EXHIBIT 10.7
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
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. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Date of Issuance: September 10, 2003
$_______________
8% CONVERTIBLE DEBENTURE
DUE SEPTEMBER 10, 2006
THIS DEBENTURE is one of a series of duly authorized and issued 8%
Convertible Debentures of Lifestream Technologies, Inc., a Nevada corporation,
having a principal place of business at ___________________________ (the
"Company"), designated as its 8% Convertible Debenture, due September __, 2006
(the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), the principal
sum of $_______________ on September 10, 2006 or such earlier date as the
Debentures are 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 at the rate of 8% per
annum, payable quarterly on March 31, June 30, September 30 and December 31,
beginning on the first such date after the Original Issue Date and 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; provided, however, payment in shares
of Common Stock may only occur if: (i) there is an effective Underlying Shares
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares of Common Stock to be issued
in lieu of cash (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (ii) the
Common Stock is listed for trading on a Principal Market (and the Company
believes, in good faith, that trading of the Common Stock on a Principal Market
will continue uninterrupted for the foreseeable future), (iii) 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, including the shares to be issued for interest in lieu of
cash and (iv) there is then existing no Event of Default or event which, with
the passage of time or the giving of notice, would constitute and Event of
Default, and (v) the issuance of such shares, when added to the shares issued or
issuable upon conversion of the Debentures in full and issued and issuable upon
exercise of the Warrants in full would not violate the limitations set forth in
Section 4(a)(ii). 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. Not less than 20 Trading Days prior to each
Interest Payment Date, the Company shall provide the Holder with written notice
of its election to pay interest hereunder either in cash or shares of Common
Stock (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised). Within 20 Trading
Days prior to an Interest Payment Date, 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. 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 shall
otherwise occur pursuant to Section 4(b) 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 Underlying Shares
within the time period required by Section 4(b)(i). 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 Debentures (the "Debenture
Register"). Except as otherwise provided herein, if at anytime the Company pays
interest partially in cash and partially in shares of Common Stock, then such
payment shall be distributed ratably among the Holders based upon the principal
amount of Debentures held by each Holder. 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 Fee") 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 4 or paying the regularly
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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 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. THE COMPANY
MAY NOT PREPAY ANY PORTION OF THE PRINCIPAL AMOUNT OF THIS DEBENTURE WITHOUT THE
PRIOR WRITTEN CONSENT OF THE HOLDER.
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
Section 2. 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. 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.
Section 3. 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 the principal of,
interest (including Late Fees) on, or liquidated damages in
respect of, any Debentures, free of any claim of
subordination, 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 is not cured, if
possible to cure, within 3 days of notice of such default sent
by the Holder;
ii) the Company shall fail to observe or perform any
other covenant, agreement or warranty contained in, or
otherwise commit any breach of any of the Transaction
Documents (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder
upon conversion or interest payment which breach is addressed
in clause (x) below) which is not cured, if possible to cure,
within 5 days of notice of such default sent by the Holder;
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iii) the Company or any of its subsidiaries shall
commence, or there shall be commenced against the Company or
any such subsidiary a case under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, or the Company 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 there is
commenced against the Company or any subsidiary thereof any
such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or
proceeding is entered; or 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 the
Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or 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 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 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 any corporate or other action is
taken by the Company or any subsidiary thereof for the purpose
of effecting any of the foregoing;
iv) the Company shall default in any of its
obligations under any other Debenture or 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;
v) the Common Stock shall not be eligible for
quotation on or quoted for trading on a Principal Market and
shall not again be eligible for and quoted or listed for
trading thereon within five Trading Days;
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vi) the Company shall be a party to any Change of
Control 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 Underlying Shares and repurchases of shares of Common Stock
or other equity securities of departing officers and directors
of the Company; provided no repurchase shall exceed $100,000
for any officer or director);
vii) an Underlying Shares Registration Statement
shall not have been declared effective by the Commission on or
prior to the 150th calendar day after the Original Issue Date;
viii) if, during the Effectiveness Period (as defined
in the Registration Rights Agreement), the effectiveness of
the Underlying Shares 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 Underlying Shares Registration Statement,
in either case, for more than 15 consecutive Trading Days or
25 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 Underlying Shares 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
(total in the aggregate to remain 25 non-consecutive Trading
Days) during any 12 month period relating to such an event;
ix) an Event (as defined in the Registration Rights
Agreement) shall not have been cured to the satisfaction of
the Holder prior to the expiration of thirty days from the
Event Date (as defined in the Registration Rights Agreement)
relating thereto (other than an Event resulting from a failure
of an Underlying Shares Registration Statement to be declared
effective by the Commission on or prior to the Effectiveness
Date (as defined in the Registration Rights Agreement), which
shall be covered by Section 3(a)(vii)); provided, however, the
Company's failure to file the Registration Statement on or
before October 27, 2003 shall not be deemed an Event of
Default hereunder if the Proxy relating to the increase in the
authorized number of shares outstanding required in the
Purchase Agreement receives a substantial review by the
Commission; provided, further, if the Registration Statement
is not filed on or before December 27, 2003, notwithstanding a
review, such event shall be deemed an Event of Default;
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x) the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after
a Conversion Date pursuant to and in accordance with Section
4(b) 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;
(xi) the Company shall fail for any reason to deliver
the payment in cash pursuant to a Buy-In (as defined herein)
within five days after notice thereof is delivered hereunder;
or
(xii) any Person shall breach the agreements
delivered to the initial Holders pursuant to Section 2.2(a)(v)
of the Purchase Agreement and the Company does not obtain
Shareholder Approval.
