THE SECURITIES REPRESENTED HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE UPON
THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, NOR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
April 12, 2001
6% SECURED CONVERTIBLE DEBENTURE
FOCUS SURGERY, INC. ("Focus"), a Delaware corporation, for value received,
hereby promises to pay to MISONIX, INC., a New York corporation (the "Holder) at
the address set forth in Section 9.2(b) hereof or at such other address as the
Holder may designate in writing, the principal sum of $300,000 on May 25, 2003
in lawful money of the United States of America, together with interest thereon
from the date on the amount of the principal amount outstanding from time to
time at the interest rate hereinafter set forth until payment in full of the
outstanding principal balance, in accordance with all the terms of this
Debenture. The principal shall be made available to Focus in three installments
of $100,000 each, the first within two Business Days after the execution hereof,
the second on or before April 25, 2001 and the third on or before May 25, 2001.
ARTICLE I
INTERPRETATION
1.1 Definitions. The terms used in this Debenture shall, unless there is
something in the subject matter or the context inconsistent therewith, have the
following meanings:
(a) "Accumulated Debt" at any time means the aggregate of the Loan Amount
plus all interest accrued thereon at the time minus all amounts in
respect thereof paid by Focus to the Holder.
(b) "Business Day" means a day (other than a Saturday or a Sunday) on
which banks are generally open for business in New York, New York.
(c) "Closing Date" means April 12, 2001 or such other date as Focus agrees
as the date for the execution and delivery of this Debenture.
(d) "Common Shares" means fully paid and non-assessable Series M common
shares, without par value, of Focus.
(e) "Common Stock" means all of the issued and outstanding common shares,
of every series, of Focus.
(f) "Consolidation Event" means any reduction in the number of Common
Shares resulting from an alteration by any corporate means to the
share capital of Focus.
(g) "Consolidation Factor" means the quotient obtained when the number of
Common Shares immediately prior to a Consolidation Event is divided by
the number of Common Shares immediately after the Consolidation Event.
(h) "Conversion Number" at any time means the quotient obtained when the
Accumulated Debt at the time is divided by the Conversion Price at the
time.
(i) "Conversion Option" means the right of the Holder hereunder to convert
the Accumulated Debt to Common Shares.
(j) "Conversion Price" at any time means the price at which Focus will
issue Common Shares pursuant to the Conversion Option, determined in
accordance with Section 4.5.
(k) "Event of Default" has the meaning ascribed to it in Section 8.1
hereof.
(l) "GSA" means a general security agreement dated November 7, 2000, as
amended by an Amendment of even date herewith, between Focus and the
Holder granting to the Holder a first priority security interest
(subject to the provisions of the Intercreditor Agreement) in all
presently owned and after acquired property of Focus.
(m) "Intercreditor Agreement" means an intercreditor agreement between the
Holder and Takai Hospital Supply Co., Ltd., a Japanese corporation
("Takai"), dated November 7, 2000.
(n) "Loan" or "Loan Amount" means a loan in the amount of $300,000 made by
the Holder to Focus pursuant to this Debenture.
(o) "Option" has the meaning ascribed to it in Section 2.3 hereof.
(p) "Permitted Encumbrances" means:
(i) Liens or privileges imposed by law in respect of obligations not
yet due or delinquent such as carriers' liens, warehousemen's
liens and other privileges
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of a similar nature; or liens for taxes, assessments or
governmental charges or levies not at the time due or delinquent
or the validity of which is being in good faith diligently
contested in appropriate proceedings; or undetermined or
inchoate liens, privileges and charges incidental to current
operations, that have not been filed pursuant to law or that
relate to obligations not due or delinquent;
(ii) minor encumbrances, including without limitation, easements,
rights of way, servitudes or other similar rights in land
granted to or reserved by other persons, rights of way for
sewers, electric lines, telegraph, telephone lines, oil and gas
pipelines and related facilities and other similar purposes, or
zoning or other restrictions as to the use of real properties,
which encumbrances, easements, servitudes, rights of way, other
similar rights and restrictions do not in the aggregate
materially detract from the value of the said properties or
materially impair their use in the operation of the business
of their owner; and
(iii) the right reserved to or vested in any municipality or
governmental or other public authority by the terms of any
lease, license, franchise, grant or permit acquired by Focus by
any statutory provision, to require annual or other periodic
payment as a condition of the continuance thereof.
