Exhibit 4.2
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NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: August ___, 2005
Original Conversion Price (subject to adjustment herein): $0.40
$---------------
7% CONVERTIBLE DEBENTURE
DUE AUGUST ___, 2008
THIS 7% CONVERTIBLE DEBENTURE is one of a series of duly authorized and
issued 7% Convertible Debentures of Intraop Medical Corporation, a Nevada
corporation, having a principal place of business at
_____________________________ (the "Company"), designated as its 7% Convertible
Debenture, due August ___, 2008 (this debenture, the "Debenture" and
collectively with the other such series of debentures, the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to ________________________
or its registered assigns (the "Holder"), or shall have paid pursuant to the
terms hereunder, the principal sum of $_______________ by August ___, 2008, or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder (the "Maturity Date"), and to pay interest to the Holder on
the aggregate unconverted and then outstanding principal amount of this
Debenture in accordance with the provisions hereof. This Debenture is subject to
the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms
defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined
herein have the meanings given to such terms in the Purchase Agreement, and (b)
the following terms shall have the following meanings:
1
"Alternate Consideration" shall have the meaning set forth in
Section 5(d).
"Base Conversion Price" shall have the meaning set forth in
Section 5(b).
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which
banking institutions in the State of New York are authorized or required by
law or other government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act), other than pursuant to the Transaction Documents
or the Regenmacher Transaction, of effective control (whether through legal
or beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 40% of the voting securities of the Company, or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving
effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 60% of the aggregate voting power
of the Company or the successor entity of such transaction, or (iii) the
Company sells or transfers its assets, as an entirety or substantially as
an entirety, to another Person and the stockholders of the Company
immediately prior to such transaction own less than 60% of the aggregate
voting power of the acquiring entity immediately after the transaction,
(iv) a replacement at one time or within a three year period of more than
one-half of the members of the Company's board of directors which is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as
members of the board of directors on any date whose nomination to the board
of directors was approved by a majority of the members of the board of
directors who are members on the date hereof), or (v) the execution by the
Company of an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth above in (i) or (iv).
"Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the Trading
Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b) if
there is no such price on such date, then the closing bid price on the
Trading Market on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price for
regular session trading on such day), or (c) if the Common Stock is not
then listed or quoted on the Trading Market and if prices for the Common
Stock are then reported in the "pink sheets" published by the Pink Sheets,
LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock
so reported, or (d) if the shares of Common Stock are not then publicly
traded the fair market value of a share of Common Stock as determined by a
qualified independent appraiser selected in good faith by the Holders of a
majority in interest of the outstanding principal amount of Debentures.
2
"Common Stock" means the common stock, par value $0.001 per share, of
the Company and stock of any other class of securities into which such
securities may hereafter have been reclassified or changed into.
"Conversion Date" shall have the meaning set forth in Section 4(a).
"Conversion Price" shall have the meaning set forth in Section 4(b).
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with
the terms.
"Debenture Register" shall have the meaning set forth in Section 2(c).
"Dilutive Issuance" shall have the meaning set forth in Section 5(b).
"Dilutive Issuance Notice" shall have the meaning set forth in Section
5(b).
"Effectiveness Period" shall have the meaning given to such term in
the Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled
to occur or occurring by virtue of one or more Notice of Conversions of the
Holder, if any, (ii) all liquidated damages and other amounts owing to the
Holder in respect of this Debenture shall have been paid; (iii) there is an
effective Registration Statement pursuant to which the Holder is permitted
to utilize the prospectus thereunder to resell all of the shares issuable
pursuant to the Transaction Documents (and the Company believes, in good
faith, that such effectiveness will continue uninterrupted for the
foreseeable future), (iv) the Common Stock is trading on the Trading Market
and all of the shares issuable pursuant to the Transaction Documents are
listed for trading on a Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will continue
uninterrupted for the foreseeable future), (v) the daily dollar trading
volume of the Common Stock on the Trading Market for each Trading Day
during such period is at least $200,000, (vi) there is a sufficient number
of authorized but unissued and otherwise unreserved shares of Common Stock
for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (vii) there is then existing no Event of Default or event which,
with the passage of time or the giving of notice, would constitute an Event
of Default, (viii) the issuance of the shares in question to the Holder
would not violate the limitations set forth in Section 4(c)(ii) and (ix) no
public announcement of a pending or proposed Fundamental Transaction,
Change of Control Transaction or acquisition transaction has occurred that
has not been consummated.
3
"Event of Default" shall have the meaning set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Forced Conversion" shall have the meaning set forth in Section 6(c).
"Forced Conversion Notice" shall have the meaning set forth in Section
6(c).