b) If any Event of Default occurs and is continuing, 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 Prepayment Amount. Interest shall accrue on the Mandatory
Prepayment Amount hereunder from the fifth (5th) day after such amount
is due (being the date of an Event of Default) through the date of
prepayment in full thereof in an amount equal to the Late Fee, to
accrue daily from the date such payment is due hereunder through and
including the date of payment. All Debentures for which the full
prepayment price hereunder shall have been paid in accordance herewith
shall promptly be surrendered 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 4. Conversion.
a) i) Xxxxxx's Conversion Right. 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(a)(ii) hereof). The Holder shall effect conversions by delivering to
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the Company the form of Notice of Conversion attached hereto as Annex A
(a "Notice of Conversion"), specifying therein the principal amount of
Debentures 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
Debentures 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.
ii) Conversion Limitations.
(A) Notwithstanding anything herein to the
contrary, if the Company has not obtained Shareholder
Approval (as defined below), if required by the
applicable rules and regulations of the Principal
Market (or any successor entity), then the Company
may not issue upon conversion of the Debentures, in
the aggregate, in excess of (1) 19.999% of the number
of shares of Common Stock outstanding on the Trading
Day immediately preceding the Original Issue Date,
(2) less any shares of Common Stock issued as payment
of interest or upon exercise of the Warrants issued
Holders of the Debentures on the Original Issue Date
pursuant to the Purchase Agreement (such number of
shares, the "Issuable Maximum"). Each Holder shall be
entitled to a portion of the Issuable Maximum equal
to the quotient obtained by dividing (x) the
aggregate principal amount of the Debenture(s) issued
and sold to such Holder on the Original Issue Date by
(y) the aggregate principal amount of all Debentures
issued and sold by the Company on the Original Issue
Date. If any Holder shall no longer hold the
Debenture(s), then such Holder's remaining portion of
the Issuable Maximum shall be allocated pro-rata
among the remaining Holders. If on any Conversion
Date: (1) the applicable Set Price then in effect is
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such that the shares issuable under this Debenture on
any Conversion Date together with the aggregate
number of shares of Common Stock previously issued
upon conversion and issuable upon conversion in full
of all then outstanding Debentures would otherwise
exceed the Issuable Maximum, and (2) the Company's
shareholders shall not have previously approved the
transactions contemplated by the Transaction
Documents, as may be required by the applicable rules
and regulations of the Principal Market (or any
successor entity), if any (the "Shareholder
Approval"), then the Company shall issue to the
Holder requesting a conversion a number of shares of
Common Stock equal to such Holder's pro-rata portion
(which shall be calculated pursuant to the terms
hereof) of the Issuable Maximum and, with respect to
the remainder of the aggregate principal amount of
the Debentures (including any accrued interest) then
held by such Holder for which a conversion in
accordance with the applicable conversion price would
result in an issuance of shares of Common Stock in
excess of such Holder's pro-rata portion (which shall
be calculated pursuant to the terms hereof) of the
Issuable Maximum (the "Excess Principal"), the
Company shall be prohibited from converting such
Excess Principal, and shall notify the Holder of the
reason therefor; provided, however, if after October
27, 2003 (December 27, 2003 in the event of a full
review by the Commission of the Proxy relating
thereto) Shareholder Approval shall not have been
obtained, at the election of the Holder, the Company
shall pay the Holder within 3 Trading Days of notice
from the Holder, in cash, the Mandatory Prepayment
Amount with respect to such Holder's pro-rata share
of the Excess Principal (less the 30% default premium
in the case of (i)(A) therein). This Debenture shall
thereafter be unconvertible until and unless
Shareholder Approval is subsequently obtained or is
otherwise not required, but this Debenture shall
otherwise remain in full force and effect. The
Company and the Holder understand and agree that
shares of Common Stock issued to and then held by the
Holder as a result of conversions of Debentures shall
not be entitled to cast votes on any resolution to
obtain Shareholder Approval pursuant hereto.
