall be by
electronic transfer if a Registration Statement covering the Common Stock
has
been declared effective by the SEC.
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SECTION
5.2 Notice
of Default.
If any
one or more events occur which constitute or which, with notice, lapse of
time,
or both, would constitute an Event of Default, the Company shall forthwith
give
notice to the Holder, specifying the nature and status of the Event of Default
or such other event(s), as the case may be.
SECTION
5.3 Payment
of Obligations.
So long
as this Debenture shall be outstanding, the Company shall pay, extend, or
discharge at or before maturity, all its respective material obligations
and
liabilities, including, without limitation, tax liabilities, except where
the
same may be contested in good faith by appropriate proceedings.
SECTION
5.4 Compliance
with Laws.
So long
as this Debenture shall be outstanding, the Company shall comply with all
applicable laws, ordinances, rules, regulations and requirements of governmental
authorities, except for such noncompliance which would not have a material
adverse effect on the business, properties, prospects, condition (financial
or
otherwise) or results of operations of the Company and the
Subsidiaries.
SECTION
5.5 Inspection
of Property, Books and Records.
So long
as this Debenture shall be outstanding, the Company shall keep proper books
of
record and account in which full, true and correct entries shall be made
of all
material dealings and transactions in relation to its business and activities
and shall permit representatives of the Holder at the Holder’s expense to visit
and inspect any of its respective properties, to examine and make abstracts
from
any of its respective books and records, not reasonably deemed confidential
by
the Company, and to discuss its respective affairs, finances and accounts
with
its respective officers and independent public accountants, all at such
reasonable times and as often as may reasonably be desired.
SECTION
5.6 Right
of First Refusal on Other Financing. Subsequent
to the date on which the Company’s registration statement filed pursuant to the
Registration Rights Agreement becomes effective with the SEC, in the event
that
the Company obtains a commitment for any other financing (either debt, equity,
or a combination thereof) which is to close during the term of this Debenture,
Holder shall be entitled to a right of first refusal to enable it to, at
Holder’s option, match the terms of the other financing. The Company shall
deliver to Holder, at least 10 days prior to the proposed closing date of
such
transaction, written notice describing the proposed transaction, including
the
terms and conditions thereof, and providing Holder an option during the 10
day
period following delivery of such notice to provide the financing being offered
in such transaction on the same terms as contemplated by such
transaction.
ARTICLE
6
EVENTS
OF DEFAULT; REMEDIES
SECTION
6.1 Events
of Default.
“Event
of Default”
wherever
used herein means any one of the following events:
(i) the
Company shall default in the payment of principal of or interest on this
Debenture as and when the same shall be due and payable and, in the case
of an
interest payment default, such default shall continue for five (5) Business
Days
after the date such interest payment was due, or the Company shall fail to
perform or observe any other covenant, agreement, term, provision, undertaking
or commitment under this Debenture, the Securities Purchase Agreement or
the
Registration Rights Agreement and such default shall continue for a period
of
ten (10) Business Days after the delivery to the Company of written notice
that
the Company is in default hereunder or thereunder;
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(ii) any
of
the representations or warranties made by the Company herein, in the Securities
Purchase Agreement, the Registration Rights Agreement or in any certificate
or
financial or other written statements heretofore or hereafter furnished by
or on
behalf of the Company in connection with the execution and delivery of this
Debenture, the Securities Purchase Agreement or the Registration Rights
Agreement shall be false or misleading in a material respect on the Closing
Date;
(iii) under
the
laws of any jurisdiction not otherwise covered by clauses (iv) and (v) below,
the Company or any Subsidiary (A) becomes insolvent or generally not able
to pay
its debts as they become due, (B) admits in writing its inability to pay
its
debts generally or makes a general assignment for the benefit of creditors,
(C)
institutes or has instituted against it any proceeding seeking (x) to adjudicate
it a bankrupt or insolvent, (y) liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency, reorganization or relief
of
debtors including any plan of compromise or arrangement or other corporate
proceeding involving or affecting its creditors or (z) the entry of an order
for
relief or the appointment of a receiver, trustee or other similar person
for it
or for any substantial part of its properties and assets, and in the case
of any
such official proceeding instituted against it (but not instituted by it),
either the proceeding remains undismissed or unstayed for a period of sixty