"Forced Conversion Notice Date" shall have the meaning set forth in
Section 6(c).
"Fundamental Transaction" shall have the meaning set forth in Section
5(d).
"Interest Conversion Rate" means the lesser of (a) the Conversion
Price and (b) 90% of the lesser of (i) the average of the 20 VWAPs
immediately prior to the applicable Interest Payment Date or (ii) the
average of the 20 VWAPs immediately prior to the date the applicable
interest payment shares are issued and delivered if after the Interest
Payment Date.
"Interest Conversion Shares" shall have the meaning set forth in
Section 2(a).
"Interest Notice Period" shall have the meaning set forth in Section
2(a).
"Interest Payment Date" shall have the meaning set forth in Section
2(a).
"Interest Share Amount" shall have the meaning set forth in Section
2(a).
"Late Fees" shall have the meaning set forth in Section 2(d).
"Mandatory Default Amount" shall equal the sum of (i) the greater of:
(A) 130% of the principal amount of this Debenture to be prepaid, plus all
accrued and unpaid interest thereon, or (B) the principal amount of this
Debenture to be prepaid, plus all other accrued and unpaid interest hereon,
divided by the Conversion Price on (x) the date the Mandatory Default
Amount is demanded or otherwise due or (y) the date the Mandatory Default
Amount is paid in full, whichever is less, multiplied by the VWAP on (x)
the date the Mandatory Default Amount is demanded or otherwise due or (y)
the date the Mandatory Default Amount is paid in full, whichever is
greater, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of this Debenture.
"New York Courts" shall have the meaning set forth in Section 9(d).
"Notice of Conversion" shall have the meaning set forth in Section
4(a).
4
"Original Issue Date" shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence
such Debenture.
"Permitted Indebtedness" shall mean the individual and collective
reference to the following: (a) up to, in the aggregate during the term of
this Debenture, $2,000,000 of new Indebtedness, (b) Indebtedness incurred
in connection with the Purchase Agreement and the Regenmacher Transaction,
(c) up to approximately $974,614 of Indebtedness existing on the date of
the Purchase Agreement as described in Schedule 3.1(aa) attached to the
Purchase Agreement, and (d) up to $3,000,000 in connection with the
Company's revolving inventory and sales contract financing agreement with
E.U. Capital.
"Permitted Lien" shall mean the individual and collective reference to
the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith
judgment of the management of the Company) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of business, such as carriers', warehousemen's and
mechanics' Liens, statutory landlords' Liens, and other similar Liens
arising in the ordinary course of business, and (x) which do not
individually or in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of
the business of the Company and its consolidated Subsidiaries or (y) which
are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
property or asset subject to such Lien; and (c) Liens on Receivables and
the Company's "inventory" (as such term is used in the Security Agreement)
incurred solely in connection with a Permitted Indebtedness under clause
(a) of the definition of Permitted Indebtedness.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of August ___, 2005, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
5
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among
other things the resale of the Conversion Shares and naming the Holder as a
"selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the Purchase
Agreement.
"Threshold Period" shall have the meaning given to such term in
Section 6(c).
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the
Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock
Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" shall have the meaning set forth in the Purchase Agreement.
Section 2. Interest.
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a) Payment of Interest in Cash or Kind. The Company shall pay interest
to the Holder on the aggregate unconverted and then outstanding principal
amount of this Debenture at the rate of 7% per annum, payable quarterly on
January 1, April 1, July 1 and October 1, beginning on the first such date
after the Original Issue Date, on each Conversion Date (as to that
principal amount then being converted) and on the Maturity Date (except
that, if any such date is not a Business Day, then such payment shall be
due on the next succeeding Business Day) (each such date, an "Interest
Payment Date"), in cash or shares of Common Stock at the Interest
Conversion Rate, or a combination thereof (the amount to be paid in shares,
the "Interest Share Amount"); provided, however, (i) payment in shares of
Common Stock may only occur if during the 10 Trading Days immediately prior
to the applicable Interest Payment Date (the "Interest Notice Period") and
through and including the date such shares of Common Stock are issued to
the Holder all of the Equity Conditions, unless waived by the Holder in
writing, have been met and the Company shall have given the Holder notice
in accordance with the notice requirements set forth below, (ii) the VWAP
is equal to or greater than 115% of the then applicable Conversion Price
for each of the 10 Trading Days immediately prior to the applicable
Interest Payment Date and through and including the date such shares of
Common Stock are issued to the Holder and (iii) as to such Interest Payment
Date, prior to the such Interest Notice Period (but not more 5 Trading Days
prior to the commencement of the Interest Notice Period), the Company shall
have delivered to the Holder's account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Interest Share
Amount equal to the quotient of (x) the applicable Interest Share Amount
divided by (y) the then Conversion Price (the "Interest Conversion
Shares").
