NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date:[October/November] ___, 2005
Original Conversion Price (subject to adjustment herein): $0.40
$---------------
7% CONVERTIBLE DEBENTURE
DUE [OCTOBER/NOVEMBER] ___, 2008
THIS 7% CONVERTIBLE DEBENTURE is one of a series of duly authorized
and issued 7% Convertible Debentures of Intraop Medical Corporation, a Nevada
corporation, having a principal place of business at 000 Xxx Xxx Xxxxxx,
Xxxxxxxxx, XX 00000 (the "Company"), designated as its 7% Convertible Debenture,
due [October/November] ___, 2008 (this debenture, the "Debenture" and
collectively with the other such series of debentures, the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to
________________________ or its registered assigns (the "Holder"), or shall have
paid pursuant to the terms hereunder, the principal sum of $_______________ by
[October/November] ___, 2008, or such earlier date as this Debenture is required
or permitted to be repaid as provided hereunder (the "Maturity Date"), and to
pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Debenture in accordance with the provisions hereof.
This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
1
"Alternate Consideration" shall have the meaning set forth in Section
5(d).
"Base Conversion Price" shall have the meaning set forth in Section
5(b).
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on
which banking institutions in the State of New York are authorized or
required by law or other government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
"Change of Control Transaction" means the occurrence after the date
hereof of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act), other than pursuant
to the Transaction Documents, of effective control (whether through
legal or beneficial ownership of capital stock of the Company, by
contract or otherwise) of in excess of 40% of the voting securities of
the Company, or (ii) the Company merges into or consolidates with any
other Person, or any Person merges into or consolidates with the
Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 60%
of the aggregate voting power of the Company or the successor entity
of such transaction, or (iii) the Company sells or transfers its
assets, as an entirety or substantially as an entirety, to another
Person and the stockholders of the Company immediately prior to such
transaction own less than 60% of the aggregate voting power of the
acquiring entity immediately after the transaction, (iv) a replacement
at one time or within a three year period of more than one-half of the
members of the Company's board of directors which is not approved by a
majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to
the board of directors was approved by a majority of the members of
the board of directors who are members on the date hereof), or (v) the
execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set
forth above in (i) or (iv).
"Closing Price" means on any particular date (a) the last reported
closing bid price per share of Common Stock on such date on the
Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York
time), or (b) if there is no such price on such date, then the closing
2
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.
"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, (a)
an aggregate principal amount of $2,500,000 in 7% convertible
debentures and an aggregate principal amount of $2,000,000 in 10%
senior secured debentures issued on August 31, 2005, (c) Indebtedness
incurred in connection with the Purchase Agreement, (d) up to
approximately $974,614 of Indebtedness existing on the date of the
Purchase Agreement as described in Schedule 3.1(aa) attached to the
Purchase Agreement, and (d) up to $3,000,000 in connection with the
Company's revolving inventory and sales contract financing agreement
with E.U. Capital.
"Permitted Lien" shall mean the individual and collective
reference to the following: (a) Liens for taxes, assessments and other
governmental charges or levies not yet due or Liens for taxes,
assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Company) have been
established in accordance with GAAP; (b) Liens imposed by law which
were incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and
other similar Liens arising in the ordinary course of business, and (x)
which do not individually or in the aggregate materially detract from
the value of such property or assets or materially impair the use
thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) which are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to
such Lien; and (c) Liens on Receivables and the Company's "inventory"
(as such term is used in the Security Agreement) incurred solely in
connection with a Permitted Indebtedness under clause (a) of the
definition of Permitted Indebtedness.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of October 25, 2005, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of the Purchase Agreement, to which
the Company and the original Holder are parties, as amended, modified
or supplemented from time to time in accordance with its terms.
5
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering
among other things the resale of the Conversion Shares and naming the
Holder as a "selling stockholder" thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" shall have the meaning given to such term in the Purchase
Agreement.
"Threshold Period" shall have the meaning given to such term in
Section 6(c).
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question:
the Nasdaq SmallCap Market, the American Stock Exchange, the New York
Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" shall have the meaning set forth in the Purchase Agreement.
Section 2. Interest.
