EXECUTION COUNTERPART
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EXHIBIT 10.1
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FORM OF DEBENTURE CONVERSION AGREEMENT
THIS DEBENTURE CONVERSION AGREEMENT (this "Agreement") is made as of
December 6, 2004 by and among INTRAC, INC., a Nevada corporation (the "Company")
and the holders of the Company's 8% Series SPA Senior Subordinated Convertible
Redeemable Debentures due November 30, 2004 (each a "Debenture" and,
collectively, the "Debentures") identified on Exhibit 1 attached hereto (each a
"Holder" and collectively, the "Holders").
A. WHEREAS, the Company has previously issued Debentures which have
a current outstanding principal balance together with accrued interest of
approximately $421,250.
B. WHEREAS, the Holders have acquired, either by purchase, exchange
of securities or as a result of a loan to the Company, all of the Debentures.
C. WHEREAS, the Company, Intrac Merger Sub Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and
Innovative Drug Delivery Systems, Inc., a Delaware corporation ("IDDS"), have
entered into an Agreement and Plan of Merger, dated as of December 6, 2004 (the
"Merger Agreement") pursuant to which IDDS will merge with Merger Sub and the
stockholders of IDDS will become stockholders of the Company (the "Merger").
D. WHEREAS, as a condition to the closing of the Merger (the
"Closing") and the other transactions contemplated by the Merger Agreement, IDDS
and the Company have required that all of the Holders shall have executed and
delivered this Agreement, pursuant to which all of the Debentures shall be
cancelled and converted into an aggregate of no more than 1,178,031 shares of
Common Stock, $.001 par value, of the Company (the "Common Stock") immediately
after the Effective Time of the Merger (as defined in the Merger Agreement).
E. WHEREAS, the Holders wish to convert all outstanding unpaid
principal and interest owed pursuant to the Debentures into shares of Common
Stock in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereby covenant and agree as follows:
1. Agreement to Convert Debentures into Shares.
1.1 Conversion; Cancellation of Debentures.
(a) Conversion. Each of the Holders hereby agrees that
immediately after the Effective Time of the Merger, the amount of outstanding
principal and/or accrued but unpaid interest owed to Holder pursuant to each
Debenture shall be automatically converted into the right to receive the number
of shares of Common Stock ("Shares") equal to the outstanding balance of
principal and interest owed under such Holder's debenture immediately prior to
Closing multiplied by the Conversion Price (as defined below). For purposes of
this Agreement, the "Conversion Price" shall equal (i) 1,053,201 divided by (ii)
the aggregate outstanding balance of principal and interest owed under all
Debentures immediately prior to Closing. Solely by way of example, if the
aggregate balance of principal and interest owed under all outstanding
Debentures is $300,000 immediately prior Closing, and a Holder owns a Debenture
with $100,000 of outstanding principal and interest, such Holder would receive
351,067 Shares immediately after the Effective Time of the Merger (e.g.
1,053,201/ $300,000 x $100,000)).
(b) Irrevocable Election. Holder agrees that the decision
to convert Debentures pursuant to this Agreement is irrevocable and is
contingent solely upon Closing of the Merger. Each Holder agrees that, without
the prior written consent of the Company, following the date of this Agreement
until the earlier of (i) Closing of the Merger or (ii) termination of the Merger
Agreement in accordance with its terms for reasons other than a breach by the
Company, such Holder shall not directly or indirectly sell, assign, hypothecate
or otherwise transfer or purport to transfer all or any portion of the
Debentures or the Shares issuable upon conversion thereof. Effectiveness of any
sale, assignment or transfer of any Debenture that is approved in writing by the
Company shall be contingent upon the new Holder agreeing in writing to be bound
by the terms of this Agreement.
(c) Cancellation of Debentures. Each Holder agrees that,
as of the Closing, Holder shall have no further rights under the Debentures and
such Debentures shall be deemed cancelled and of no further force and effect.
Prior to the Closing, Holder shall deliver the original Debenture to the Company
(or its designee) duly endorsed for transfer to the Company. Promptly following
the Closing, the Company shall deliver or cause its transfer agent to deliver to
each Holder, the number of Shares calculated in accordance with Section 1(a)
above; provided, however, that to the extent that any Holder does not deliver
the original Debenture prior to Closing, upon surrender of the duly endorsed
original Debenture to the Company (or its designee), the Holder shall be
entitled to receive (and the Company shall promptly issue or cause to be issued)
in exchange therefor the number of Shares issuable pursuant to Section 1(a)
above. From and after the Closing, no Holder shall have any rights with respect
to the Debentures other than to surrender the original Debenture and receive
Shares in exchange therefor.