6
b) Company's Election to Pay Interest in Kind. Subject to the terms
and conditions herein, the decision whether to pay interest hereunder in
shares of Common Stock or cash shall be at the discretion of the Company.
Prior to the commencement of an Interest Notice Period, the Company shall
provide the Holder with written notice of its election to pay interest
hereunder on the applicable Interest Payment Date either in cash, shares of
Common Stock or a combination thereof (the Company may indicate in such
notice that the election contained in such notice shall continue for later
periods until revised) and the Interest Share Amount as to the applicable
Interest Payment Date. During any Interest Notice Period, the Company's
election (whether specific to an Interest Payment Date or continuous) shall
be irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely provide such written notice
shall be deemed an election by the Company to pay the interest on such
Interest Payment Date in cash. At any time the Company delivers a notice to
the Holder of its election to pay the interest in shares of Common Stock,
the Company shall file a prospectus supplement pursuant to Rule 424
disclosing such election. The aggregate number of shares of Common Stock
otherwise issuable to the Holder on an Interest Payment Date shall be
reduced by the number of Interest Conversion Shares previously issued to
the Holder in connection with such Interest Payment Date.
c) Interest Calculations. Interest shall be calculated on the basis of
a 360-day year and shall accrue daily commencing on the Original Issue Date
until payment in full of the principal sum, together with all accrued and
unpaid interest and other amounts which may become due hereunder, has been
made. Payment of interest in shares of Common Stock (other than the
Interest Conversion Shares issued prior to an Interest Notice Period) shall
otherwise occur pursuant to Section 4(d)(ii) and only for purposes of the
payment of interest in shares, the Interest Payment Date shall be deemed
the Conversion Date. Interest shall cease to accrue with respect to any
principal amount converted, provided that the Company in fact delivers the
Conversion Shares within the time period required by Section 4(d)(ii).
Interest hereunder will be paid to the Person in whose name this Debenture
is registered on the records of the Company regarding registration and
transfers of this Debenture (the "Debenture Register"). Except as otherwise
provided herein, if at any time the Company pays interest partially in cash
and partially in shares of Common Stock to the holders of the Debentures,
then such payment shall be distributed ratably among the holders of the
Debentures based on their (or their predecessor's initial purchases of
Debentures pursuant to the Purchase Agreement.
7
d) Late Fee. All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at the rate of 18% per annum (or such
lower maximum amount of interest permitted to be charged under applicable
law) ("Late Fees") which will accrue daily, from the date such interest is
due hereunder through and including the date of payment. Notwithstanding
anything to the contrary contained herein, if on any Interest Payment Date
the Company has elected to pay interest in Common Stock and is not able to
pay accrued interest in the form of Common Stock because it does not then
satisfy the conditions for payment in the form of Common Stock set forth
above, then, at the option of the Holder, the Company, in lieu of
delivering either shares of Common Stock pursuant to this Section 2 or
paying the regularly scheduled cash interest payment, shall deliver, within
three Trading Days of each applicable Interest Payment Date, an amount in
cash equal to the product of the number of shares of Common Stock otherwise
deliverable to the Holder in connection with the payment of interest due on
such Interest Payment Date and the highest VWAP during the period
commencing on the Interest Payment Date and ending on the Trading Day prior
to the date such payment is made. If any Interest Conversion Shares are
issued to the Holder in connection with an Interest Payment Date and are
not applied against an Interest Share Amount, then the Holder shall
promptly return such excess shares to the Company.
e) Prepayment. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this
Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
a) Different Denominations. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same; provided,
however, the Company shall not be required to exchange this Debenture for
denominations of less than the greater of $50,000 and the principal amount
of this Debenture then outstanding. No service charge will be made for such
registration of transfer or exchange.
b) Investment Representations. This Debenture has been issued subject
to certain investment representations of the original Holder set forth in
the Purchase Agreement and may be transferred or exchanged only in
compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or
not this Debenture is overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
8
Section 4. Conversion.