---------- ---------
a) Payment of Interest in Cash or Kind. The Company shall pay interest to
the Holder on the aggregate unconverted and then outstanding principal
amount of this Debenture at the rate of 7% per annum, payable
quarterly on January 1, April 1, July 1 and October 1, beginning on
the first such date after the Original Issue Date, on each Conversion
Date (as to that principal amount then being converted) and on the
Maturity Date (except that, if any such date is not a Business Day,
then such payment shall be due on the next succeeding Business Day)
(each such date, an "Interest Payment Date"), in cash or shares of
Common Stock at the Interest Conversion Rate, or a combination thereof
(the amount to be paid in shares, the "Interest Share Amount");
provided, however, (i) payment in shares of Common Stock may only
occur if during the 10 Trading Days immediately prior to the
applicable Interest Payment Date (the "Interest Notice Period") and
through and including the date such shares of Common Stock are issued
to the Holder all of the Equity Conditions, unless waived by the
Holder in writing, have been met and the Company shall have given the
Holder notice in accordance with the notice requirements set forth
below, (ii) the VWAP is equal to or greater than 115% of the then
applicable Conversion Price for each of the 10 Trading Days
immediately prior to the applicable Interest Payment Date and through
and including the date such shares of Common Stock are issued to the
Holder and (iii) as to such Interest Payment Date, prior to the such
6
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").
b) Company's Election to Pay Interest in Kind. Subject to the terms and
conditions herein, the decision whether to pay interest hereunder in
shares of Common Stock or cash shall be at the discretion of the
Company. Prior to the commencement of an Interest Notice Period, the
Company shall provide the Holder with written notice of its election
to pay interest hereunder on the applicable Interest Payment Date
either in cash, shares of Common Stock or a combination thereof (the
Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised) and the
Interest Share Amount as to the applicable Interest Payment Date.
During any Interest Notice Period, the Company's election (whether
specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the
aforementioned conditions, failure to timely provide such written
notice shall be deemed an election by the Company to pay the interest
on such Interest Payment Date in cash. At any time the Company
delivers a notice to the Holder of its election to pay the interest in
shares of Common Stock, the Company shall file a prospectus supplement
pursuant to Rule 424 disclosing such election. The aggregate number of
shares of Common Stock otherwise issuable to the Holder on an Interest
Payment Date shall be reduced by the number of Interest Conversion
Shares previously issued to the Holder in connection with such
Interest Payment Date.
c) Interest Calculations. Interest shall be calculated on the basis of a
360-day year and shall accrue daily commencing on the Original Issue
Date until payment in full of the principal sum, together with all
accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Payment of interest in shares of Common
Stock (other than the Interest Conversion Shares issued prior to an
Interest Notice Period) shall otherwise occur pursuant to Section
4(d)(ii) and only for purposes of the payment of interest in shares,
the Interest Payment Date shall be deemed the Conversion Date.
Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company in fact delivers the Conversion
Shares within the time period required by Section 4(d)(ii). Interest
hereunder will be paid to the Person in whose name this Debenture is
registered on the records of the Company regarding registration and
transfers of this Debenture (the "Debenture Register"). Except as
otherwise provided herein, if at any time the Company pays interest
partially in cash and partially in shares of Common Stock to the
holders of the Debentures, then such payment shall be distributed
ratably among the holders of the Debentures based on their (or their
predecessor's initial purchases of Debentures pursuant to the Purchase
Agreement.
7
d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder
shall entail a late fee at the rate of 18% per annum (or such lower
maximum amount of interest permitted to be charged under applicable
law) ("Late Fees") which will accrue daily, from the date such
interest is due hereunder through and including the date of payment.
Notwithstanding anything to the contrary contained herein, if on any
Interest Payment Date the Company has elected to pay interest in
Common Stock and is not able to pay accrued interest in the form of
Common Stock because it does not then satisfy the conditions for
payment in the form of Common Stock set forth above, then, at the
option of the Holder, the Company, in lieu of delivering either shares
of Common Stock pursuant to this Section 2 or paying the regularly
scheduled cash interest payment, shall deliver, within three Trading
Days of each applicable Interest Payment Date, an amount in cash equal
to the product of the number of shares of Common Stock otherwise
deliverable to the Holder in connection with the payment of interest
due on such Interest Payment Date and the highest VWAP during the
period commencing on the Interest Payment Date and ending on the
Trading Day prior to the date such payment is made. If any Interest
Conversion Shares are issued to the Holder in connection with an
Interest Payment Date and are not applied against an Interest Share
Amount, then the Holder shall promptly return such excess shares to
the Company.
