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.
November 7, 2000
5.1% 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 December 22,
2002 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 November 24, 2000 and the third on or before December
22, 2000.
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 November 7, 2000 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 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"), of even date herewith.
(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 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
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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 December 22, 2002.
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
Courts of the Supreme Court of the State of New York, New York County or the
Federal District Court for the Southern 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
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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 November 24, 2000 and the third on or
before December 22, 2000.
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 5.1% 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.
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.
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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 December 22, 2000 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.
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
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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 a Consulting
Agreement, in the form of Exhibit B annexed hereto (the "Consulting Agreement").
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.
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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 the GSA, in the form of
Exhibit C annexed hereto.
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 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 Consulting Agreement 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;
(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.
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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 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:
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(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.
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 Misonix of the high intensity
focused ultrasound device, currently called the SB 500,
developed by Focus for the process of tissue ablation;
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(iii) administration expenses; and
(iv) salaries and related payroll expenses.
(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;
(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);
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(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;
(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;
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(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 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 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;
(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;
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(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
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;
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(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
(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.
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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:
(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
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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.
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.
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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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