EXHIBIT 4.3
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CARDIOGENESIS CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECURED CONVERTIBLE TERM NOTE
FOR VALUE RECEIVED, CARDIOGENESIS CORPORATION, a California corporation
(the "BORROWER"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o M&C
Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church Street,
George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the "HOLDER") or
its registered assigns or successors in interest, on order, the sum of Six
Million Dollars ($6,000,000), together with any accrued and unpaid interest
hereon, on October 26, 2007 (the "MATURITY DATE") if not sooner paid. That
portion of the original principal amount of this Note subject to amortizing
payments pursuant to Section 1.2 hereof (in the sum of $3,000,000) is
hereinafter referred to as the "AMORTIZING PRINCIPAL AMOUNT" and the remaining
original principal amount of this Note (in the sum of $3,000,000) is hereinafter
referred to as the "NON-AMORTIZING PRINCIPAL AMOUNT."
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (the "PURCHASE AGREEMENT").
The portion of the original principal amount of this Note that is
concurrently herewith deposited in and credited to the Restricted Account (as
defined in the Restricted Account Agreement referred to in the Purchase
Agreement) on the date of the issuance of this Note is Three Million Dollars
($3,000,000) (less certain fees and expenses payable to the Holder).
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 (a) Interest Rate. Subject to Sections 1.1(b), 4.12 and 5.6 hereof,
interest payable on this Note shall accrue at a rate per annum (the "Interest
Rate") equal to the "prime rate" published in The Wall Street Journal from time
to time, plus two percent (2.0%). The Interest Rate shall be increased or
decreased as the case may be for each increase or decrease in the prime rate in
an amount equal to such increase or decrease in the prime rate; each change to
be effective as of the day of the change in such rate. Subject to Section 1.1(b)
hereof, the Interest Rate shall not be less than six and one half percent
(6.50%). Interest shall be calculated on the basis of a 360 day year. Interest
on the Amortizing Principal Amount shall be payable monthly, in arrears,
commencing on November 1, 2004 and on the first day of each consecutive calendar
month thereafter (each, a "REPAYMENT DATE") and on the Maturity Date, whether by
acceleration or otherwise. Accrued interest on the Non-Amortizing Principal
Amount shall be payable only on the Maturity Date or, in the event of the
redemption or conversion of all or any portion of the Non-Amortizing Principal
Amount, accrued interest on the amount so redeemed or converted shall be paid on
the date of redemption or conversion, as the case may be.
1.1 (b) Interest Rate Adjustment. The Interest Rate shall be subject to
adjustment on the last business day of each month hereafter until the Maturity
Date (each a "Determination Date"). If on any Determination Date (i) the
Borrower shall have registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the shares of Common Stock underlying each of the conversion
of this Note and the exercise of the Warrant issued on a registration statement
declared effective by the Securities and Exchange Commission (the "SEC"), and
(ii) the average market price (the "Market Price") of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market (as defined below) for the
five (5) consecutive trading days immediately preceding such Determination Date
exceeds the then applicable Fixed Conversion Price by at least twenty five
percent (25%), the Interest Rate for the succeeding calendar month shall
automatically be reduced by 200 basis points (200 b.p.) (2.0%) for each
incremental twenty five percent (25%) increase in the Market Price of the Common
Stock above the then applicable Fixed Conversion Price. Notwithstanding the
foregoing (and anything to the contrary contained in herein), in no event shall
the Interest Rate be less than zero percent (0.00%).