e) Prepayment. Except as otherwise set forth in this Debenture, the
Company may not prepay any portion of the principal amount of this
Debenture without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
---------- ----------------------------------------
a) Different Denominations. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same;
provided, however, the Company shall not be required to exchange this
Debenture for denominations of less than the greater of $50,000 and
the principal amount of this Debenture then outstanding. No service
charge will be made for such registration of transfer or exchange.
b) Investment Representations. This Debenture has been issued subject to
certain investment representations of the original Holder set forth in
the Purchase Agreement and may be transferred or exchanged only in
compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations.
c) Reliance on Debenture Register. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of
the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture is overdue, and neither the
Company nor any such agent shall be affected by notice to the
contrary.
8
Section 4. Conversion.
---------- -----------
a) Voluntary Conversion. At any time after the Original Issue Date until
this Debenture is no longer outstanding, this Debenture shall be
convertible into shares of Common Stock at the option of the Holder,
in whole or in part at any time and from time to time (subject to the
limitations on conversion set forth in Section 4(c) hereof). The
Holder shall effect conversions by delivering to the Company the form
of Notice of Conversion attached hereto as Annex A (a "Notice of
Conversion"), specifying therein the principal amount of this
Debenture to be converted and the date on which such conversion is to
be effected (a "Conversion Date"). If no Conversion Date is specified
in a Notice of Conversion, the Conversion Date shall be the date that
such Notice of Conversion is provided hereunder. To effect conversions
hereunder, the Holder shall not be required to physically surrender
this Debenture to the Company unless the entire principal amount of
this Debenture plus all accrued and unpaid interest thereon has been
so converted. Conversions hereunder shall have the effect of lowering
the outstanding principal amount of this Debenture in an amount equal
to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount converted and the date
of such conversions. The Company shall deliver any objection to any
Notice of Conversion within 1 Business Day of receipt of such notice.
In the event of any dispute or discrepancy, the records of the Holder
shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the
unpaid and unconverted principal amount of this Debenture may be less
than the amount stated on the face hereof.
b) Conversion Price. The conversion price in effect on any Conversion
Date shall be equal to $0.40 (subject to adjustment herein)(the
"Conversion Price").
c) Conversion Limitations.
i. RESERVED.
ii. Holder's Restriction on Conversion. The Company shall not effect
any conversion of this Debenture, and the Holder shall not have
the right to convert any portion of this Debenture, pursuant to
Section 4(a) or otherwise, to the extent that after giving effect
to such conversion, the Holder (together with the Holder's
affiliates), as set forth on the applicable Notice of Conversion,
would beneficially own in excess of 4.99% of the number of shares
of the Common Stock outstanding immediately after giving effect
to such conversion. For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder
and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Debenture with respect to
which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted
portion of this Debenture beneficially owned by the Holder or any
of its affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of
9
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(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.
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
10
this Debenture (including, if the Company has given continuous
notice pursuant to Section 2(b) for payment of interest in shares
of Common Stock at least 20 Trading Days prior to the date on
which the Conversion Notice is delivered to the Company, shares
of Common Stock representing the payment of accrued interest
otherwise determined pursuant to Section 2(a) but assuming that
the Interest Payment Period is the 20 Trading Days period
immediately prior to the date on which the Conversion Notice is
delivered to the Company and excluding for such issuance the
condition that the Company deliver Interest Conversion Shares as
to such interest payment) and (B) a bank check in the amount of
accrued and unpaid interest (if the Company is required to pay
accrued interest in cash). The Company shall, if available and if
allowed under applicable securities laws, use its best efforts to
deliver any certificate or certificates required to be delivered
by the Company under this Section electronically through the
Depository Trust Corporation or another established clearing
corporation performing similar functions.
iii. Failure to Deliver Certificates. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to
or as directed by the applicable Holder by the fifth Trading Day
after a Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return
the certificates representing the principal amount of this
Debenture tendered for conversion.
iv. Obligation Absolute; Partial Liquidated Damages. If the Company
fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the fifth Trading
Day after the Conversion Date, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, for
each $1000 of principal amount being converted, $10 per Trading
Day (increasing to $20 per Trading Day after 5 Trading Days after
such damages begin to accrue) for each Trading Day after such
fifth Trading Day until such certificates are delivered. The
Company's obligations to issue and deliver the Conversion Shares
upon conversion of this Debenture in accordance with the terms
hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or
any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other person, and
irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection
with the issuance of such Conversion Shares; provided, however,
such delivery shall not operate as a waiver by the Company of any
such action the Company may have against the Holder. In the event
the Holder of this Debenture shall elect to convert any or all of
the outstanding principal amount hereof, the Company may not
11
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
12
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.