(d) Lost Debenture. In the event that a Debenture has
been lost or destroyed, the Holder of such Debenture shall, as a condition to
receipt of any Shares in exchange therefore, execute and deliver to the Company
an indemnity agreement, in such customary form as is reasonably acceptable to
the Company, indemnifying the Company for any loss or damages resulting from or
arising out of the loss of such original Debenture.
2. Representations and Warranties of Holder. Holder hereby represents,
warrants and agrees with the Company that:
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2.1 Authorization; Outstanding Debentures. Holder has full
power and authority to enter into the Agreement. The Agreement, when executed
and delivered by Holder, will constitute a valid and legally binding obligation
of Holder, enforceable in accordance with its terms. Holder is the only person
with a direct or indirect interest in the Debenture being converted into Shares
under this Agreement. Neither the Debenture nor any interest therein has been
sold, assigned, transferred or hypothecated by Holder and Holder has not entered
into any agreement or arrangement to sell, assign, transfer or hypothecate all
or any portion of the Debenture. The Debenture is owned by Holder free and clear
of any claims, liens or encumbrances. The Debenture constitutes all of the
Debentures held by Holder or affiliates of Holder (other than affiliates who
execute a counterpart to this Agreement simultaneously with the execution of
this Agreement). To the best knowledge of Holder, the aggregate principal amount
of all outstanding Debentures is as set forth in Recital A to this Agreement.
2.2 Accredited Investor. Holder is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). Holder is experienced
in evaluating and investing in securities of companies in a similar stage of
development and is able to fend for himself or itself and can bear the economic
risk of an investment in the Shares.
2.3 Disclosure of Information and Risks. Holder has extensive
knowledge of the Company, including the transactions contemplated by the Merger,
and is aware that an investment in the Shares as a result of the conversion of
Debentures contemplated hereby involves significant risks. Holder has had an
opportunity to ask questions and receive answers from the Company and IDDS with
respect to the Merger and related transactions. Holder has had an opportunity to
review any requested documentation regarding the terms of the Merger as well as
the business, properties, prospects and financial condition of the Company.
Among other things, Holder acknowledges and agrees that there can be no
assurance that the Company will be able to successfully operate IDDS or execute
its business plan. Holder has been advised to consult, and has had an
opportunity to consult, with Holder's own counsel and/or tax or other advisors
regarding the transaction contemplated by this Agreement.
2.4 Specific Risk Awareness. HOLDER CONFIRMS THAT HOLDER
UNDERSTANDS AND HAS FULLY CONSIDERED THE RISKS OF THE CONVERSION OF DEBENTURES
CONTEMPLATED BY THIS AGREEMENT AND THE RESULTING INVESTMENT IN THE SHARES. BY
AGREEING TO CONVERT AMOUNTS DUE TO HOLDER UNDER THE DEBENTURE INTO SHARES,
HOLDER ACKNOWLEDGES AND AGREES THAT (I) HOLDER WILL RECEIVE A SECURITY (THE
SHARES) THAT RANKS JUNIOR IN PRIORITY TO THE DEBENTURES AND WITH RESPECT TO
WHICH THERE CAN BE NO GUARANTY OF ANY RETURN ON INVESTMENT, (II) HOLDER WILL
HOLD A SMALL PERCENTAGE OF THE TOTAL ISSUED AND OUTSTANDING SHARES OF COMMON
STOCK FOLLOWING COMPLETION OF THE MERGER AND, AS A RESULT, WILL BE BOUND BY
DECISIONS MADE BY HOLDERS OF A MAJORITY OF SUCH OUTSTANDING SHARES, AND (III)
WHILE IT IS EXPECTED THAT THE SHARES WILL BE SALEABLE BY HOLDER IN ANY PUBLIC
MARKET FOR THE COMPANY'S COMMON STOCK IN RELIANCE ON RULE 144 OF THE SECURITIES
ACT, THE COMPANY IS NOT MAKING ANY REPRESENTATION OR WARRANTY TO HOLDER AS TO
WHETHER SUCH SHARES WILL BE ELIGIBLE FOR IMMEDIATE RESALE OR, IF SO ELIGIBLE,
WHETHER A LIQUID PUBLIC MARKET FOR THE COMMON STOCK WILL EXIST OR BE MAINTAINED.
In addition, Holder acknowledges, confirms, and agrees that (a) an investment in
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Shares is suitable only for an investor who is able to bear the economic
consequences of losing Holder's entire investment, (b) investment in the Shares
is highly speculative and involves a high degree of risk of loss by Holder of
his investment, (c) Holder is able to bear the economic risk of this investment,
and (d) Holder may be required to hold the Shares for an indefinite period of
time.