1.2 Minimum Monthly Principal Payments. Amortizing payments of that
portion of the outstanding principal amount of this Note not credited to the
Restricted Account (as defined in the Restricted Account Agreement) shall begin
on May 1, 2005 and shall recur on each succeeding Repayment Date thereafter
until the Amortizing Principal Amount has been repaid in full, whether by the
payment of cash or by the conversion of such principal into Common Stock
pursuant to the terms hereof. Subject to Section 2.1 and Article 3 below, on
each Repayment Date, the Borrower shall make principal payments to the Holder in
the amount of $100,000 (the "MONTHLY PRINCIPAL AMOUNT"), together with any
accrued and unpaid interest then due on such portion of the Amortizing Principal
Amount plus any and all other amounts which are then due under this Note that
have not been paid (the Monthly Principal Amount, together with such accrued and
unpaid interest and such other amounts, collectively, the "MONTHLY AMOUNT");
provided that, subject to Section 2.1(d) hereof, should the Holder elect to
voluntarily convert any portion of the Note (in excess of any amounts necessary
to satisfy any Monthly Amounts then due and payable by the Borrower hereunder)
pursuant to Article III hereof, the Principal Amount that is so converted shall
be deemed to be a conversion of the Non-Amortizing Principal Amount and
corresponding amounts (minus accrued and unpaid interest on the Non-Amortizing
Principal Amount) shall be released to the Borrower from the Restricted Account
within three (3) business days of such conversion; and provided further that,
following a release of an amount of funds from the Restricted Account (as
defined in the Restricted Account Agreement) for the purposes set forth in the
Restricted Account Side Letter (other than with respect to a release that occurs
as a result of a conversion of any Amortizing or Non-Amortizing Principal
Amount) (each, a "RELEASE AMOUNT") each Monthly
Principal Amount due on any Repayment Date following any such release shall be
increased by an amount equal to (x) such Release Amount divided by (y) the sum
of (I) the number of Repayment Dates remaining until the Maturity Date plus (II)
one (1). Any Principal Amount that remains outstanding on the Maturity Date
shall be due and payable on the Maturity Date.
ARTICLE II
CONVERSION REPAYMENT
2.1 (a) Payment of Monthly Amount in Cash or Common Stock. If the Monthly
Amount (or a portion thereof of such Monthly Amount if such portion of the
Monthly Amount would have been converted into shares of Common Stock but for
Section 3.2) must be paid in cash pursuant to Section 2.1(b), then the Borrower
shall pay the Holder an amount equal to One Hundred Three percent (103%) of the
principal amount of the Monthly Amount then due and owing to the Holder on the
Repayment Date (excluding such portion thereof of such Monthly Amount that would
have been converted into shares of Common Stock but for Section 3.2 ) in cash.
If the Monthly Amount (or a portion of such Monthly Amount if not all of the
Monthly Amount is converted into shares of Common Stock pursuant to Section 3.2)
is required to be paid in shares of Common Stock pursuant to Section 2.1(b), the
number of such shares to be issued by the Borrower to the Holder on such
Repayment Date (in respect of such portion of the Monthly Amount converted into
in shares of Common Stock pursuant to Section 2.1(b)), shall be the number
determined by dividing (x) the portion of the Monthly Amount converted into
shares of Common Stock, by (y) the then applicable Fixed Conversion Price. For
purposes hereof, the initial "FIXED CONVERSION PRICE" means $0.50 which such
Fixed Conversion Price shall be subject to adjustment as set forth in Section
3.4(b) hereof.
(b) Monthly Amount Conversion Guidelines. Subject to Sections
2.1(a), and 2.2 hereof, the Holder shall convert into shares of Common Stock all
or a portion of the Monthly Amount due on each Repayment according to the
following guidelines (collectively, the "CONVERSION CRITERIA"): (i) the average
closing price of the Common Stock as reported by Bloomberg, L.P. on the
Principal Market for the five (5) consecutive trading days immediately preceding
such Notice Date shall be greater than or equal to 110% of the Fixed Conversion
Price and (ii) the amount of such conversion does not exceed thirty five percent
(35%) of the aggregate dollar trading volume of the Common Stock for the twenty
two (22) trading days immediately preceding the applicable Repayment Date. If
the Conversion Criteria are not met, the Holder shall convert only such part of
the Monthly Amount that meets the Conversion Criteria. Any part of the Monthly
Amount due on a Repayment Date that the Holder has not been able to convert into
shares of Common Stock due to failure to meet the Conversion Criteria, shall be
paid by the Borrower in cash at the rate of 103% of the Monthly Amount otherwise
due on such Repayment Date, within three (3) business days of the applicable
Repayment Date.