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 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
15
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, 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
16
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.
17
Section 6. Forced Conversion.
---------- ------------------
a) [RESERVED]
b) [RESERVED]
c) Forced Conversion. Notwithstanding anything herein to the
contrary, if after the 11 month anniversary of the Original Issue
Date each of the Closing Prices for any 30 consecutive Trading
Days (such period commencing only after the 11 month anniversary
of the Original Issue Date, such period the "Threshold Period"))
exceeds the then Conversion Price by 250%, the Company may,
within 1 Trading Day of the end of any such period, deliver a
notice to the Holder (a "Forced Conversion Notice" and the date
such notice is received by the Holder, the "Forced Conversion
Notice Date") to cause the Holder to immediately convert all or
part of the then outstanding principal amount of Debentures
pursuant to Section 4. The Company may only effect a Forced
Conversion Notice if all of the Equity Conditions are met through
the applicable Threshold Period until the later of the date of
the applicable Forced Conversion and the date shares of Common
Stock are actually delivered to the Holders. Any Forced
Conversion shall be applied ratably to all Holders based on their
initial purchases of Debentures pursuant to the Purchase
Agreement. For purposes of clarification, a Forced Conversion
shall be subject to all of the provisions of Section 4,
including, without limitation, the provision requiring payment of
liquidated damages and limitations on conversions.
Section 7. Negative Covenants.
---------- -------------------
So long as any portion of this Debenture is outstanding, the Company will not
and will not permit any of its Subsidiaries to directly or indirectly:
a) Except for Permitted Indebtedness, other than Indebtedness
incurred in connection with the Regenmacher Transaction, enter
into, create, incur, assume, guarantee or suffer to exist any
indebtedness for borrowed money of any kind, including but not
limited to, a guarantee, on or with respect to any of its
property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom;
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;
18
e) enter into any agreement with respect to any of the foregoing; or
f) pay cash dividends or distributions on any equity securities of the
Company.
Section 8. Events of Default.
---------- ------------------
a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or
pursuant to any judgment, decree or order of any court, or any
order, rule or regulation of any administrative or governmental
body):
i. any default in the payment of (A) the principal amount of
any Debenture, or (B) interest (including Late Fees) on, or
liquidated damages in respect of, any Debenture, as and when
the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or
otherwise) which default, solely in the case of an interest
payment or other default under clause (B) above, is not
cured, within 5 Trading Days;
ii. the Company shall fail to observe or perform any other
covenant or agreement contained in this Debenture or any
other Debenture (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder
upon conversion which breach is addressed in clause (xi)
below) which failure is not cured, if possible to cure,
within the earlier to occur of (A) 15 Trading Days after
notice of such default sent by the Holder or by any other
Holder and (B) 20 Trading Days after the Company shall
become or should have become aware of such failure;
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
19
commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to
the Company or any Subsidiary thereof or (ii) there is
commenced a case against the Company or any Subsidiary
thereof, under any applicable bankruptcy or insolvency laws,
as now or hereafter in effect or any successor thereto which
remains undismissed for a period of 60 days; or (iii) the
Company or any Subsidiary thereof is adjudicated by a court
of competent jurisdiction insolvent or bankrupt; or any
order of relief or other order approving any such case or
proceeding is entered; or (iv) the Company or any Subsidiary
thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days;
or (v) the Company or any Subsidiary thereof makes a general
assignment for the benefit of creditors; or (vi) the Company
shall fail to pay, or shall state that it is unable to pay,
or shall be unable to pay, its debts generally as they
become due; or (vii) the Company or any Subsidiary thereof
shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its
debts; or (viii) the Company or any Subsidiary thereof shall
by any act or failure to act expressly indicate its consent
to, approval of or acquiescence in any of the foregoing; or
(ix) any corporate or other action is taken by the Company
or any Subsidiary thereof for the purpose of effecting any
of the foregoing;
vi. the Company or any Subsidiary shall default in any of its
obligations under any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which
there may be secured or evidenced any indebtedness for
borrowed money or money due under any long term leasing or
factoring arrangement of the Company in an amount exceeding
$150,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and
payable;
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);
20
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 15
consecutive Trading Days or 60 non-consecutive Trading Days
during any 12 month period; provided, however, that in the
event that the Company is negotiating a merger,
consolidation, acquisition or sale of all or substantially
all of its assets or a similar transaction and in the
written opinion of counsel to the Company, the Registration
Statement, would be required to be amended to include
information concerning such transactions or the parties
thereto that is not available or may not be publicly
disclosed at the time, the Company shall be permitted an
additional 10 consecutive Trading Days during any 12 month
period relating to such an event; and
xii. the Company shall fail for any reason to deliver
certificates to a Holder prior to the seventh Trading Day
after a Conversion Date or any Forced Conversion Date
pursuant to and in accordance with Section 4(d) or the
Company shall provide notice to the Holder, including by way
of public announcement, at any time, of its intention not to
comply with requests for conversions of any Debentures in
accordance with the terms hereof.