(q) "Registration Statement" means a registration statement which
registers the Common Shares to be issued by Focus pursuant to the
Conversion Option for sale under the Securities Act of 1933, as
amended.
(r) "Repayment Date" means May 25, 2003.
1.2 Headings. The division of this Debenture into sections and the insertion of
headings are for convenience of reference only and shall not affect the
interpretation of this Debenture.
1.3 Number and Gender. Words herein importing the singular number only shall
include the plural and vice versa, and words importing the masculine gender
shall include the feminine and neuter genders and vice versa.
1.4 Governing Law. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of laws principles thereof. Any legal action or proceeding with
respect to this Debenture against the parties hereto may be brought in the
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Courts of the Supreme Court of the State of New York, Suffolk County or the
Federal District Court for the Eastern District of New York, which Courts the
parties agree to be a convenient forum for the resolution of any such legal
action or proceeding, and each of the parties hereto hereby irrevocably submits
to the jurisdiction of said Courts.
1.5 Severability. If any one or more of the provisions contained in this
Debenture should be held to be invalid, illegal or unenforceable in any respect
in any jurisdiction, the validity, legality and enforceability of such provision
or provisions shall not in any way be affected or impaired in any other
jurisdiction and the validity, legality and enforceability of the remaining
provisions contained herein shall not thereby in any way be affected or
impaired.
ARTICLE II
LOAN FACILITY
2.1 Loan Amount. Subject to all the terms and conditions herein, the Holder
agrees to lend the sum of $300,000 to Focus, to be disbursed in three equal
installments of $100,000 each, the first within two Business Days after the
Closing Date, the second on or before April 25, 2001 and the third on or before
May 25, 2001.
2.2 Method of Payment. The Loan Amount shall be made available in three equal
installments by wire transfer of funds to the bank account which Focus
designates by written notice to the Holder.
2.3 Option for Additional Loan. The parties agree that the Holder shall have
the right and option to lend Focus an additional $150,000 (the "Option") and, in
connection with the exercise of the Option, to cause Focus to execute and
deliver to the Holder its convertible debenture. The Option and the convertible
debenture issued pursuant to the exercise thereof shall be substantially in the
form of Exhibit A annexed hereto.
ARTICLE III
INTEREST
3.1 Rate of Interest. Focus shall pay the Holder interest on the Loan Amount
outstanding from time to time at a rate equal to six percent (6%) per annum,
payable when the Loan Amount is due and payable, whether at maturity or by
acceleration. Interest payments shall be made by separate check payable to the
order of the Holder. After maturity (whether by declaration or otherwise) the
interest rate chargeable hereunder on the Loan Amount so matured and any unpaid
interest shall be a rate per annum equal to five percent (5%) above the prime
rate published by the Wall Street Journal.
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3.2 Calculation of Interest. Interest shall be calculated on the Loan Amount
daily from the date of receipt of funds by Focus on the basis of a 365 day year
both before and after default and maturity.
ARTICLE IV
REPAYMENT AND CONVERSION
4.1 Mandatory Repayment. Unless the Holder has exercised the Conversion Option,
Focus shall pay to the Holder the Accumulated Debt on the Repayment Date.
4.2 Voluntary Prepayment. Focus may from time to time prepay all or part of the
Accumulated Debt, without premium or penalty, upon giving not less than ten (10)
Business Days' written notice to the Holder specifying the amount of prepayment
and the date for the making thereof; provided that the Loan Amount hereunder
shall be permanently reduced by the amount of any such prepayment.
4.3 Place of Payment. All payments of principal, interest, fees and other
amounts payable under or by virtue of this Debenture shall be made to the Holder
by payment as directed by the Holder from time to time. All such payments shall
be in United States dollars.