2.5 Acquisition Entirely for Own Account. This Agreement is
made with Holder in reliance upon Holder's representation to the Company, which
by Holder's execution of this Agreement Holder hereby confirms, that the Shares
to be acquired by Holder will be acquired for investment for Holder's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof (other than sales in accordance with applicable
state and federal securities laws). By executing this Agreement, Holder further
represents that Holder does not presently have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Shares and Holder has not been formed for the specific purpose of acquiring the
Shares.
2.6 No Public Market. Holder understands that there can be no
assurance that a liquid public market for the Shares will ever exist.
2.7 Restricted Securities. Holder understands that the Shares
have not been, and will not be, registered under the Securities Act by reason of
a specific exemption from the registration provisions of the Securities Act
which depends upon, among other things, the bona fide nature of the investment
intent and the accuracy of Holder's representations as expressed herein. Holder
understands that the Shares will be "restricted securities" under applicable
U.S. federal and state securities laws and regulations, and that pursuant to
these laws, Holder may only resell the Shares if they are registered with the
Securities and Exchange Commission and qualified by state authorities or an
exemption from such registration and qualification requirements is available.
Holder acknowledges that the Company has no obligation to register or qualify
the Shares for resale. Holder further acknowledges that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Shares, and requirements relating to the Company which
are outside of Holder's control and which the Company is under no obligation,
and may not be able, to satisfy.
2.8 Legends. It is understood and agreed that the Shares, and
any securities issued in respect thereof or exchange therefor, may bear a legend
substantially the same as the following legend as well as any legend required by
the Blue Sky laws of any state of the United States to the extent such laws are
applicable to the Shares represented by the certificate so legended:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE DISTRIBUTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE
ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND
LAWS."
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3. Representations and Warranties of the Company. The Company hereby
represents, warrants and agrees with each Holder that:
3.1. Authorization of Shares. The Shares upon issuance in
accordance with the terms of this Agreement shall be duly authorized, validly
issued, fully paid and nonassessable.
3.2 Authority. The Company has the power and authority to
deliver and perform this Agreement and to make the representations and
warranties contained herein.
3.3 Noncontravention. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby or
compliance with the terms and conditions hereof by the Company will violate or
result in a breach of any term or provision of any agreement to which the
Company is bound or is a party, or the Company's Certificate of Incorporation or
By-Laws, or be in conflict with or constitute a default under, or cause the
acceleration of the maturity of any obligation of the Company under any existing
agreement or violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company or any of its properties or assets, the
effect of which would be to impair the performance by the Company of its
obligations hereunder or the receipt by the Holders of the Shares.
3.4 Enforceability. This Agreement has been duly and validly
executed by the Company and constitutes the valid and binding obligation of the
Company, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
creditors' rights generally or by limitations on the availability of equitable
remedies.
4. Resale of Shares.
4.1 Registration Rights. As a material inducement to Holders to
enter into this Agreement, the Company agrees that if, at any time from and
after the date of this Agreement, the Company proposes to prepare and file with
the Securities and Exchange Commission a registration statement relating to an
offering of its Common Stock for its own account or the account of others under
the Securities Act of any of its equity securities (a "Registration Statement"),
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act), then the Company shall send to Holders a written notice of such
determination and, if within fifteen (15) days after the date of such notice,
any Holder shall so request in writing, the Company shall, at its sole expense,
include in such Registration Statement all or any part of the Common Stock
underlying the Debentures; provided that the Common Stock requested to be
included by such Holder is not then eligible for sale pursuant to Rule 144(k)
under the Securities Act. If the Registration Statement is being filed pursuant
to a written agreement obligating the Company to file same (a "Registration
Agreement"), and any Holder requests to be included in such Registration
Statement, such Holder shall be entitled to receive all notices and documents
sent by the Company to the parties whose securities are being registered
pursuant to such Registration Agreement, and such Holder shall execute and
deliver all such agreements and undertakings as may be required of such other
parties.
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4.2 144 Sales. The Company shall use its best efforts to timely
file all documents and reports required under the Exchange Act to meet the
"Current Public Information" requirements of subsection (c) of Rule 144 under
the Securities Act ("Rule 144"). Further, the Company will use its best efforts
to cooperate with the Holders, and their respective agents, in order to
facilitate sales by the Holders of Shares pursuant to Rule 144, and, in
furtherance thereof, the Company hereby acknowledges that, so long as the Holder
is not then an affiliate of the Company, it will be eligible to sell the Shares
pursuant to the exemption afforded under Rule 144, subject to compliance with
the terms and conditions of Rule 144.