(c) Subject to Sections 2.1 and 2.2 hereof, if the average closing price
of the Common Stock on the Principal Market is less than one hundred ten percent
(110%) of the Fixed Conversion Price for the five (5) trading days immediately
preceding a Repayment Date, then the Borrower may elect to provide the Holder
with a Repayment Notice requiring the conversion of the Monthly Amount (together
with accrued and unpaid interest and applicable fees), as of the date of the
Repayment Notice at a conversion price equal to ninety percent (90%) of the
average of the five (5) lowest closing prices of the Common Stock during the
twenty (20) trading days immediately prior to the date of the delivery of such
respective Repayment Notice, provided, however, that such conversion of the
Monthly Amount due on each Repayment Date does not exceed thirty five percent
(35%) of the aggregate dollar trading volume of the Common Stock for the twenty
two (22) trading days immediately preceding delivery of a Repayment Notice. Any
part of the Monthly Amount due on such Repayment Date that the Holder has not
been able to convert into shares of Common Stock as set forth in this Section
2.1(c) shall be paid in cash at the rate of 103% of the Monthly Amount otherwise
due on such Repayment Date, within three (3) business days of the applicable
Repayment Date. In no event shall the conversion price for the purposes of this
Section 2.1(c) be less than $0.20.
(d) Subject to Sections 2.1 and 2.2 hereof, following the repayment in
full of the Amortizing Principal Amount, the Borrower may provide the Holder
with a Repayment Notice requiring the conversion of all or a portion of the Non
Amortizing Principal Amount (together with accrued and unpaid interest and
applicable fees), as of the date of the Repayment Notice (i) at a conversion
pPrice equal to ninety percent (90%) of the average of the five (5) lowest
closing prices of the Common Stock during the twenty (20) trading days
immediately prior to the date of the delivery of such respective Repayment
Notice if the average closing price of the Common Stock on the Principal Market
is less than one hundred ten percent (110%) of the Fixed Conversion Price for
any five (5) consecutive trading day period immediately preceding such Repayment
Notice, or (ii) at the Fixed Conversion Price, if the average closing price of
the Common Stock on the Principal Market for the five (5) consecutive trading
days immediately preceding such Repayment Notice shall be greater than or equal
to 110% of the Fixed Conversion Price; provided, however, that any conversions
of Non-Amortizing Principal Amount shall not exceed thirty five percent (35%) of
the aggregate dollar trading volume of the Common Stock for the twenty two (22)
trading days immediately preceding delivery of a Repayment Notice. No more than
one (1) Repayment Notice per calendar month shall be delivered by Borrower to
Holder under this Section 2.1(d). In no event shall the conversion price for the
purposes of this Section 2.1(d) be less than $0.20.
(e) Subject to Sections 2.1 and 2.2 hereof, if the average closing price
of the Common Stock on the Principal Market is (i) greater than 125% of the
Fixed Conversion Price for the eleven (11) consecutive trading day period
following payment in full of the Amortizing Principal Amount, the Borrower shall
provide the Holder with a Repayment Notice requiring the conversion of all or a
portion of the Non Amortizing Principal Amount (together with accrued and unpaid
interest and applicable fees), at the then applicable Fixed Conversion Price,
provided, however, that such conversion of such Non Amortizing Principal Amount
shall not exceed fifteen percent (15%) of the aggregate dollar trading volume of
the Common Stock for the twenty two (22) trading days immediately preceding
delivery of a Repayment Notice; (ii) greater than 150% of the then applicable
Fixed Conversion Price for the eleven (11) consecutive trading day period
following payment in full of the Amortizing Principal Amount, the Borrower shall
provide the Holder with a Repayment Notice requiring the conversion of all or a
portion of the Non Amortizing Principal Amount (together with accrued and unpaid
interest and applicable fees), at the then applicable Fixed Conversion Price,
provided, however, that such conversion of such Non Amortizing Principal Amount
shall not exceed twenty five percent (25%) of the aggregate dollar trading
volume of the Common Stock for the twenty two (22) trading days immediately
preceding delivery of a Repayment Notice; or (iii) greater than 175% of the then
applicable Fixed Conversion Price for the eleven (11) consecutive trading day
period following payment in full of the Amortizing Principal Amount, the
Borrower shall provide the Holder with a Repayment Notice requiring the
conversion of all or a portion of the Non Amortizing Principal Amount (together
with accrued and unpaid interest and applicable fees), at the then applicable
Fixed Conversion Price, provided, however, that such conversion of such Non
Amortizing Principal Amount shall not exceed thirty five percent (35%) of the
aggregate dollar trading volume of the Common Stock for the twenty two (22)
trading days immediately preceding delivery of a Repayment Notice. No more than
one (1) Repayment Notice per calendar month shall be delivered by Borrower to
Holder under this Section 2.1(e).