(60)
calendar days, or any of the actions sought in such proceeding (including
the
entry of an order for relief against it or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial
part
of its properties and assets) occurs or (D) takes any corporate action to
authorize any of the above actions;
(iv) the
entry
of a decree or order by a court having jurisdiction in the premises adjudging
the Company or any Subsidiary a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company under the Bankruptcy Code or any other
applicable Federal or state law, or appointing a receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of the Company or of
any
substantial part of its property, or ordering the winding-up or liquidation
of
its affairs, and any such decree or order continues and is unstayed and in
effect for a period of sixty (60) calendar days;
(v) the
institution by the Company or any Subsidiary of proceedings to be adjudicated
a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under the Bankruptcy Code or
any
other applicable federal or state law, or the consent by it to the filing
of any
such petition or to the appointment of a receiver, liquidator, assignee,
trustee
or sequestrator (or other similar official) of the Company or of any substantial
part of its property, or the making by it of an assignment for the benefit
of
creditors, or the admission by it in writing of its inability to pay its
debts
generally as and when they become due, or the taking of corporate action
by the
Company in furtherance of any such action;
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(vi) a
final
judgment or final judgments for the payment of money shall have been entered
by
any court or courts of competent jurisdiction against the Company and remains
undischarged for a period (during which execution shall be effectively stayed)
of thirty (30) days, provided
that the
aggregate amount of all such judgments at any time outstanding (to the extent
not paid or to be paid, as evidenced by a written communication to that effect
from the applicable insurer, by insurance) exceeds One Hundred Thousand Dollars
($100,000);
(vii) it
becomes unlawful for the Company to perform or comply with its obligations
under
this Debenture, the Securities Purchase Agreement or the Registration Rights
Agreement in any respect;
(viii) the
Common Shares shall no longer be traded in the over the counter market via
the
Pink Sheets or not otherwise be listed for trading on the NASDAQ OTCBB (the
“Trading
Market”
or, to
the extent the Company becomes eligible to list its Common Stock on any other
national security exchange or quotation system, upon official notice of listing
on any such exchange or system, as the case may be, it shall be the “Trading
Market”)
or
suspended from trading on the Trading Market, and shall not be reinstated,
relisted or such suspension lifted, as the case may be, within five (5) days
or;
(ix) the
Company shall default (giving effect to any applicable grace period) in the
payment of principal or interest as and when the same shall become due and
payable, under any indebtedness, individually or in the aggregate, of more
than
One Hundred Thousand Dollars ($100,000);
SECTION
6.2 Acceleration
of Maturity; Rescission and Annulment.
If an
Event of Default occurs and is continuing, then and in every such case the
Holder may, by a notice in writing to the Company, rescind any outstanding
Conversion Notice and declare that all amounts owing or otherwise outstanding
under this Debenture are immediately due and payable and upon any such
declaration this Debenture shall become immediately due and payable in cash
at a
price of one hundred and thirty-five percent (135%) of the Principal Amount
thereof, together with all accrued and unpaid interest thereon to the date
of
payment; provided,
however,
in the
case of any Event of Default described in clauses (iii), (iv), (v) or (vii)
of
Section 6.1, such amount automatically shall become immediately due and payable
without the necessity of any notice or declaration as aforesaid.
SECTION
6.3 Late
Payment Penalty.
If any
portion of the principal of or interest on this Debenture shall not be paid
within ten (10) days of when it is due, the Discount Multiplier under this
Debenture shall decrease by one percentage point (1%) for all conversions
of
this Debenture thereafter.
SECTION
6.4 Maximum
Interest Rate. Notwithstanding
anything herein to the contrary, if at any time the applicable interest rate
as
provided for herein shall exceed the maximum lawful rate which may be contracted
for, charged, taken or received by the Holder in accordance with any applicable
law (the “Maximum
Rate”),
the
rate of interest applicable to this Debenture shall be limited to the Maximum
Rate. To the greatest extent permitted under applicable law, the Company
hereby
waives and agrees not to allege or claim that any provisions of this Note
could
give rise to or result in any actual or potential violation of any applicable
usury laws.
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SECTION
6.5 Remedies
Not Waived.
No
course of dealing between the Company and the Holder or any delay in exercising
any rights hereunder shall operate as a waiver by the Holder.