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a) Voluntary Conversion. At any time after the Original Issue Date
until this Debenture is no longer outstanding, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder, in
whole or in part at any time and from time to time (subject to the
limitations on conversion set forth in Section 4(c) hereof). The Holder
shall effect conversions by delivering to the Company the form of Notice of
Conversion attached hereto as Annex A (a "Notice of Conversion"),
specifying therein the principal amount of this Debenture to be converted
and the date on which such conversion is to be effected (a "Conversion
Date"). If no Conversion Date is specified in a Notice of Conversion, the
Conversion Date shall be the date that such Notice of Conversion is
provided hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender this Debenture to the Company unless
the entire principal amount of this Debenture plus all accrued and unpaid
interest thereon has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Debenture
in an amount equal to the applicable conversion. The Holder and the Company
shall maintain records showing the principal amount converted and the date
of such conversions. The Company shall deliver any objection to any Notice
of Conversion within 1 Business Day of receipt of such notice. In the event
of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder
and any assignee, by acceptance of this Debenture, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted principal amount
of this Debenture may be less than the amount stated on the face hereof.
b) Conversion Price. The conversion price in effect on any Conversion
Date shall be equal to $0.40 (subject to adjustment herein)(the "Conversion
Price").
c) Conversion Limitations.
i. RESERVED.
ii. Holder's Restriction on Conversion. The Company shall not
effect any conversion of this Debenture, and the Holder shall not have
the right to convert any portion of this Debenture, pursuant to
Section 4(a) or otherwise, to the extent that after giving effect to
such conversion, the Holder (together with the Holder's affiliates),
as set forth on the applicable Notice of Conversion, would
beneficially own in excess of 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to such
conversion. For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable
upon conversion of this Debenture with respect to which the
determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Debenture
beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of
any other securities of the Company (including, without limitation,
any other Debentures or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its affiliates.
9
Except as set forth in the preceding sentence, for purposes of this
Section 4(c)(ii), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act. To the extent that
the limitation contained in this section applies, the determination of
whether this Debenture is convertible (in relation to other securities
owned by the Holder) and of which a portion of this Debenture is
convertible shall be in the sole discretion of such Holder. To ensure
compliance with this restriction, the Holder will be deemed to
represent to the Company each time it delivers a Notice of Conversion
that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Company shall have no obligation to
verify or confirm the accuracy of such determination. For purposes of
this Section 4(c)(ii), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding
shares of Common Stock as reflected in (x) the Company's most recent
Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent
public announcement by the Company or (z) any other notice by the
Company or the Company's Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral request
of the Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including this
Debenture, by the Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The
provisions of this Section 4(c) may be waived by the Holder, at the
election of the Holder, upon not less than 61 days' prior notice to
the Company, and the provisions of this Section 4(c) shall continue to
apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver).
d) Mechanics of Conversion
i. Conversion Shares Issuable Upon Conversion of Principal
Amount. The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by the quotient obtained by
dividing (x) the outstanding principal amount of this Debenture to be
converted by (y) the Conversion Price. i.
ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after any Conversion Date, the Company will deliver or
cause to be delivered to the Holder (A) a certificate or certificates
representing the Conversion Shares which shall be free of restrictive
legends and trading restrictions (other than those required by the
Purchase Agreement) representing the number of shares of Common Stock
being acquired upon the conversion of this Debenture (including, if
the Company has given continuous notice pursuant to Section 2(b) for
payment of interest in shares of
10
Common Stock at least 20 Trading Days prior to the date on which the
Conversion Notice is delivered to the Company, shares of Common Stock
representing the payment of accrued interest otherwise determined
pursuant to Section 2(a) but assuming that the Interest Payment Period
is the 20 Trading Days period immediately prior to the date on which
the Conversion Notice is delivered to the Company and excluding for
such issuance the condition that the Company deliver Interest
Conversion Shares as to such interest payment) and (B) a bank check in
the amount of accrued and unpaid interest (if the Company is required
to pay accrued interest in cash). The Company shall, if available and
if allowed under applicable securities laws, use its best efforts to
deliver any certificate or certificates required to be delivered by
the Company under this Section electronically through the Depository
Trust Corporation or another established clearing corporation
performing similar functions.
iii. Failure to Deliver Certificates. If in the case of any
Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the fifth
Trading Day after a Conversion Date, the Holder shall be entitled by
written notice to the Company at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the
certificates representing the principal amount of this Debenture
tendered for conversion.
iv. Obligation Absolute; Partial Liquidated Damages. If the
Company fails for any reason to deliver to the Holder such certificate
or certificates pursuant to Section 4(d)(ii) by the fifth Trading Day
after the Conversion Date, the Company shall pay to such Holder, in
cash, as liquidated damages and not as a penalty, for each $1000 of
principal amount being converted, $10 per Trading Day (increasing to
$20 per Trading Day after 5 Trading Days after such damages begin to
accrue) for each Trading Day after such fifth Trading Day until such
certificates are delivered. The Company's obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture in
accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the
same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce
the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any
other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other person, and
irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares; provided, however, such delivery
shall not operate as a waiver by the Company of any
11
such action the Company may have against the Holder. In the event the
Holder of this Debenture shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or any one associated or
affiliated with the Holder has been engaged in any violation of law,
agreement or for any other reason, unless, an injunction from a court,
on notice, restraining and or enjoining conversion of all or part of
this Debenture shall have been sought and obtained and the Company
posts a surety bond for the benefit of the Holder in the amount of
150% of the principal amount of this Debenture outstanding, which is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, the
Company shall issue Conversion Shares or, if applicable, cash, upon a
properly noticed conversion. Nothing herein shall limit a Xxxxxx's
right to pursue actual damages or declare an Event of Default pursuant
to Section 8 herein for the Company's failure to deliver Conversion
Shares within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit
the Holder from seeking to enforce damages pursuant to any other
Section hereof or under applicable law.
v. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Conversion. In addition to any other rights
available to the Holder, if the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to
Section 4(d)(ii) by the fifth Trading Day after the Conversion Date,
and if after such fifth Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall (A) pay in
cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate
number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the actual
sale price of the Common Stock at the time of the sale (including
brokerage commissions, if any) giving rise to such purchase obligation
and (B) at the option of the Holder, either reissue (if surrendered)
this Debenture in a principal amount equal to the principal amount of
the attempted conversion or deliver to the Holder the number of shares
of Common Stock that would have been issued had the Company timely
complied with its delivery requirements under Section 4(d)(ii). For
example, if the Holder purchases Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted
conversion of this Debenture with respect to which the actual sale
price of the Conversion Shares at the time of the sale (including
brokerage commissions, if any) giving rise to such purchase obligation
was a total of $10,000 under clause (A) of the immediately preceding
sentence, the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In. Notwithstanding
anything contained herein to the contrary, if a Holder requires the
Company to make payment in respect of a Buy-In for the failure to
timely deliver certificates hereunder and the Company timely pays in
full such payment, the Company shall not be required to pay such
Holder liquidated damages under Section 4(d)(iv) in respect of the
certificates resulting in such Buy-In.
12
vi. Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock solely for the
purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of
persons other than the Holder (and the other holders of the
Debentures), not less than such number of shares of the Common Stock
as shall (subject to the terms and conditions set forth in the
Purchase Agreement) be issuable (taking into account the adjustments
and restrictions of Section 5) upon the conversion of the outstanding
principal amount of this Debenture and payment of interest hereunder.
The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Registration Statement is then
effective under the Securities Act, registered for public sale in
accordance with such Registration Statement.
vii. Fractional Shares. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing
fractions of shares of the Common Stock, but may if otherwise
permitted, make a cash payment in respect of any final fraction of a
share based on the VWAP at such time. If the Company elects not, or is
unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of
Common Stock.
viii. Transfer Taxes. The issuance of certificates for shares of
the Common Stock on conversion of this Debenture shall be made without
charge to the Holder hereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a
name other than that of the Holder of this Debenture so converted and
the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such
tax has been paid.
13
Section 5. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any time
while this Debenture is outstanding: (A) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company
pursuant to this Debenture, including as interest thereon), (B)
subdivides outstanding shares of Common Stock into a larger number of
shares, (C) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or
(D) issues by reclassification of shares of the Common Stock any
shares of capital stock of the Company, then the Conversion Price
shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately
after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary
thereof, as applicable, at any time while this Debenture is
outstanding, shall offer, sell, grant any option to purchase or offer,
sell or grant any right to reprice its securities, or otherwise
dispose of or issue (or announce any offer, sale, grant or any option
to purchase or other disposition) any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock, at
an effective price per share less than the then Conversion Price (such
lower price, the "Base Conversion Price" and such issuances
collectively, a "Dilutive Issuance"), as adjusted hereunder (if the
holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares
of Common Stock at an effective price per share which is less than the
Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price on such date of the Dilutive Issuance),
then the Conversion Price shall be reduced to equal the Base
Conversion Price. Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued. Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in
respect of an Exempt Issuance. The Company shall notify the Holder in
writing, no later than the Business Day following the issuance of any
Common Stock or Common Stock Equivalents subject to this section,
indicating therein the applicable issuance price, or of applicable
reset price, exchange price, conversion price and other pricing terms
(such notice the "Dilutive Issuance Notice"). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance
Notice pursuant to this Section 5(b), upon the occurrence of any
Dilutive Issuance, after the date of such Dilutive Issuance the Holder
is entitled to receive a number of Conversion Shares based upon the
Base Conversion Price regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of Conversion.