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. Upon the occurrence and during the continuation of an
Event of Default, the interest rate of this Debenture shall be
increased to 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
21
it under applicable law. Such declaration may be rescinded and
annulled by Xxxxxx at any time prior to payment hereunder and the
Holder shall have all rights as a Debenture holder until such
time, if any, as the full payment under this Section shall have
been received by it. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent
thereon.
Section 9. Miscellaneous.
---------- --------------
a) Notices. Any and all notices or other communications or
deliveries to be provided by the Holder hereunder, including,
without limitation, any Notice of Conversion, shall be in writing
and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service, addressed to the Company,
at the address set forth above, facsimile number 408.636.0222,
Attn: Xxxxxx X. Xxxx, CEO, or such other address or facsimile
number as the Company may specify for such purposes by notice to
the Holder delivered in accordance with this Section. Any and all
notices or other communications or deliveries to be provided by
the Company hereunder shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized
overnight courier service addressed to each Holder at the
facsimile telephone number or address of such Xxxxxx appearing on
the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of
the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:30 p.m. (New York City
time), (ii) the date after the date of transmission, if such
notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than
5:30 p.m. (New York City time) on any date and earlier than 11:59
p.m. (New York City time) on such date, (iii) the second Business
Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no
provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the
principal of, interest and liquidated damages (if any) on, this
Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks pari passu with
all other Debentures now or hereafter issued under the terms set
forth herein. This Debenture is expressly subordinated in right
of payment of principal (but, in the absence of an Event of
Default under the Regenmacher Xxxxxxxxx, not in right of payment
of interest) to the Company's prior repayment of the Regenmacher
Debenture.
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.
2
d) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall
be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that
all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or
its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the
"New York Courts"). --------------- Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York
Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives,
and agrees not to assert in any suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of
any such court, or such New York Courts are improper or
inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at
the address in effect for notices to it under this Debenture and
agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in
any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding arising
out of or relating to this Debenture or the transactions
contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of this Debenture, then the
prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
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
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interest due hereunder shall automatically be lowered to equal
the maximum permitted rate of interest. The Company covenants (to
the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury
law or other law which would prohibit or forgive the Company from
paying all or any portion of the principal of or interest on this
Debenture as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it
may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of
any power herein granted to the Holder, but will suffer and
permit the execution of every such as though no such law has been
enacted.
g) Next Business Day. Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only,
do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.
i) Assumption. Any successor to the Company or surviving entity in a
Fundamental Transaction shall (i) assume in writing all of the
obligations of the Company under this Debenture and the other
Transaction Documents pursuant to written agreements in form and
substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) prior to such Fundamental
Transaction and (ii) to issue to the Holder a new debenture of
such successor entity evidenced by a written instrument
substantially similar in form and substance to this Debenture,
including, without limitation, having a principal amount and
interest rate equal to the principal amounts and the interest
rates of the Debentures held by the Holder and having similar
ranking to this Debenture, and satisfactory to the Holder (any
such approval not to be unreasonably withheld or delayed). The
provisions of this Section 9(i) shall apply similarly and equally
to successive Fundamental Transactions and shall be applied
without regard to any limitations of this Debenture.
*********************
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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: Xxxxxx X. Xxxx
Title: Chief Executive Officer and
President
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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 [October/November] ___, 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 [October/November] ___, 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:
=============================== ------------------------- ======================= ------------------------------
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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