(B) The Holder shall not have the right to
convert any portion of this Debenture, pursuant to
Section 4(a)(i), Section 5b) 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
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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 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(a)(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(a)(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-Q or Form 10-K,
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(a)(ii) may be waived by
the Holder upon, at the election of the Holder, not
less than 61 days' prior notice to the Company, and
the provisions of this Section 4(a)i) 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).
iii) Underlying Shares Issuable Upon Conversion of
Principal Amount. The number of shares of Common Stock
issuable upon a conversion shall be determined by the quotient
obtained by dividing (x) the outstanding principal amount of
this Debenture to be converted by (y) the Set Price.
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iv) Forced Conversion. Notwithstanding anything
herein to the contrary, if after the Effective Date each of
the VWAPs for any 15 consecutive Trading Days (such 15 Trading
Day period commencing only after the Effective Date) exceeds
then Set Price by more than 250%, the Company may, within 2
Trading Days 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
(and if part, pro-rata in proportion to each Holders initial
purchase of the Debentures) of the then outstanding principal
amount of Debentures pursuant to Section 4(a)(i). The Company
may only effect a Forced Conversion Notice if each of the
following shall be true: (i) the Company shall have duly
honored all conversions occurring by virtue of one or more
Conversion Notices prior to the Forced Conversion Date, (ii)
there is an effective Underlying Shares Registration Statement
pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the Underlying Shares
issued to the Holder and all of the Underlying Shares as are
issuable to the Holder upon conversion in full of this
Debenture subject to the Forced Conversion Notice (and the
Company believes, in good faith, that such effectiveness will
continue uninterrupted for the foreseeable future), (iii) the
Common Stock is listed for trading on a Principal Market (and
the Company believes, in good faith, that trading of the
Common Stock on a Principal Market will continue uninterrupted
for the foreseeable future), (iv) all liquidated damages and
other amounts owing in respect of the Debentures and
Underlying Shares shall have been paid or will, concurrently
with the issuance of the Underlying Shares, be paid in cash;
(v) there is a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock for the
issuance of all the Underlying Shares as are issuable to the
Holder upon conversion in full of the Debentures subject to
the Forced Conversion Notice; (vi) no Event of Default nor any
event that with the passage of time would constitute an Event
of Default has occurred and is continuing; (vii) such issuance
would be permitted in full without violating the limitations
set forth in clauses (A) or (B) of Section 4(a)(ii) and (viii)
no public announcement of a pending or proposed Change of
Control Transaction or Fundamental Transaction has occurred
that has not been consummated.
(b) i) Not later than three Trading Days after any
Conversion Date, the Company will deliver to the Holder a certificate
or certificates representing the Underlying 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 Debentures
(including, if so timely elected by the Company, shares of Common Stock
representing the payment of accrued interest) 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
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Corporation or another established clearing corporation performing
similar functions. 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 Debentures tendered for conversion.
ii) If the Company fails for any reason to deliver to
the Holder such certificate or certificates pursuant to
Section 4(b)(i) by the third 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 $5,000 of
principal amount being converted, $50 per Trading Day
(increasing to $100 per Trading Day after 3 Trading Days after
such damages begin to accrue and increasing to $200 per
Trading Day 6 Trading Days after such after such damages begin
to accrue) for each Trading Day after such third Trading Day
until such certificates are delivered. The Company's
obligations to issue and deliver the Underlying 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 Underlying 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 a 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 of 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
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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 3 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 Holders from seeking to enforce damages pursuant
to any other Section hereof or under applicable law.
(iii) 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(b)(i) by the third Trading Day after the Conversion
Date, and if after such third 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 Underlying 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 Debentures in 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(b)(i). 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 Debentures with respect to which the
actual sale price of the Underlying 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(b)(ii) in respect of the certificates resulting in such
Buy-In.