(f) Application of Conversion Amounts. Any amounts converted by the
Holder pursuant to Section s 2.1(b) and 3.1 hereof shall be deemed to constitute
payments of, or applied against, (i) first, outstanding fees, (ii) second,
accrued interest on the Amortizing Principal Amount, (iii) third, accrued
interest on the Non-Amortizing Principal Amount and (iv) fourth, the Amortizing
Principal Amount.
(g) Procedure for Effecting Conversion. In order for any portion of
Monthly Amount or portion of the Non-Amortizing Principal Amount, as the case
may be, to be converted into shares of Common Stock pursuant to Sections 2.1(c),
(d) or (e) hereof, the Borrower shall provide the Holder with a notice on the
Repayment Date or other conversion date(each a "REPAYMENT NOTICE"), in which the
Borrower shall certify to the Holder that (i) the Monthly Amount or portion of
the Non-Amortizing Principal Amount, as the case may be, is being converted
pursuant to either Section 2.1(c), (d) or (e) hereof, in compliance with the
dollar trading volume restrictions referenced therein, and (ii) the conversion
price and shares of Common Stock into which the Monthly Amount or portion of the
Non-Amortizing Principal Amount, as the case may be, shall be converted. Such
notice shall be conclusive and binding upon the Holder unless the Holder objects
to such notice within five (5) business days of receipt thereof. If the Holder
so objects, the Holder shall specify in written detail its reasons for such
objection. If the parties are unable to resolve their disagreement as to the
Borrower's ability to initiate a conversion, the matter shall be resolved in
accordance with the dispute resolution provisions set forth herein. Upon the
expiration of such objection period (without an objection notice having been
delivered by the Holder), the Borrower shall cause a stock certificate to be
issued to the Holder reflecting the number of shares of Common Stock into which
the Monthly Amount has been converted. With respect to any payments to be made
pursuant to Section 2.1(c), the Borrower shall be entitled to pay up the full
Monthly Amount (or any portion thereof) in cash, and shall be required to make
such payment in cash to the extent that the aggregate dollar trading volume and
minimum price restrictions restrict conversion. With respect to any valid
conversion of any Non-Amortizing Principal Amount pursuant to Section 2.1(d) or
(e),
the Holder shall promptly instruct the holder of the Restricted Account to
release the funds which have been converted into Common Stock of the Company, in
no event later than five (5) days after the Holder has received such a Repayment
Notice
2.2 No Effective Registration. Notwithstanding anything to the contrary
herein, no amount payable hereunder may be converted into Common Stock unless
(a) either (i) an effective current Registration Statement (as defined in the
Registration Rights Agreement) covering the shares of Common Stock to be issued
in satisfaction of such obligations exists, or (ii) an exemption from
registration of the Common Stock is available pursuant to Rule 144 of the
Securities Act, and (b) no Event of Default hereunder exists and is continuing,
unless such Event of Default is cured within any applicable cure period or is
otherwise waived in writing by the Holder in whole or in part at the Holder's
option.