4.4 Conversion. This Debenture shall be convertible at the option of the Holder
at any time after May 25, 2001 and up to and including the Repayment Date if the
Holder gives written notice thereof (the "Conversion Notice") to Focus stating
that the Holder has elected to convert all its rights under this Debenture
including the Accumulated Debt at the time of the Conversion Notice into the
Conversion Number of fully paid and non-assessable Common Shares, rounded to the
nearest one-tenth of one share. If the Holder elects to convert all its rights
under this Debenture then the Holder shall surrender this Debenture, duly
endorsed on behalf of the Holder, at the registered office of Focus at or after
the time of delivery of the Conversion Notice. Focus shall issue and deliver to
the Holder a certificate or certificates for the number of Common Shares to
which the Holder shall be entitled. The conversion shall be deemed to have
occurred immediately prior to the close of business on the date of the surrender
of this Debenture to be converted (the "Conversion Date"), and the Holder shall
be treated for all purposes as the registered holder of such Common Shares as of
that date. Focus shall cancel this Debenture when surrendered to Focus and shall
so annotate its books and records. Upon the issuance and delivery of the Common
Shares, the Holder shall have no more rights under this Debenture and shall be
treated for all purposes as the registered holder of Common Shares as of that
date. No fractional Common Shares shall be issued on the conversion of this
Debenture. If any fractional interest in a Common Share would, except for the
provisions of this subparagraph, be deliverable on the conversion of this
Debenture, Focus shall, in lieu thereof, adjust the fractional interest by
payment to the Holder of an amount in cash (computed to the nearest cent) equal
to the then Conversion Price multiplied by the fractional interest.
4.5 Conversion Price. Subject to section 4.6, the Conversion Price shall be
$1,200 per share.
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4.6 Adjustments to Conversion Price. Subject to section 4.8, the Conversion
Price shall be subject to adjustment from time to time in the event of a stock
split or stock dividend of Common Stock (any of which is referred to herein as a
"Dilution Event"). Upon a Dilution Event, the Conversion Price shall be
adjusted, rounded to the nearest US$0.01, to be equal to the Conversion Price
immediately prior to the Dilution Event, multiplied by a fraction, the numerator
of which is the sum of (y) the number of shares of Common Stock outstanding
immediately prior to the Dilution Event, including the number of shares of
Common Stock issuable upon exercise of all options, warrants, or rights, upon
conversion of all convertible securities or upon conversion of all securities
issuable upon exercise of all options, warrants, or rights for such convertible
securities issued in all prior Dilution Events plus (z) the number of shares of
Common Stock that the effective price for any Common Stock issued in respect of
the Dilution Event giving rise to this adjustment would purchase at the then
Conversion Price, and the denominator of which is the number of shares of Common
Stock outstanding immediately after the Dilution Event, including the number of
shares of Common Stock issuable upon exercise of all options, warrants, or
rights, upon conversion of all convertible securities, or upon conversion of all
convertible securities issuable upon exercise of all options, warrants, or
rights for such convertible securities issued in this and all prior Dilution
Events. The effective price for any Common Shares issued in respect of any
Dilution Event shall be the sum of all cash and the fair market value of all
property other than cash, as determined by Focus' board of directors in good
faith and absent manifest error, received or applied to the benefit of Focus
plus, for options, warrants, and rights, the amount equal to the exercise price
multiplied by the number of securities subject to such option, warrant, or
right.
4.7 Record of Adjustments. Upon any adjustment of the Conversion Price, Focus
shall maintain at its registered office a statement, signed by the President and
the Chief Financial Officer, showing in reasonable detail the facts requiring
the adjustment and the Conversion Price after the adjustment.
4.8 Other Adjustments. If Focus shall reorganize or reclassify its capital
(other than a subdivision or consolidation of its outstanding Common Stock),
consolidate or merge with or into another corporation, or convey all or
substantially all of its assets to another corporation, this Debenture shall
thereafter be convertible into the number of shares or other securities or
property to which a holder of the number of Common Shares deliverable on
conversion of this Debenture would have been entitled on the reorganization,
reclassification, consolidation, merger, or conveyance; and in any such case,
appropriate adjustments (as determined by the Board of Directors of Focus) shall
be made in the application of the provisions herein set forth with respect to
the rights and interests thereafter of the Holder to the end that the provisions
set forth (including provisions with respect to changes in, and other
adjustments of, the Conversion Price) shall thereafter be applicable, as nearly
as reasonably may be, in relation to any shares or other property thereafter
deliverable on conversion of this Debenture.