14
c) Pro Rata Distributions. If the Company, at any time while this
Debenture is outstanding, shall distribute to all holders of Common
Stock (and not to the holders of the Debenture) evidences of its
indebtedness or assets (including cash and cash dividends) or rights
or warrants to subscribe for or purchase any security, then in each
such case the Conversion Price shall be adjusted by multiplying such
Conversion Price in effect immediately prior to the record date fixed
for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP
determined as of the record date mentioned above, and of which the
numerator shall be such VWAP on such record date less the then fair
market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of Directors in
good faith. In either case the adjustments shall be described in a
statement provided to the Holder of the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately
after the record date mentioned above.
d) Fundamental Transaction. If, at any time while this Debenture
is outstanding, (A) the Company effects any merger or consolidation of
the Company with or into another Person, (B) the Company effects any
sale of all or substantially all of its assets in one or a series of
related transactions, (C) any tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company
effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (in
any such case, a "Fundamental Transaction"), then upon any subsequent
15
conversion of this Debenture, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon
such conversion immediately prior to the occurrence of such
Fundamental Transaction, the same kind and amount of securities, cash
or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of one share of
Common Stock (the "Alternate Consideration"). For purposes of any such
conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based
on the amount of Alternate Consideration issuable in respect of one
share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different
components of the Alternate Consideration. If holders of Common Stock
are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given
the same choice as to the Alternate Consideration it receives upon any
conversion of this Debenture following such Fundamental Transaction.
To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new debenture consistent with
the foregoing provisions and evidencing the Holder's right to convert
such debenture into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity
to comply with the provisions of this paragraph (d) and insuring that
this Debenture (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
e) Calculations. All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 5, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
f) Notice to the Holder.
i. Adjustment to Conversion Price. Whenever the Conversion
Price is adjusted pursuant to any of this Section 5, the Company
shall promptly mail to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company
issues a variable rate security, despite the prohibition thereon
in the Purchase Agreement, the Company shall be deemed to have
issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities
may be converted or exercised in the case of a Variable Rate
Transaction (as defined in the Purchase Agreement).
ii. Notice to Allow Conversion by Xxxxxx. If (A) the Company
shall declare a dividend (or any other distribution) on the
Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any
rights; (D) the approval of any stockholders of the Company shall
be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or
property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of the Company; then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of
conversion of this Debenture,
16
and shall cause to be mailed to the Holder at its last addresses
as it shall appear upon the stock books of the Company, at least
20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common
Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of
the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, that the failure to
mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to
be specified in such notice. The Holder is entitled to convert
this Debenture during the 20-day period commencing the date of
such notice to the effective date of the event triggering such
notice.
Section 6. Forced Conversion.
---------- ------------------
a) [RESERVED]
b) [RESERVED]
c) Forced Conversion. Notwithstanding anything herein to the
contrary, if after the 11 month anniversary of the Original Issue Date
each of the Closing Prices for any 30 consecutive Trading Days (such
period commencing only after the 11 month anniversary of the Original
Issue Date, such period the "Threshold Period")) exceeds the then
Conversion Price by 250%, the Company may, within 1 Trading Day of the
end of any such period, deliver a notice to the Holder (a "Forced
Conversion Notice" and the date such notice is received by the Holder,
the "Forced Conversion Notice Date") to cause the Holder to
immediately convert all or part of the then outstanding principal
amount of Debentures pursuant to Section 4. The Company may only
effect a Forced Conversion Notice if all of the Equity Conditions are
met through the applicable Threshold Period until the later of the
date of the applicable Forced Conversion and the date shares of Common
Stock are actually delivered to the Holders. Any Forced Conversion
shall be applied ratably to all Holders based on their initial
purchases of Debentures pursuant to the Purchase Agreement. For
purposes of clarification, a Forced Conversion shall be subject to all
of the provisions of Section 4, including, without limitation, the
provision requiring payment of liquidated damages and limitations on
conversions.
17
Section 7. Negative Covenants. So long as any portion of this
Debenture is outstanding, the Company will not and will not permit any of
its Subsidiaries to directly or indirectly:
a) Except for Permitted Indebtedness, other than Indebtedness
incurred in connection with the Regenmacher Transaction, enter into,
create, incur, assume, guarantee or suffer to exist any indebtedness
for borrowed money of any kind, including but not limited to, a
guarantee, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or
profits therefrom;
b) Except for Permitted Liens, other than Liens incurred in
connection with the Regenmacher Transaction, enter into, create,
incur, assume or suffer to exist any liens of any kind, on or with
respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom;
c) amend its certificate of incorporation, bylaws or other
charter documents so as to materially and adversely affect any rights
of the Holder;
d) other than with respect to the Conversion Shares to the extent
permitted or required under the Transaction Documents or other than
repurchases of, up to, in the aggregate among all shareholders,
$130,000 of Common Stock from dissenting shareholders in the reverse
merger, repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its Common Stock or
Common Stock Equivalents;
e) enter into any agreement with respect to any of the foregoing;
or
f) pay cash dividends or distributions on any equity securities
of the Company.