12
(c) i) The conversion price in effect on any
Conversion Date shall be equal to $0.13 (subject to adjustment
herein)(the "Set Price").
ii) If the Company, at any time while the Debentures
are outstanding: (A) shall pay a stock dividend or otherwise
make 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) subdivide outstanding shares of Common Stock
into a larger number of shares, (C) combine (including by way
of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (D) issue by
reclassification of shares of the Common Stock any shares of
capital stock of the Company, then the Set 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 before such event and of which the
denominator shall be the number of shares of Common Stock
outstanding 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.
iii) If the Company or any subsidiary thereof, as
applicable, at any time while Debentures are 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
any equity or equity equivalent securities (including any
equity, debt or other instrument that is at any time over the
life thereof convertible into or exchangeable for Common
Stock) (collectively, "Common Stock Equivalents") entitling
any Person to acquire shares of Common Stock ("Dilutive
Issuance"), at an effective price per share less than the then
Set Price (if the holder of the Common Stock or Common Stock
Equivalent 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 Set Price, such issuance shall be deemed to have
occurred for less than the Set Price), then, the Set Price
shall be adjusted (downward only) for such conversions as
Holders shall indicate in its Notice of Conversions to equal
the effective conversion, exchange or purchase price for such
Common Stock or Common Stock Equivalents (including any reset
provisions thereof) in such Dilutive Issuance. Such adjustment
shall be made whenever such Common Stock or Common Stock
Equivalents are issued. The Company shall notify the Holder in
writing, no later than the business day following the issuance
of any Common Stock or Common Stock Equivalent subject to this
section, indicating therein the applicable issuance price, or
of applicable reset price, exchange price, conversion price
and other pricing terms.
13
iv) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets
or rights or warrants to subscribe for or purchase any
security, then in each such case the Set Price shall be
determined by multiplying such 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
Holders 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.
v) All calculations under this Section 4 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 4, the number of
shares of Common Stock outstanding as of a given date shall be
the sum of the number of shares of Common Stock (excluding
treasury shares, if any) outstanding.
vi) Whenever the Set Price is adjusted pursuant to
any of Section 4(c)(ii) - (v), the Company shall promptly mail
to each Holder a notice setting forth the Set 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 Capital
Shares or Capital Shares 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), or the
lowest possible adjustment price in the case of an MFN
Transaction (as defined in the Purchase Agreement).
vii) 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
14
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 the Debentures, and shall cause to be
mailed to the Holders at their last addresses as they 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. Holders are entitled
to convert Debentures during the 20-day period commencing the
date of such notice to the effective date of the event
triggering such notice.
viii) 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 Underlying Share that would have been issuable upon such
conversion absent 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 Set Price shall
15
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
Set 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 (c) and insuring
that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction. If any Fundamental Transaction
constitutes or results in a Change of Control Transaction,
then at the request of the Holder delivered before the 90th
day after such Fundamental Transaction, the Company (or any
such successor or surviving entity) will purchase the
Debenture from the Holder for a purchase price, payable in
cash within five Trading Days after such request (or, if
later, on the effective date of the Fundamental Transaction),
equal to the 100% of the remaining unconverted principal
amount of this Debenture on the date of such request, plus all
accrued and unpaid interest thereon, plus all other accrued
and unpaid amounts due hereunder.
(ix) Notwithstanding the foregoing, no adjustment
will be made under this paragraph (c) in respect of (A) the
granting or issuance of shares of capital stock or of options
to employees, officers, directors and consultants of the
Company pursuant to any stock option plan agreement or
arrangement duly adopted or approved by a majority of the
non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee
directors established for such purpose, (B) upon the exercise
of this Debenture or any other Debenture of this series or of
any other series or security issued by the Company in
connection with the offer and sale of this Company's
securities pursuant to the Purchase Agreement, or (C) upon the
exercise of or conversion of any Capital Shares Equivalents,
rights, options or warrants issued and outstanding on the
Original Issue Date, provided such securities have not been
amended since the date of the Purchase Agreement except as a
result of the Purchase Agreement, or (D) issuance of
securities in connection with acquisitions, strategic
investments, or strategic partnering arrangements, the primary
purpose of which is not to raise capital.
16
(d) 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 the
Debentures and payment of interest on the Debenture, each as herein
provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders, not less than such
number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares
set forth in the Purchase Agreement) be issuable (taking into account
the adjustments and restrictions of Section 4(b)) upon the conversion
of the outstanding principal amount of the Debentures 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 Underlying
Shares Registration Statement is then effective under the Securities
Act, registered for public sale in accordance with such Underlying
Shares Registration Statement.