4.9 Other Actions. Simultaneously with the execution and delivery of this
Debenture, Focus and the Holder shall execute and deliver an Amendment to
Investment Agreement, in the form of Exhibit B annexed hereto (the "Amendment").
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4.10 Reservation of Shares. Focus shall at all times reserve and keep
available, out of its authorized but unissued Common Shares solely for the
purpose of effecting conversion of this Debenture or exercise of the Warrant,
the full number of Common Shares deliverable on conversion of this Debenture.
Focus shall, from time to time, in accordance with applicable law, increase the
authorized number of Common Shares if at any time the authorized number of
Common Shares remaining unissued shall not be sufficient to permit the
conversion of this Debenture.
4.11 Issue Costs. Focus shall pay any and all issue and other taxes that may be
payable in respect of any issue or delivery of Common Shares on conversion of
this Debenture.
ARTICLE V
SECURITY
5.1 Security. On the Closing Date Focus shall grant to the Holder as security
for its obligations under or by virtue of this Debenture a first priority
security interest (subject to the provisions of the Intercreditor Agreement) in
all of Focus' assets by execution and delivery of an Amendment to the GSA, in
the form of Exhibit C annexed hereto (the "GSA Amendment").
5.2 Inconsistency. In case of any inconsistency between the provisions of this
Debenture and the provisions of the GSA, the provisions of this Debenture shall
prevail.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions For Benefit of the Holder. The following are conditions
precedent to the obligation of the Holder to make the Loan and the Holder shall
not be obliged to make the Loan unless all of the following conditions precedent
have been satisfied or waived in writing by the Holder as of the Closing Date:
(a) the GSA Amendment shall have been duly executed and delivered and all
financing statements in respect thereof shall have been filed in all
appropriate registries;
(b) the Option shall have been duly executed and delivered to the Holder;
(c) the Amendment shall have been duly executed and delivered to the
Holder;
(d) the Holder shall have received certified copies of resolutions of the
directors of Focus approving and authorizing this Debenture;
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(e) the representations and warranties contained in Article VII hereof
were true and correct at the time they were made and continue to be
true and correct;
(f) no breach of any of the covenants contained in Article VIII hereof has
occurred and is continuing;
(g) no Event of Default and no event which, through the giving of notice
or lapse of time or both, would constitute an Event of Default, has
occurred and is continuing; and
(h) the making of the Loan is not contrary to any statutes, regulations,
restrictions or rules of any competent regulatory authority having
jurisdiction over the Holder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties. Focus represents and warrants to the
Holder that:
(a) Focus is duly incorporated and validly existing under the laws of the
State of Delaware;
(b) Focus has all corporate power and owns all assets (including licenses)
necessary in any material respect to carry on its business;
(c) the financial statements of Focus for the year ended June 30, 2000
fairly reflected the financial condition of Focus as of the date of
such statements and there has been no material adverse change in the
financial condition of Focus since June 30, 2000;
(d) there are no facts that materially adversely affect, or so far as
Focus can reasonably foresee would materially adversely affect, the
properties, assets, conditions (financial or otherwise), business or
operations of Focus;
(e) Focus is not in breach of or in default under any applicable law,
statute or regulation of any jurisdiction where it carries on business
or any agreement or instrument to which it is a party which in any way
would materially adversely affect the ability of Focus to meet its
obligations under this Debenture or the GSA;
(f) there are no actions or proceedings pending (including appeals or
applications for review), or to the best knowledge of Focus
threatened, before any court, arbitrator, administrative agency,
referee or governmental body which, if determined against
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Focus, would result in a change occurring in the properties, assets,
conditions (financial or otherwise) business or operations of Focus
which would materially adversely affect the ability of Focus to meet
its obligations under this Debenture or the GSA or to carry on its
business;
(g) Focus has the corporate power and authority to enter into this
Debenture and the GSA and to perform its obligations hereunder and
thereunder;
(h) each of this Debenture and the GSA has been duly authorized, executed
and delivered by Focus and is a valid and legally binding obligation
of Focus enforceable against it in accordance with their respective
terms;
(i) neither the execution and delivery of this Debenture or the GSA nor
performance in accordance therewith is or will constitute a breach or
a default under:
(i) any law, statute or regulation of any jurisdiction where Focus
is carrying on business;
(ii) the charter documents of Focus; or
(iii) any agreement or instrument to which Focus is a party
which breach or default would materially adversely affect (x) the
ability of Focus to carry on business, (y) the legality, validity or
enforceability of this Debenture or the GSA or (z) the ability of
Focus to perform its obligations under this Debenture or the GSA;
(j) Focus has good and marketable title to all its properties and assets
free and clear of all liens, charges and encumbrances other than
Permitted Encumbrances;
(k) Focus has paid on a timely basis with the appropriate authorities all
federal, state and local taxes and any other amounts due to federal,
state and local governmental authorities that are capable of forming
a lien, charge or encumbrance in favor of such authorities against any
of the assets of Focus; and
(l) all necessary consents, approvals and waivers have been obtained to
permit Focus to enter into this Debenture and the GSA.