Section 8. Events of Default.
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant
to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
i. any default in the payment of (A) the principal amount of
any Debenture, or (B) interest (including Late Fees) on, or
liquidated damages in respect of, any Debenture, as and when the
same shall become due and payable (whether on a Conversion Date
or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other
default under clause (B) above, is not cured, within 5 Trading
Days;
18
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Debenture or any other
Debenture (other than a breach by the Company of its obligations
to deliver shares of Common Stock to the Holder upon conversion
which breach is addressed in clause (xi) below) which failure is
not cured, if possible to cure, within the earlier to occur of
(A) 15 Trading Days after notice of such default sent by the
Holder or by any other Holder and (B) 20 Trading Days after the
Company shall become or should have become aware of such failure;
iii. a default or event of default (subject to any grace or
cure period provided for in the applicable agreement, document or
instrument) shall occur under (A) any of the Transaction
Documents, or (B) any other material agreement, lease, document
or instrument to which the Company or any Subsidiary is bound and
which default or event of default could have a Material Adverse
Effect on the Company;
iv. any representation or warranty made herein, in any other
Transaction Documents shall be untrue or incorrect in any
material respect as of the date when made or deemed made;
v. (i) the Company or any of its Subsidiaries shall commence
a case, as debtor, a case under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, or the Company or any Subsidiary commences any other
proceeding under any reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction whether now or hereafter in
effect relating to the Company or any Subsidiary thereof or (ii)
there is commenced a case against the Company or any Subsidiary
thereof, under any applicable bankruptcy or insolvency laws, as
now or hereafter in effect or any successor thereto which remains
undismissed for a period of 60 days; or (iii) the Company or any
Subsidiary thereof is adjudicated by a court of competent
jurisdiction insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or
(iv) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any
substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or (v) the Company or any
Subsidiary thereof makes a general assignment for the benefit of
creditors; or (vi) the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (vii) the Company or any
Subsidiary thereof shall call a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of
its debts; or (viii) the Company or any Subsidiary thereof shall
by any act or failure to act expressly indicate its consent to,
approval of or acquiescence in any of the foregoing; or (ix) any
corporate or other action is taken by the Company or any
Subsidiary thereof for the purpose of effecting any of the
foregoing;
19
vi. the Company or any Subsidiary shall default in any of
its obligations under any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may
be secured or evidenced any indebtedness for borrowed money or
money due under any long term leasing or factoring arrangement of
the Company in an amount exceeding $150,000, whether such
indebtedness now exists or shall hereafter be created and such
default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would
otherwise become due and payable;
vii. the Common Stock shall not be eligible for quotation on
or quoted for trading on a Trading Market and shall not again be
eligible for and quoted or listed for trading thereon within five
Trading Days;
viii. the Company shall be a party to any Change of Control
Transaction or Fundamental Transaction, shall agree to sell or
dispose of all or in excess of 33% of its assets in one or more
transactions (whether or not such sale would constitute a Change
of Control Transaction) or shall redeem or repurchase more than a
de minimis number of its outstanding shares of Common Stock or
other equity securities of the Company (other than redemptions of
Conversion Shares and repurchases of shares of Common Stock or
other equity securities of departing officers and directors of
the Company; provided such repurchases shall not exceed $130,000,
in the aggregate, for all officers and directors during the term
of this Debenture);
ix. a Registration Statement shall not have been declared
effective by the Commission on or prior to the 180th calendar day
after the Closing Date;
x. any breach by the Company or any creditor of the Company
with respect to the payoffs, satisfactions and/or conversions of
indebtedness referred to in Section 2.3(b)(vii) of the Purchase
Agreement, including any claim by any such pre-Closing creditor
related to such prior indebtedness;
xi. if, during the Effectiveness Period (as defined in the
Registration Rights Agreement), the effectiveness of the
Registration Statement lapses for any reason or the Holder shall
not be permitted to resell Registrable Securities (as defined in
the Registration Rights Agreement) under the Registration
Statement, in either case, for more than 60 consecutive Trading
Days or 90 non-consecutive Trading Days during any 12 month
period; provided, however, that in the event -------- -------
that the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets or
a similar transaction and in the written opinion of counsel to
the Company, the Registration Statement, would be required to be
amended to include information concerning such transactions or
the parties thereto that is not available or may not be publicly
disclosed at the time, the Company shall be permitted an
additional 10 consecutive Trading Days during any 12 month period
relating to such an event; and
20
xii. the Company shall fail for any reason to deliver
certificates to a Holder prior to the seventh Trading Day after a
Conversion Date or any Forced Conversion Date pursuant to and in
accordance with Section 4(d) or the Company shall provide notice
to the Holder, including by way of public announcement, at any
time, of its intention not to comply with requests for
conversions of any Debentures in accordance with the terms
hereof.