SECTION
6.6 Remedies. The
Company acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to the Holder, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that
the
remedy at law for a breach of its obligations under this Debenture will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Debenture, that the Holder shall be entitled
to all other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Debenture and to enforce specifically
the terms and provisions thereof, without the necessity of showing economic
loss
and without any bond or other security being required.
SECTION
6.7 Payment
of Certain Amounts. Whenever
pursuant to this Debenture the Company is required to pay an amount in excess
of
the Principal Amount plus accrued and unpaid interest, the Company and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to
be so
paid by the Company represents stipulated damages and not a penalty and is
intended to compensate the Holder in part for loss of the opportunity to
convert
this Debenture and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Debenture at a price in excess of that price
paid for such shares pursuant to this Debenture. The Company and the Holder
hereby agree that such amount of stipulated damages is not disproportionate
to
the possible loss to the Holder from the receipt of a cash payment without
the
opportunity to convert this Debenture into shares of Common Stock.
ARTICLE
7
MISCELLANEOUS
SECTION
7.1 Notice
of Certain Events.
In the
case of the occurrence of any event described in Section 3.4 of this Debenture,
the Company shall cause to be mailed to the Holder of this Debenture at its
last
address as it appears in the Company’s security registry, at least twenty (20)
days prior to the applicable record, effective or expiration date hereinafter
specified (or, if such twenty (20) days’ notice is not possible, at the earliest
possible date prior to any such record, effective or expiration date), a
notice
thereof, including, if applicable, a statement of the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as
of
which it is expected that holders of record of Common Stock will be entitled
to
exchange their shares for securities, cash or other property deliverable
upon
such reclassification, consolidation, merger, sale transfer, dissolution,
liquidation or winding-up.
SECTION
7.2 Register.
The
Company shall keep at its principal office a register in which the Company
shall
provide for the registration of this Debenture. Upon any transfer of this
Debenture in accordance with Articles 2 and 4 hereof, the Company shall register
such transfer on the Debenture register.
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SECTION
7.3 Withholding.
To the
extent required by applicable law, the Company may withhold amounts for or
on
account of any taxes imposed or levied by or on behalf of any taxing authority
in the United States having jurisdiction over the Company from any payments
made
pursuant to this Debenture.
SECTION
7.4 Transmittal
of Notices.
Except
as may be otherwise provided herein, any notice or other communication or
delivery required or permitted hereunder shall be in writing and shall be
delivered personally, or sent by telecopier machine or by a nationally
recognized overnight courier service, and shall be deemed given when so
delivered personally, or by telecopier machine or overnight courier service
as
follows:
(1)
If
to the
Company, to:
3DIcon
Corporation
0000
Xxxxxxxx Xxx.
Tulsa,
Oklahoma 74136
Telephone: 000-000-0000
Facsimile: 000-000-0000
With
a
copy to:
Xxxx
X.
X’Xxxxxx, Esq.
Xxxxxx,
X’Xxxxxx, Xxxxxx & Xxxxxxx
00
X.
Xxxxx Xxxxxx, Xxxxx 0000
Tulsa,
Oklahoma 74119
Telephone: 000-000-0000
Facsimile:
000-000-0000
(2)
If
to the
Holder, to:
Golden
Gate Investors, Inc.
0000
Xxxxxxxx Xxxxxx, Xxxxx 000
La
Jolla,
California 92037
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each
of
the Holder or the Company may change the foregoing address by notice given
pursuant to this Section 7.4.
SECTION
7.5 Attorneys’
Fees.
Should
any party hereto employ an attorney for the purpose of enforcing or construing
this Debenture, or any judgment based on this Debenture, in any legal proceeding
whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief
or
other litigation, the prevailing party shall be entitled to receive from
the
other party or parties thereto reimbursement for all reasonable attorneys'
fees
and all reasonable costs, including but not limited to service of process,
filing fees, court and court reporter costs, investigative costs, expert
witness
fees, and the cost of any bonds, whether taxable or not, and that such
reimbursement shall be included in any judgment or final order issued in
that
proceeding. The "prevailing party" means the party determined by the court
to
most nearly prevail and not necessarily the one in whose favor a judgment
is
rendered.
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SECTION
7.6 Governing
Law.
This
Debenture shall be governed by, and construed in accordance with, the laws
of
the State of California (without giving effect to conflicts of laws principles).