7.2 Nature of Representations and Warranties. The representations and
warranties set out in this Article VII shall survive the execution and delivery
of this Debenture and the GSA notwithstanding any investigations or examinations
made by the Holder or its counsel, and the Holder shall be deemed to have relied
on such representations and warranties when making the Loan.
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ARTICLE VIII
COVENANTS OF FOCUS
8.1 Affirmative Covenants. Focus covenants and agrees to and with the Holder
that so long as the Accumulated Debt or any portion thereof is outstanding:
(a) Focus shall use the Loan proceeds solely for the following purposes:
(i) the completion of the benign prostate hyperplasia clinical
trials;
(ii) the production and testing by the Holder of the high intensity
focused ultrasound device, currently called the SB 500,
developed by Focus for the process of tissue ablation including,
without limitation, payment in full of all invoices submitted by
the Holder whether previously or in the future for all items
related to such production and testing;
(iii) administration expenses; and
(iv) salaries and related payroll expenses at present levels.
(b) Focus will observe and perform all of the covenants, agreements, terms
and conditions to be respectively observed and performed by Focus in
this Debenture and the GSA;
(c) the Holder will be provided with:
(i) the unaudited financial statements of Focus for each fiscal
quarter end prepared in accordance with generally accepted
accounting principles ("GAAP") applied consistently, within
forty five (45) days of each fiscal quarter end (not including
the fiscal year end);
(ii) the unaudited financial statements of Focus for each fiscal year
end prepared in accordance with GAAP applied consistently,
within ninety (90) days of each fiscal year end of Focus;
(iii) such other financial and other information relating to Focus as
the Holder may reasonably request.
(d) Focus will carry on and conduct its business in a proper and efficient
manner, will keep all of its assets in a good state of repair and in
proper working condition, and will keep or cause to be kept accurate
books and records;
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(e) Focus will from time to time pay all rents, taxes, rates, levies or
assessments, ordinary or extraordinary, and government fees or dues
levied, assessed or imposed upon Focus or its assets capable of
forming a lien, charge or encumbrance on any of the assets of Focus,
as and when the same become due and payable unless their validity is
disputed in good faith by Focus and the Holder is provided security
acceptable to it, acting reasonably, for the payment of same;
(f) Focus will maintain its corporate existence and all registrations in
jurisdictions in which it is carrying on business;
(g) Focus will maintain all licenses and permits required to carry on its
business and will not transfer, surrender or otherwise dispose of any
such licenses or permits;
(h) Focus will comply with all laws, regulations, rules and orders, the
non-compliance with which could have a material adverse effect on its
business or condition (financial or otherwise);
(i) Focus will forthwith on becoming aware of same, provide the Holder
with notice of the occurrence of any Event of Default or any event
which, through the giving of notice or lapse of time or both, would
constitute an Event of Default;
(j) Focus will cause all the property and assets of Focus which are of a
character usually insured by companies operating like businesses to be
insured and kept insured in such amounts as the Holder may reasonably
require against loss or damage from any cause which is customarily
insured against by companies carrying on like businesses with insurers
approved by the Holder, with the Holder as a loss payee as its
interest may appear, and will pay all premiums necessary for such
purpose as the same shall become due and shall provide particulars of
all such policies and all renewals thereof to the Holder, all such
policies or contracts to be on terms reasonably satisfactory to the
Holder; and
(k) Focus will maintain public liability insurance in such amounts as the
Holder may reasonably require with insurers approved by the Holder,
acting reasonably, and will pay all premiums necessary for such
purpose as the same shall become due and shall provide particulars of
all such policies and all renewals thereof to the Holder, all such
policies or contracts to be on terms reasonably satisfactory to the
Holder.