(e) 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.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to
the Holders thereof 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 such Debentures 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.
(g) Any and all notices or other communications or deliveries
to be provided by the Holders 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 (____) ___-_______, ATTN: _____________ or such other
address or facsimile number as the Company may specify for such
purposes by notice to the Holders 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
17
courier service addressed to each Holder at the facsimile telephone
number or address of such Holder 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.
Section 5. 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:
"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.
"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) of effective control (whether
through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of 33% of the voting securities
of the Company, or (ii) 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 (iii) 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 (ii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.001 par value per
share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
18
"Conversion Date" shall have the meaning set forth in Section
4(a)(i) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Interest Conversion Rate" means the lesser of (i) the Set
Price and (ii) 90% of the lesser of (a) the average of the 20 VWAPs
immediately prior to the applicable Interest Payment Date or (b) 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.
"Late Fees" shall have the meaning set forth in the second
paragraph to this Debenture.
"Mandatory Prepayment Amount" for any Debentures shall equal
the sum of (i) the greater of: (A) 130% of the principal amount of
Debentures to be prepaid, plus all accrued and unpaid interest thereon
and all other accrued and unpaid amounts due hereunder, or (B) the
principal amount of Debentures to be prepaid, plus all other accrued
and unpaid interest hereon and other amounts due hereunder, divided by
the Set Price on (x) the date the Mandatory Prepayment Amount is
demanded or otherwise due or (y) the date the Mandatory Prepayment
Amount is paid in full, whichever is less, multiplied by the VWAP on
(x) the date the Mandatory Prepayment Amount is demanded or otherwise
due or (y) the date the Mandatory Prepayment Amount is paid in full,
whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of such Debentures.
"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.
"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 September 10, 2003, 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.
19
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Set Price" shall have the meaning set forth in Section
4(c)(i).
"Trading Day" means (a) a day on which the shares of Common
Stock are traded on a Principal Market on which the shares of Common
Stock are then listed or quoted, or (b) if the shares of Common Stock
are not quoted on a Principal Market, a day on which the shares of
Common Stock are quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization
or agency succeeding its functions of reporting prices); provided, that
in the event that the shares of Common Stock are not listed or quoted
as set forth in (a), (b) and (c) hereof, then Trading Day shall mean a
Business Day.
"Transaction Documents" shall have the meaning set forth in
the Purchase Agreement.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance
with the terms hereof.
"Underlying Shares Registration Statement" means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement, covering among other things the resale
of the Underlying Shares and naming the Holder as a "selling
stockholder" thereunder.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a trading day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the OTC Bulletin Board; (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board and
if prices for the Common Stock are then reported in the "Pink Sheets"
published by the National Quotation Bureau Incorporated (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) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in
good faith by the Purchasers and reasonably acceptable to the Company.
20
Section 6. 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. As long as this Debenture is
outstanding, the Company shall not and shall cause it subsidiaries not to,
without the consent of the Holder, (a) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (b) repay, repurchase or offer to repay, repurchase or otherwise acquire
more than a de minimis number of shares of its Common Stock or other equity
securities other than as to the Underlying Shares to the extent permitted or
required under the Transaction Documents or as otherwise permitted by the
Transaction Documents; or (c) enter into any agreement with respect to any of
the foregoing.
Section 7. 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.
Section 8. 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, enter into, create, incur, assume or suffer to exist any
indebtedness 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 that is senior in any respect to the Company's obligations under the
Debentures without the prior consent of the Holder, which consent shall not be
unreasonably withheld.
Section 9. 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
21
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.
Section 10. 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.
Section 11. 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 the Debentures 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.
Section 12. 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.
*********************
22
IN WITNESS WHEREOF, the Company has caused this Convertible Debenture
to be duly executed by a duly authorized officer as of the date first above
indicated.
LIFESTREAM TECHNOLOGIES, INC.
By:_________________________________________
Name:
Title:
23
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8% Convertible
Debenture of Lifestream Technologies, Inc. (the "Company"), due on September 10,
2006, into shares of common stock, $.001 par value 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 Company's 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 Debentures 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:
SCHEDULE 1
CONVERSION SCHEDULE
8% Convertible Debentures due on September 10, 2006, in the aggregate principal
amount of $____________ issued by Lifestream Technologies, Inc. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.
Dated:
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Aggregate Principal
Amount Remaining
Date of Conversion Subsequent to
(or for first entry, Original Conversion
Issue Date) Amount of Conversion (or original Company Attest
Principal Amount)
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