2.3 Optional Redemption of Amortizing Principal Amount. The Borrower will
have the option of prepaying the outstanding Amortizing Principal Amount
("OPTIONAL AMORTIZING REDEMPTION"), in whole or in part, by paying to the Holder
a sum of money equal to one hundred thirty percent (130%) of the Amortizing
Principal Amount to be redeemed, together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Holder arising
under this Note, the Purchase Agreement or any Related Agreement (the
"AMORTIZING REDEMPTION AMOUNT") on the Amortizing Redemption Payment Date (as
defined below). The Borrower shall deliver to the Holder a notice of redemption
(the "NOTICE OF AMORTIZING REDEMPTION") specifying the date for such Optional
Amortizing Redemption (the "AMORTIZING REDEMPTION PAYMENT DATE"), which date
shall be not less than twelve (12) business days after the date of the Notice of
Amortizing Redemption (the "REDEMPTION PERIOD"). During the Redemption Period,
the Holder shall have the right to exercise its conversion rights pursuant to
Section 3.1, provided that the Holder shall have provided a Notice of Conversion
( as defined in Section 3.3) to the Borrower no less than two (2) business days
prior to the Amortizing Redemption Payment Date. A Notice of Amortizing
Redemption shall not be effective with respect to any portion of the Amortizing
Principal Amount for which the Holder has provided a Notice of Conversion prior
to the Redemption Period or for a qualifying Notice of Conversion issued during
the Redemption Period . The Amortizing Redemption Amount shall be determined as
if such Holder's conversion elections had been completed immediately prior to
the date of the Notice of Amortizing Redemption. On the Amortizing Redemption
Payment Date, the Amortizing Redemption Amount (less any amounts for which
conversions are pending) shall be paid in good funds to the Holder. In the event
the Borrower fails to pay the Amortizing Redemption Amount (less any amounts for
which conversions are pending) on the Amortizing Redemption Payment Date as set
forth herein, then such Notice of Amortizing Redemption will be null and void.
2.4 Optional Redemption of Non-Amortizing Principal Amount. The Borrower
will have the option of repaying the outstanding Non-Amortizing Principal Amount
("OPTIONAL NON-AMORTIZING REDEMPTION"), in whole or in part, by paying the
Holder a sum of money equal to one hundred twenty percent (120%) of the
Non-Amortizing Principal Amount to be redeemed, together with accrued but unpaid
interest thereon (the "NON-AMORTIZING REDEMPTION AMOUNT") on the Non-
Amortizing Redemption Date (as defined below). The Borrower shall deliver to the
Holder a written notice of redemption (the "NOTICE OF NON-AMORTIZING
REDEMPTION") specifying the date for such Optional Non-Amortizing Redemption
(the "NON-AMORTIZING REDEMPTION DATE"), which date shall be not less than seven
(7) business days after the date of the Notice of Non-Amortizing Redemption (the
"NON-AMORTIZING REDEMPTION PERIOD"). During the Non-Amortizing Redemption
Period, the Holder shall have the right to exercise its conversion rights
pursuant to Section 3.1, provided that the Holder shall have provided a Notice
of Conversion ( as defined in Section 3.3) to the Borrower no less than two (2)
business days prior to the Non-Amortizing Redemption Payment Date. A Notice of
Non-Amortizing Redemption shall not be effective with respect to any portion of
the Non-Amortizing Principal Amount for which the Holder has provided a Notice
of Conversion prior to the Non-Amortizing Redemption Period or for a qualifying
Notice of Conversion issued during during the Non-Amortizing Redemption Period.
The Non-Amortizing Redemption Amount shall be determined as if the Holder's
conversion elections had been completed immediately prior to the date of the
Notice of Non-Amortizing Redemption. On the Non-Amortizing Redemption Date, the
Non-Amortizing Redemption Amount shall be paid (i) in good funds to the Holder,
(ii) by furnishing the Holder written direction to notify the bank holding the
Restricted Account to release from the Restricted Account and deliver to the
Holder a sum of money equal to the Non-Amortizing Redemption Amount, or (iii) if
the amount on deposit in the Restricted Account is less than the Non-Amortizing
Redemption Amount, by furnishing the Holder written direction to notify the bank
holding the Restricted Account to release all amounts on deposit in the
Restricted Account to the Holder and delivering to the Holder good funds in an
amount equal to the balance of the Non-Amortizing Redemption Amount.
ARTICLE III
CONVERSION RIGHTS
3.1. Holder's Conversion Rights. Subject to Section 2.2, the Holder shall
have the right, but not the obligation, to convert all or any portion of the
then aggregate outstanding Principal Amount of this Note, together with interest
and fees due hereon, into shares of Common Stock, subject to the terms and
conditions set forth in this Article III. The Holder may exercise such right by
delivery to the Borrower of a written Notice of Conversion pursuant to Section
3.3. The shares of Common Stock to be issued upon such conversion are herein
referred to as the "CONVERSION SHARES."