5. Indemnification of Company. Each Holder agrees to indemnify and hold
harmless the Company and each of its respective officers, directors, agents,
attorneys, accountants and affiliates from and against all damages, losses,
costs and expenses (including reasonable attorneys' fees) that they may incur by
reason of the failure of Holder to fulfill any of the terms or conditions of
this Agreement, or by reason of any breach of the representations and warranties
made by Holder herein or in any other document provided by Holder to the Company
in connection with the transactions contemplated hereby.
6. Indemnification of the Holders. The Company agrees to indemnify and
hold harmless each Holder and each of its respective successors and assigns from
and against all damages, losses, costs and expenses (including reasonable
attorneys' fees) that they may incur by reason of the failure of the Company to
fulfill any of the terms or conditions of this Agreement, or by reason of any
breach of the representations and warranties made by the Company herein or in
any other document provided by the Company to such Holder in connection with the
transactions contemplated hereby.
7. Nontransferability of Agreement. This Agreement is not transferable
or assignable by a Holder without the written consent of the Company.
8. Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties (including permitted transferees of any of the Debentures
or Shares). Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
9. Governing Law; Arbitration. This Agreement shall be construed in
accordance with and governed in all respects by the laws of the State of New
York. Holder agrees that any dispute, controversy or claim arising out of,
relating to, or in connection with, this Agreement or the agreements or
transactions contemplated hereby shall be finally settled by arbitration
conducted in accordance with the provisions of this Section 9. The arbitration
shall be conducted and the arbitrator chosen in accordance with the rules of the
American Arbitration Association (the "AAA") in effect at the time of the
arbitration, except as they may be modified herein or by mutual agreement of the
Company and Holder. The seat of the arbitration shall be in New York, New York.
Each of the Company and Holder hereby irrevocably submits to the jurisdiction of
the arbitrator in New York, New York and waives any defense in an arbitration
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based upon any claim that such party is not subject personally to the
jurisdiction of such arbitrator, that such arbitration is brought in an
inconvenient forum or that such venue is improper. The arbitral award shall be
in writing and shall be final and binding on each of the Company and Holder. The
award may include an award of costs, including reasonable attorneys' fees and
disbursements. Judgment upon the award may be entered by any court having
jurisdiction thereof or having jurisdiction over the parties or their assets.
Holder acknowledges and agrees that by agreeing to the provisions of this
Section 9, Holder is waiving any right that Holder may have to a jury trial with
respect to the resolution of any dispute under this Agreement.
10. Amendments; Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. This Agreement may only
be amended by written agreement of Holder and the Company. Upon execution by the
Company, this Agreement shall be binding upon each Holder who executes a copy of
this Agreement regardless of whether any other Holders agree to execute a
counterpart of this Agreement or be bound by its terms.
11. Entire Agreement; No Reliance on Other Information. This Agreement,
and the documents referred to herein or contemplated hereby constitute the
entire agreement between the parties hereto pertaining to the subject matter
hereof, and any and all other written or oral agreements relating to the subject
matter hereof existing between the parties hereto are expressly canceled. Holder
acknowledges and agrees that, other than as specifically contained or referenced
in or specifically contemplated by this Agreement, Holder has not relied on and
no person (including, but not limited to, IDDS), has provided any information
(whether written or oral) to, or made any representation, warranty or promise
relating to, the Shares, the Merger, or Holder's decision to enter into this
Agreement.
[Signature pages follow]
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IN WITNESS WHEREOF, the undersigned have signed this Agreement as of
the date set forth above.
INTRAC, INC., a Nevada corporation
By:_____________________________
[name]
SIGNATURE OF HOLDER IS SET FORTH ON EXHIBIT 1 HERETO
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EXHIBIT 1
Name and address of Holder:
_________________________________________________________________
_________________________________________________________________
Original Principal Amount of Debenture: $ ______________________
Owner of record of Debenture: _________________________________________
Social Security or Tax Identification No._________________________________
FOR INDIVIDUALS:
________________________________________
Signature of Holder
FOR ENTITIES: __________________________________________
[Name of Entity]
By:__________________________________
[Signature]
Name:
Title:
This Exhibit 1 constitutes one of multiple counterparts signature pages to this
Debenture Conversion Agreement. By executing where indicated above, the Holder
agrees to be bound by the terms of the Debenture Conversion Agreement regardless
of whether any other Holder executes and agrees to be so bound.
All record Holders of the Debenture being converted hereby should sign this
Agreement in the same name as title to such Debenture is held. Shares will be
issued in the name of the record holder of the Debenture as maintained by the
Company. In the event that the Shares are to be issued to a different person or
entity, a special request must be made in writing to the Company and the Company
consent to the transfer of rights to receive the Shares. If Holder is signing on
behalf of a corporation, partnership, trust or other entity, the capacity of the
signing person must be stated underneath the signature and the name of the
entity must be stated above the signature.
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