8.2 Negative Covenants. Focus covenants and agrees to and with the Holder that,
unless the Holder consents in writing, so long as the Accumulated Debt or any
portion thereof is outstanding:
(a) Focus will not grant, create, assume or permit to exist any mortgage,
pledge, assignment, lien, charge, encumbrance or other security
interest, whether fixed or floating, upon any of the assets of Focus
other than Permitted Encumbrances;
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(b) Focus will not make any loans or advances to, whether secured or
unsecured, or guarantee or otherwise become contingently liable for
any obligations of any person, firm or corporation without the
Holder's prior written consent, which consent may be withheld for any
reason;
(c) Focus will not in any fiscal year, except in the ordinary course of
business, sell or otherwise dispose of any of its assets having in the
aggregate a value exceeding $250,000 unless the proceeds therefrom are
paid to the Holder and Takai in discharge of outstanding secured loan
amounts and such repayment is in accordance with the sharing ratio
provided in Section 3 of the Intercreditor Agreement;
(d) Focus will not merge, consolidate, reorganize or become a party to any
other transaction whereby all or substantially all of its assets
become the property of any other person, firm or corporation or, in
the case of a merger, of the surviving corporation resulting from the
merger;
(e) Focus will not change its fiscal year end; and
(f) Focus will not pay salaries, management fees or bonuses except in
accordance with existing contracts or usual industry practices.
ARTICLE IX
DEFAULT
9.1 Events of Default. The occurrence of any one or more the following events
(each such event being herein called an "Event of Default") shall constitute a
default under this Debenture:
(a) if Focus fails to make any payment to the Holder due under this
Debenture, any other outstanding secured debenture issued by Focus to
the Holder, or the GSA, whether for principal, interest or otherwise,
for more than ten (10) Business Days after its due date;
(b) if Focus defaults in the performance or observance of any provision
contained in this Debenture, any other outstanding secured debenture
issued by Focus to the Holder or the GSA on its part to be performed
or observed (other than making a payment referred to in clause (a)
above) and such default continues for more than thirty (30) days after
the Holder has given Focus written notice of the default;
(c) the Holder, acting reasonably, is not satisfied on the basis of the
financial statements furnished pursuant to Section 8.1(c) with the
financial condition of Focus;
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(d) if proceedings are commenced for the dissolution, liquidation or
winding up of Focus, unless such proceedings are being actively and
diligently contested in good faith by Focus;
(e) if a default under any indenture or instrument evidencing indebtedness
for borrowed money of Focus shall occur and any such indebtedness
shall have been lawfully accelerated or shall lawfully be or become
due and payable prior to the date on which the same would otherwise
have become due and payable;
(f) if Focus is adjudged or declared bankrupt or becomes insolvent or
makes an assignment for the benefit of creditors, or admits in writing
its inability to satisfy its debts generally as they become due, or
petitions or applies to any tribunal for the appointment of a receiver
or trustee for it or for any substantial part of its property, or
commences any proceedings relating to it under any reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction whether now or hereafter in effect, or by
any act indicates its consent to, approval of, or acquiescence in, any
such proceeding for it or for any substantial part of its property;
(g) if a receiver, receiver and manager, receiver-manager, custodian,
liquidator or trustee (or any person with like powers) shall be
appointed for all or any substantial part of the property of Focus,
provided that such appointment shall not constitute an Event of
Default if and for so long as:
(i) Focus obtains within two (2) Business Days of such appointment an
order of a court of competent jurisdiction staying such