3.2 Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between 4.99% of the issued and
outstanding shares of Common Stock and the number of shares of Common Stock
beneficially owned by such Holder. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13d-3 thereunder. The Holder may void
the Conversion Share limitation described in this Section 3.2 (i) upon 75 days
prior notice to the Borrower or (ii) upon an Event of Default, without any
requirement of any notice to the Borrower .
3.3 Mechanics of Holder's Conversion. (a) In the event that the Holder
elects to convert any amounts outstanding under this Note into Common Stock, the
Holder shall give notice of such election by delivering an executed and
completed notice of conversion (a "NOTICE OF CONVERSION") to the Borrower, which
Notice of Conversion shall provide a breakdown in reasonable detail of the
Principal Amount, accrued interest and fees being converted. On each Conversion
Date (as hereinafter defined) and in accordance with its Notice of Conversion,
the Holder shall make and record the appropriate reduction to the Principal
Amount, accrued interest and fees as entered in its records and shall provide
written notice thereof to the Borrower within three (3) business days after the
Conversion Date. Each date on which a Notice of Conversion is delivered or
telecopied to the Borrower in accordance with the provisions hereof shall be
deemed a "CONVERSION DATE". A form of Notice of Conversion to be employed by the
Holder is annexed hereto as Exhibit A.
(b) Pursuant to the terms of a Notice of Conversion, the Borrower
will issue instructions to the transfer agent accompanied by an opinion of
counsel, if so required by the Borrower's transfer agent, within three (3)
business days of the date of the delivery to Borrower of the Notice of
Conversion and shall cause the transfer agent to transmit the certificates
representing the Conversion Shares to the Holder by crediting the account of the
Holder's designated broker with the Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission ("DWAC") system within three (3)
business days after receipt by the Borrower of the Notice of Conversion (the
"DELIVERY DATE"). In the case of the exercise of the conversion rights set forth
herein the conversion privilege shall be deemed to have been exercised and the
Conversion Shares issuable upon such conversion shall be deemed to have been
issued upon the date of receipt by the Borrower of the Notice of Conversion. The
Holder shall be treated for all purposes as the record holder of such shares of
Common Stock, unless the Holder provides the Borrower written instructions to
the contrary.
3.4 Conversion Mechanics.
(a) The number of shares of Common Stock to be issued upon each
conversion of amounts owing on this Note pursuant to this Article III shall be
determined by dividing that portion of the Principal Amount and interest and
fees to be converted, if any, by the then applicable Fixed Conversion Price. In
the event of any conversions of outstanding obligations under this Note in part
pursuant to this Article III, such conversions shall be deemed to constitute
conversions (i) first, of the Monthly Amount for the current calendar month (if
not already paid), (ii) then of the accrued interest on the Non-Amortizing
Principal Amount, (iii) then of outstanding Amortizing Principal Amount, by
applying the conversion amount to Monthly Principal Amounts for the remaining
Repayment Dates in chronological order and (iv) then, of outstanding
Non-Amortizing Principal Amount.
(b) The applicable Fixed Conversion Price and number and kind of
shares or other securities to be issued upon conversion is subject to adjustment
from time to time upon the occurrence of certain events, as follows:
A. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number
of shares of Common Stock, or if a dividend is paid on the Common Stock in
shares of Common Stock, the
applicable Fixed Conversion Price or the Conversion Price, as the case may
be, shall be proportionately reduced in the case of a subdivision of
shares or stock dividend or proportionately increased in the case of
combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock outstanding
immediately prior to such event.
B. During the period the conversion right exists, the Borrower
will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Common Stock upon the full
conversion of this Note. The Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable. The
Borrower agrees that its issuance of this Note shall constitute full
authority to its officers, agents, and transfer agents who are charged
with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for shares of Common Stock upon the
conversion of this Note.