With respect to any suit, action or proceedings relating to this Debenture,
the
Company irrevocably submits to the exclusive jurisdiction of the courts of
the
State of California sitting in San Diego and the United States District Court
located in the City of San Diego and hereby waives, to the fullest extent
permitted by applicable law, any claim that any such suit, action or proceeding
has been brought in an inconvenient forum. Subject to applicable law, the
Company agrees that final judgment against it in any legal action or proceeding
arising out of or relating to this Debenture shall be conclusive and may
be
enforced in any other jurisdiction within or outside the United States by
suit
on the judgment, a certified copy of which judgment shall be conclusive evidence
thereof and the amount of its indebtedness, or by such other means provided
by
law.
SECTION
7.7 Waiver
of Jury Trial.
To the
fullest extent permitted by law, each of the parties hereto hereby knowingly,
voluntarily and intentionally waives its respective rights to a jury trial
of
any claim or cause of action based upon or arising out of this Debenture
or any
other document or any dealings between them relating to the subject matter
of
this Debenture and other documents. Each party hereto (i) certifies that
neither
of their respective representatives, agents or attorneys has represented,
expressly or otherwise, that such party would not, in the event of litigation,
seek to enforce the foregoing waivers and (ii) acknowledges that it has been
induced to enter into this Debenture by, among other things, the mutual waivers
and certifications herein.
SECTION
7.8 Headings.
The
headings of the Articles and Sections of this Debenture are inserted for
convenience only and do not constitute a part of this Debenture.
SECTION
7.9 Payment
Dates.
Whenever any payment hereunder shall be due on a day other than a Business
Day,
such payment shall be made on the next succeeding Business Day.
SECTION
7.10 Binding
Effect.
Each
Holder by accepting this Xxxxxxxxx agrees to be bound by and comply with
the
terms and provisions of this Debenture.
SECTION
7.11 No
Stockholder Rights.
Except
as otherwise provided herein, this Debenture shall not entitle the Holder
to any
of the rights of a stockholder of the Company, including, without limitation,
the right to vote, to receive dividends and other distributions, or to receive
any notice of, or to attend, meetings of stockholders or any other proceedings
of the Company, unless and to the extent converted into shares of Common
Stock
in accordance with the terms hereof.
SECTION
7.12 Facsimile
Execution.
Facsimile execution shall be deemed originals.
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IN
WITNESS WHEREOF, the Company has caused this Debenture to be signed by its
duly
authorized officer on the date of this Debenture.
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EXHIBIT A
DEBENTURE
CONVERSION NOTICE
TO: 3DIcon
Corporation
The
undersigned owner of this Convertible Debenture due November ___, 2009 (the
“Debenture”)
issued
by 3DIcon Corporation (the “Company”)
hereby
irrevocably exercises its option to convert $__________ Principal Amount
of the
Debenture into shares of Common Stock in accordance with the terms of the
Debenture. The undersigned hereby instructs the Company to convert the portion
of the Debenture specified above into shares of Common Stock Issued at
Conversion in accordance with the provisions of Article 3 of the Debenture.
The
undersigned directs that the Common Stock and certificates therefor deliverable
upon conversion, the Debenture reissued in the Principal Amount not being
surrendered for conversion hereby, [the check or shares of Common Stock in
payment of the accrued and unpaid interest thereon to the date of this Notice,]
together with any check in payment for fractional Common Stock, be registered
in
the name of and/or delivered to the undersigned unless a different name has
been
indicated below. All capitalized terms used and not defined herein have the
respective meanings assigned to them in the Debenture. The conversion pursuant
hereto shall be deemed to have been effected at the date and time specified
below, and at such time the rights of the undersigned as a Holder of the
Principal Amount of the Debenture set forth above shall cease and the Person
or
Persons in whose name or names the Common Stock Issued at Conversion shall
be
registered shall be deemed to have become the holder or holders of record
of the
Common Shares represented thereby and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time vest
with
such Person or Persons.
In
the
event that, at the time this Conversion Notice is received by the Company,
there
is not then in effect a registration statement on file with the Securities
and
Exchange Commission covering the Common Stock issued upon Conversion, then
the
undersigned hereby reaffirms all representations contained in Section II
of the
Securities Purchase Agreement dated October ___, 2006 as if such representations
were made on the date hereof.
Date
and
time: __________________
______________________________
By:
___________________________
Title:
_________________________
Fill
in
for registration of Debenture:
Please
print name and address
(including
ZIP code number):
______________________________
______________________________
______________________________
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