appointment and such order (or a replacement thereof to similar
effect) remains in full force and effect; or
(ii) Focus disputes and continues to dispute such appointment and
provides or causes to be provided to the Holder, such security as
the Holder, acting reasonably, shall require for payment of such
sum as may be necessary to discharge such appointment, and for
the purposes hereof it is agreed that the Holder, in determining
whether any proposed security is sufficient, may assume the
validity of any such appointment and of the powers purported to
be granted to the person so appointed;
(h) if any representation or warranty made in this Debenture by Focus or
any information furnished in writing to the Holder by Focus before or
after the date hereof proves to have been incorrect in any material
adverse respect when made or furnished;
(i) if a writ, execution or attachment or similar process is issued or
levied against all or a substantial portion of the property of Focus
in connection with any judgment against Focus, as the case may be, in
any amount which materially affects the assets
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of Focus, as the case may be, and such writ, execution, attachment or
similar process is not released, bonded, satisfied, discharged,
vacated or stayed or unless being actively and diligently contested by
Focus, in good faith within sixty (60) days after its entry,
commencement or levy;
(j) if an encumbrancer or lienor takes possession of any substantial part
of the properties or assets of Focus, unless Focus disputes and
continues to dispute such possession in good faith and provides to the
Holder, such security for the payment of such encumbrance or lien as
the Holder shall reasonably require;
(k) if an order is made or legislation enacted by any competent body
having authority for the expropriation, confiscation, forfeiture,
escheating, other taking or compulsory divestiture, whether or not
with compensation, of all or a significant portion of the assets of
Focus and such order or legislation remains in effect and has not been
stayed by a court of competent jurisdiction for a period of more than
thirty (30) days from the date of pronouncement of the order or
enactment of the legislation, as the case may be;
(l) if there has been a material adverse change in the businesses,
operations, assets, financial or other condition of Focus, since the
date hereof;
(m) if judgment in excess of $50,000 is granted against Focus in respect
of which Focus does not have insurance coverage and the same remains
undischarged or unsatisfied after the time for appeal therefrom has
expired without Focus having appealed the judgment and obtaining a
stay of execution of the judgment, provided that such judgment shall
not constitute an Event of Default if Focus provides or causes to be
provided to the Holder such security as the Holder, acting reasonably,
shall require for the payment of such judgment; or
(n) if Focus declares a dividend on any class or series of shares other
than as required on its issued and outstanding Series T Preferred
Stock and Series M Preferred Stock.
9.2 Termination and Acceleration. Upon the occurrence of an Event of Default
and for so long as such Event of Default shall continue, the Holder may, by
notice to Focus, do any or all of the following:
(a) declare the entire principal amount of the Loan, all interest accrued
thereon and all fees and other amounts required to be paid by Focus
hereunder, to be immediately due and payable without the necessity of
further notice or demand for payment, presentment for payment,
protest, notice of dishonor or any other notice whatsoever (all of
which are hereby expressly waived) and proceed to exercise any and all
rights under this Debenture and the GSA; or
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(b) request from Focus such additional financial, marketing, sales or
other information (referred to herein as "Financial Information") as
the Holder may reasonably request to permit the Holder to determine
whether to waive the Event of Default. The Holder will keep
confidential all Financial Information disclosed to it by Focus
hereunder and not copy, disclose or make any use of, Financial
Information.