C. Share Issuances. Subject to the provisions of this Section
3.4, if the Borrower shall at any time prior to the conversion or
repayment in full of the Principal Amount issue any shares of Common Stock
or securities convertible into Common Stock to a person other than the
Holder (except (i) pursuant to Subsections A or B above; (ii) pursuant to
options, warrants or other obligations to issue shares outstanding on the
date hereof as disclosed to Holder in writing; (iii) pursuant to options
that may be issued under any employee incentive stock option and/or any
qualified stock option plan adopted by the Borrower); or (iv) pursuant to
shares and/or options or warrants to purchase shares granted in connection
with the acquisition of another company (provided all assets acquired in
such acquisition are delivered at the closing of such acquisition as
collateral securing the obligations of the Company under the note and the
Related Documents)) for a consideration per share (the "OFFER PRICE") less
than the Fixed Conversion Price in effect at the time of such issuance,
then the Fixed Conversion Price shall be immediately reset pursuant to the
formula below. For purposes hereof, the issuance of any security of the
Borrower convertible into or exercisable or exchangeable for Common Stock
shall result in an adjustment to the Fixed Conversion Price at the time of
issuance of such securities.
If the Borrower issues any additional shares pursuant to Section 3.4
above then, and thereafter successively upon each such issue, the Fixed
Conversion Price shall be adjusted by multiplying the then applicable Fixed
Conversion Price by the following fraction:
A + B
(A + B) + [((C - D) x B) / C]
A = Total amount of shares convertible pursuant to this Note .
B = Actual shares sold in the offering
C = Fixed Conversion Price
D = Offering price
D. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or
a different number of securities of any class or classes, this Note, as to
the unpaid Principal Amount and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the
result of such change with respect to the Common Stock immediately prior
to such reclassification or other change.
3.5 Issuance of Replacement Note. Upon any partial conversion of this
Note, a replacement Note containing the same date and provisions of this Note
(and all such other conforming changes as are necessary or appropriate in order
to reflect the then current balance, stutus and terms of this Note, and each
principal component hereunder) shall, at the written request of the Holder, be
issued by the Borrower to the Holder for the outstanding Principal Amount of
this Note and accrued interest which shall not have been converted or paid.
Delivery of any replacement Note shall be conditioned upon the cancellation and
surrender to Borrower of the Original Note to be replaced. Subject to the
provisions of Article IV, the Borrower will pay no costs, fees or any other
consideration to the Holder for the production and issuance of a replacement
Note.
ARTICLE IV
EVENTS OF DEFAULT
Upon the occurrence and continuance of an Event of Default beyond any
applicable grace period or the occurrence of a change of control in controlling
ownership of the Borrower, the Holder may make all sums of principal, interest
and other fees then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable as set forth in Section 5(a) of the Master
Security Agreement. In the event of such an acceleration, the amount due and
owing to the Holder shall be 130% of the outstanding principal amount of the
Note (plus accrued and unpaid interest and fees, if any) (the "DEFAULT
PAYMENT"). The Default Payment shall be applied first to any fees due and
payable to Holder pursuant to this Note, the Purchase Agreement or the Related
Agreements, then to accrued and unpaid interest due on the Note and then to
outstanding principal balance of the Note.
The occurrence of any of the following events set forth in Sections 4.1
through 4.10, inclusive, is an "EVENT OF DEFAULT":
4.1 Failure to Pay Principal, Interest or other Fees. The Borrower fails
to pay when due (a) any installment of principal, interest or other fees hereon
in accordance herewith, or (b) the Borrower fails to pay when due any amount due
under any other promissory note in the original principal amount in excess of
$200,000 issued by Borrower, and in either such case, such failure shall
continue for a period of three (3) days following the date upon which any such
payment was due.
4.2 Breach of Covenant. The Borrower breaches any covenant or any other
term or condition of this Note, the Purchase Agreement or any Related Agreement
in any respect that could reasonably be expected to have an Material Adverse
Effect, and, in any such case, such breach, if subject to cure, continues for a
period of fifteen (15) days after the occurrence thereof.
4.3 Breach of Representations and Warranties. Any representation or
warranty made by the Borrower in this Note, the Purchase Agreement or any
Related Agreement, shall, in any such case, be false or misleading in any
material respect on the date that such representation or warranty was made or
deemed made that could reasonably be expected to have an Material Adverse
Effect.