b) Remedies Upon Event of Default. If any Event of Default
occurs, the full principal amount of this Debenture, together with
interest and other amounts owing in respect thereof, to the date of
acceleration shall become, at the Holder's election, immediately due
and payable in cash. The aggregate amount payable upon an Event of
Default shall be equal to the Mandatory Default Amount. Commencing 5
days after the occurrence of any Event of Default that results in the
eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at the rate of 18% per annum, or such lower
maximum amount of interest permitted to be charged under applicable
law. Upon the payment in full of the Mandatory Default Amount on this
entire Debenture the Holder shall promptly surrender this Debenture to
or as directed by the Company. The Holder need not provide and the
Company hereby waives any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of
any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law.
Such declaration may be rescinded and annulled by Xxxxxx at any time
prior to payment hereunder and the Holder shall have all rights as a
Debenture holder until such time, if any, as the full payment under
this Section shall have been received by it. No such rescission or
annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.
Section 9. Miscellaneous.
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at the address
set forth above, facsimile number 408.986.0222, Attn: Xxxxxx X. Xxxx,
CEO, or such other address or facsimile number as the Company may
specify for such purposes by notice to the Holder delivered in
accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder
shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service addressed to each
Holder at the facsimile telephone number or address of such Xxxxxx
appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of
business of the Holder.
21
Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section
prior to 5:30 p.m. (New York City time), (ii) the date after the date
of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section
later than 5:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the second
Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal
of, interest and liquidated damages (if any) on, this Debenture at the
time, place, and rate, and in the coin or currency, herein prescribed.
This Debenture is a direct debt obligation of the Company. This
Debenture ranks pari passu with all other Debentures now or hereafter
issued under the terms set forth herein. This Debenture is expressly
subordinated in right of payment of principal (but, in the absence of
an Event of Default under the Regenmacher Xxxxxxxxx, not in right of
payment of interest) to the Company's prior repayment of the
Regenmacher Debenture.
c) Lost or Mutilated Debenture. If this Debenture shall be
mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the principal
amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of
such Debenture, and of the ownership hereof, and indemnity, if
requested, all reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be
governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the
transactions contemplated by any of the Transaction Documents (whether
brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of New
York, Borough of Manhattan (the "New York Courts"). Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, or such
New York Courts are improper or inconvenient venue for such
proceeding.
22
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Debenture and agrees
that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted
by law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Debenture
or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding
shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach of
any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach
of any other provision of this Debenture. The failure of the Company
or the Holder to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
f) Severability. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain
in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other
persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of
interest. The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law which would prohibit or forgive
the Company from paying all or any portion of the principal of or
interest on this Debenture as contemplated herein, wherever enacted,
now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefits
or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any
power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.
g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.
23
h) Headings. The headings contained herein are for convenience
only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
i) Assumption. Any successor to the Company or surviving entity
in a Fundamental Transaction shall (i) assume in writing all of the
obligations of the Company under this Debenture and the other
Transaction Documents pursuant to written agreements in form and
substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) prior to such Fundamental
Transaction and (ii) to issue to the Holder a new debenture of such
successor entity evidenced by a written instrument substantially
similar in form and substance to this Debenture, including, without
limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Debentures held by the
Holder and having similar ranking to this Debenture, and satisfactory
to the Holder (any such approval not to be unreasonably withheld or
delayed). The provisions of this Section 9(i) shall apply similarly
and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations of this Debenture.
*********************
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IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
INTRAOP MEDICAL CORPORATION
By:___________________________________
Name:
Title:
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 7 %
Convertible Debenture of Intraop Medical Corporation, a Nevada corporation (the
"Company"), due on August ___, 2008, into shares of common stock, par value
$0.001 per share (the "Common Stock"), of the Company according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of
Conversion at Issue.
Number of shares of Common Stock to
be issued:
Signature:
Name:
Address:
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Schedule 1
CONVERSION SCHEDULE
The 7% Convertible Debentures due on August ___, 2008, in the aggregate
principal amount of $____________ issued by Intraop Medical Corporation, a
Nevada corporation. This Conversion Schedule reflects conversions made under
Section 4 of the above referenced Debenture.
Dated:
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Aggregate
Principal
Amount
Remaining
Date of Conversion Subsequent to
(or for first entry, Amount of Conversion
Original Issue Date) Conversion (or original Company Attest
Principal Amount)
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