9.3 Remedies Cumulative and Waivers. It is expressly understood and agreed that
the respective rights and remedies of the Holder under this Debenture and the
GSA are cumulative and are in addition to and not in substitution for any rights
or remedies provided by law or by equity; and any single or partial exercise by
the Holder of any right of remedy for a default or breach of any term, covenant,
condition or agreement contained in this Debenture and the GSA shall not be
deemed to be a waiver of or to alter, affect or prejudice any other right or
remedy or other rights or remedies to which the Holder may be lawfully entitled
for such default or breach. Any waiver by the Holder of the strict observance,
performance or compliance with any term, covenant, condition or agreement herein
contained or contained in the GSA and any indulgence granted either expressly or
by course of conduct, by the Holder shall be effective only in the specific
instance and for the purpose for which it was given and shall be deemed not to
be a waiver of any rights and remedies of the Holder under this Debenture or the
GSA.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Costs and Expenses. Focus shall pay promptly all costs and expenses
incurred by the Holder in connection with the preparation, execution, delivery
and registration of this Debenture and the GSA, and in connection with arranging
the establishment of the loan hereby established and reasonable out-of-pocket
expenses of the Holder's counsel with respect thereto and with respect to
advising the Holder as to its rights and responsibilities under this Debenture
and the GSA. Except for ordinary expenses of the Holder relating to the
day-to-day administration of this Debenture and the GSA and not involving the
preparation or review of any waiver, consent or amendment, Focus further agrees
to pay all reasonable costs and expenses incurred by the Holder (including
reasonable fees and expenses of counsel, accountants and other experts), in
connection with the preservation or enforcement of rights of the Holder under
this Debenture and the GSA including, without limitation, all reasonable costs
and expenses sustained by the Holder as a result of any failure by Focus to
perform or observe its obligations contained in this Debenture and the GSA.
10.2 Notices. Any notice, demand or other communication to be made in respect
of this Debenture may be made or given by personal delivery, registered mail or
facsimile transmission to the parties as follows:
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(a) if to Focus:
Focus Surgery, Inc.
3940 Pendelton Way
Indianapolis, Indiana 46226
Attention: President
Fax No.: (317) 541-1581
(b) if to the Holder:
Misonix, Inc.
1938 New Highway
Farmingdale, New York 11735
Attention: President
Fax No.: (631) 694-9412
or at such other addresses or facsimile numbers as may be designated by written
notice given by the other party from time to time.
10.3 Successors and Assigns. This Debenture shall become effective when it
shall have been executed by the parties hereto and thereafter shall be binding
upon and enure to the benefit of Focus and the Holder and their respective
successors and permitted assigns. Focus shall not have the right to assign its
rights hereunder or any interest herein. Subject to all applicable securities
laws, the Holder from time to time (y) may grant a participation in all or any
part of the Loan to any third party (a "Participant"), after notice to but
without any requirement of consent by Focus, and (z) with the prior written
consent of Focus (which consent shall not be unreasonably withheld), may assign
all or any part of its rights and obligations under this Debenture to any third
party (an "Assignee"). The Holder may give any Participant or Assignee copies of
financial statements and other reports and all other information furnished to it
by or on behalf of Focus for the purposes of this Debenture. Without limitation
of its obligations hereunder, Focus shall, at its sole cost and expense, give
such certificates, acknowledgments and further assurances in respect of this
Debenture and the Loan as the Holder may require in connection with any
participation or assignment pursuant to this Section. The Holder shall act on
behalf of all its Participants and Assignees in all dealings with Focus in
respect of the Loan, until such time as an Event of Default occurs as a result
of Focus' failure to pay any amount on account of principal or interest owing
under or by virtue of this Debenture. Save as aforesaid, any Participant or
Assignee shall be entitled to the full benefit of this Debenture to the same
extent as if it were an original party in respect of the rights and obligations
granted or assigned to it.
10.4 Entire Agreement. This Debenture constitutes the entire agreement between
the parties hereto and cancels and supersedes any prior agreements,
undertakings, declarations, commitments and representations, written or oral, in
respect thereof.
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10.5 Amendments. Any provision of this Debenture or the GSA may be amended only
if Focus and the Holder so agree in writing.
10.6 Further Assurances. Focus agrees that it will, at the request of the
Holder, do all such further acts and execute and deliver all such further
assurances and documents as may be reasonably required by the Holder to carry
out the intent of this Debenture.
IN WITNESS WHEREOF this Debenture has been duly executed as of the date
first above written.
FOCUS SURGERY, INC.
By: /s/ Narendra T. Sanghvi
-------------------------------
Narendra T. Sanghvi,
President and CEO
MISONIX, INC.
By: /s/ Michael A. McManus
-------------------------------
Michael A. McManus, Jr.,
President and CEO
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