4.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
4.5 Judgments. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a period
of thirty (30) days.
4.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by the Borrower, or any such
proceeding is instituted against the Borrower and is not dismissed within sixty
(60) days after such proceeding is instituted.
4.7 Stop Trade. An SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for five (5) consecutive days
or five (5) days during a period of ten (10) consecutive days, excluding in all
cases a suspension of all trading on a Principal Market, provided that the
Borrower shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another Principal
Market within sixty (60) days of such notice. The "Principal Market" for the
Common Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, or any securities exchange or other
securities market on which the Common Stock is then being listed or traded.
4.8 Failure to Deliver Common Stock or Replacement Note. The Borrower
shall fail (i) to timely deliver certificates for shares of Common Stock to the
Holder pursuant to and in the form required by this Note, and Section 9 of the
Purchase Agreement, if such failure to timely deliver certificates for shares of
Common Stock shall not be cured within two (2) business days or (ii) to deliver
a replacement Note to Holder within seven (7) business days following the
required date of such issuance pursuant to this Note, the Purchase Agreement or
any Related Agreement (to the extent required under such agreements).
4.9 Default Under Security Agreement or Other Indebtedness. The occurrence and
continuance of any Event of Default (as defined in the Note or the Security
Agreement ) or any event of default (or similar term) under any other
indebtedness referred to in Section 4.1(b).
DEFAULT RELATED PROVISIONS
4.11 Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, the Borrower shall pay interest on this Note
at a rate equal to the Interest Rate (without any deduction pursuant to Section
1.1(b)) plus twelve percent (12.0%) per annum , and all outstanding obligations
under this Note, including unpaid interest, shall continue to accrue such
interest from the date of such Event of Default until the date such Event of
Default is cured or waived.
4.12 Conversion Privileges. The conversion privileges set forth in Article
III shall remain in full force and effect immediately from the date hereof and
until this Note is paid in full.
4.13 Cumulative Remedies. The remedies under this Note shall be
cumulative.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.2 Notices. Any notice herein required or permitted to be given shall be
in writing and except as otherwise herein expressly provided,shall be deemed
effectively given: (a) upon personal delivery to the party notified, (b) when
sent by electronically confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day, (c) five
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the Borrower at the
address provided in the Purchase Agreement executed in connection herewith, and
to the Holder at the address provided in the Purchase Agreement for such Holder,
with a copy to John E. Tucker, Esq., 825 Third Avenue, 14th Floor, New York, New
York 10022, facsimile number (212) 541-4434, or at such other address as the
Borrower or the Holder may designate by five (5) days advance written notice to
the other parties hereto. A Notice of Conversion shall be deemed given when made
to the Borrower pursuant to the Purchase Agreement.
5.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument issued pursuant to Section 3.5
hereof, as it may be amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement. This Note shall not be assigned by the
Borrower without the consent of the Holder.
5.5 Intentionally Omitted.
5.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court in favor of the Holder.
5.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.8 Security Interest. The holder of this Note has been granted a security
interest in certain assets of the Borrower more fully described in a Master
Security Agreement dated as of the date hereof.
5.9 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
5.10 Cost of Collection. If default is made in the payment of this Note,
the Borrower shall pay to Holder reasonable costs of collection, including
reasonable attorney's fees.
[Balance of page intentionally left blank; signature page follows.]
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
name effective as of this 26th day of October, 2004.
CARDIOGENESIS CORPORATION
By:____________________________
Name:
Title:
WITNESS:
______________________________
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of the Note into
Common Stock
[Name and Address of Holder]
The Undersigned hereby converts $_________ of the principal due on [specify
applicable Repayment Date] under the Convertible Term Note issued by
CARDIOGENESIS CORPORATION dated October __, 2004 by delivery of Shares of Common
Stock of CARDIOGENESIS CORPORATION on and subject to the conditions set forth in
Article III of such Note.
1. Date of Conversion _______________________
2. Shares To Be Delivered: _______________________
By:______________________________
Name:____________________________
Title:___________________________