18% SECURED SUBORDINATED CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE
RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
No. ___ US $48,000
Dated: January 11, 2007
IN VERITAS MEDICAL DIAGNOSTICS, INC.
18% SECURED SUBORDINATED CONVERTIBLE DEBENTURE
DUE APRIL 30, 2008
THIS DEBENTURE is issued by In Veritas Medical Diagnostics, Inc., a
corporation organized and existing under the laws of the State of Colorado (the
"Company") and is designated as its Second 18% Secured Subordinated Convertible
Debenture due April 30, 2008 (the "Debenture").
FOR VALUE RECEIVED, the Company promises to pay to Longview Fund L.P. or
permitted assigns (the "Holder"), the principal sum of Forty Eight Thousand
Dollars (US $48,000) and accrued interest thereon at the rate of 18% per annum
on April 18, 2008 (the "Maturity Date") if not paid sooner. Accrual of interest
shall commence on the Issue Date at the rate of 18% per annum and continue until
payment in full of the principal sum and all accrued interest has been made or
duly provided for.
This Debenture is subject to the following provisions:
(1) Transfer Restrictions. This Debenture has been issued subject to
investment representations of the original purchaser hereof and may be
transferred or exchanged only in compliance with the Act, and other applicable
state and foreign securities laws. The Holder shall deliver written notice to
the Company of any proposed transfer of this Debenture. In the event of any
proposed transfer of this Debenture, the Company may require, prior to issuance
of a new Debenture in the name of such other person, that it receive reasonable
transfer documentation including legal opinion(s) of counsel reasonably
acceptable to the Company and/or its counsel that the issuance of the Debenture
in such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
(2) Conversion.
(a) Holders Right to Convert. The Holder of this Debenture is entitled,
at its option, to convert at any time, the principal amount of this Debenture or
any portion thereof, together with accrued but unpaid interest, into shares of
Common Stock of the Company ("Conversion Shares") at a conversion price for each
share of Common Stock ("Conversion Price") of $0.05.
(3) Sufficient Shares Reserved. The Company shall at all times prior to the
conversion in full or payment in full of this Debenture reserve a sufficient
number of shares of Common Stock to permit the Holder to convert the entire
principal amount of this Debenture at the Conversion Price. The Company shall
initially reserve at least 100% of the number of shares of Common Stock issuable
to Holder as of the Closing Date. The Company shall take all actions necessary
to give effect to the preceding sentence, including, without limitation,
amending its Certificate of Incorporation to authorize additional shares of
Common Stock, if necessary.
(4) Conversion Procedures.
(a) Conversion shall be effectuated by surrendering this Debenture to
the Company (if such Conversion will convert all outstanding principal) together
with the form of conversion notice attached hereto as Exhibit A (the "Notice of
Conversion"), executed by the Holder of this Debenture evidencing such Holder's
intention to convert this Debenture or a specified portion (as above provided)
hereof, and accompanied, if required by the Company, by proper assignment hereof
in blank. Interest accrued or accruing from the date of issuance to the date of
conversion shall be paid in cash or shares of Common Stock as set forth above.
No fraction of a share or scrip representing a fraction of a share will be
issued on conversion, but the number of shares issuable shall be rounded up to
the nearest whole share. The date on which Notice of Conversion is given (the
"Conversion Date") shall be deemed to be the date on which the Holder faxes the
Notice of Conversion duly executed to the Company. Facsimile delivery of the
Notice of Conversion shall be accepted by the Company at facsimile number +44
(0) 1463 667 310, Attn.: Martin Thorp, Chief Financial Officer. Certificates
representing Common Stock upon conversion will be delivered to the Holder within
five (5) Trading Days from the date the Notice of Conversion is delivered to the
Company. Delivery of shares upon conversion shall be made to the address
specified by the Holder in the Notice of Conversion.
(5) Debenture is an Unconditional Obligation. No provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal, and interest on, of this Debenture at
the time, place, and rate, and in the coin or currency or shares of Common
Stock, herein prescribed. This Debenture is a direct obligation of the Company.
(6) Debenture Secured by Subordinated Security Interest. Longview has and
shall continue to have valid, enforceable and perfected second-priority lien
upon and security interests in the Pledged Property (as defined in the
Transaction Documents) heretofore granted. All payments due under this Note
shall be subordinated and made junior, in all respects to the payment in full of
all principal, all interest accrued thereon and all other amounts due on the
secured indebtedness of the Company set forth in Schedule I of this Debenture.
(7) Merger; Consolidation; Sale of Assets. If the Company merges or
consolidates with another corporation or sells or transfers all or substantially
all of its assets to another person and the holders of the Common Stock are
entitled to receive stock, securities or property in respect of or in exchange
for Common Stock, then as a condition of such merger, consolidation, sale or
transfer, the Company and any such successor, purchaser or transferee agree that
the Debenture may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable.
In the event of any proposed merger, consolidation or sale or transfer of
all or substantially all of the assets of the Company (a "Sale"), the Holder
hereof shall have the right to convert any or all of the Debenture by delivering
a Notice of Conversion to the Company within ten (10) days of receipt of notice
of such Sale from the Company, which notice the Company shall be required to
give.
(8) Governing Law; Jurisdiction. This Debenture shall be governed by and
construed in accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction of the federal courts or the state courts
of the State of New York located in the County of New York in connection with
any dispute arising under this Debenture and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non conveniens, to the bringing of any such proceeding in such jurisdictions.
The Company acknowledges that this Debenture is subject to collection pursuant
to a CPLR ss. 3213 motion for summary judgment in lieu of complaint.
(9) Default. Any one of the following shall constitute an "Event of
Default":
(a) The Company shall default in the payment of principal or interest on
this Debenture and same shall continue for a period of ten (10) business days,
during such time the Company shall have an opportunity to cure; or
(b) Any of the representations or warranties made by the Company herein,
or in any agreement, certificate or financial or other written statements
heretofore or hereafter furnished by the Company in connection with the
execution and delivery of this Debenture or the Warrant shall be false or
misleading at the time made and which deficiency has had or could reasonably be
expected to have a material adverse effect on the Holder or its investment in
the Company; or
(c) The Company fails to issue shares of Common Stock to the Holder or
to cause its Transfer Agent to issue shares of Common Stock upon exercise by the
Holder of the conversion rights of the Holder in accordance with the terms of
this Debenture, fails to transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon conversion of
this Debenture as and when required by this Debenture, and such transfer is
otherwise lawful, or fails to remove any restrictive legend or to cause its
Transfer Agent to transfer any certificate or any shares of Common Stock issued
to the Holder upon conversion of this Debenture as and when required by this
Debenture and such legend removal is otherwise lawful, and any such failure
shall continue uncured for ten (10) business days; or
(d) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or obligation
of the Company under this Debenture and such failure shall continue uncured for
a period of ten (10) business days after written notice of such failure; or
(e) The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
(f) A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its consent and
shall not be discharged within sixty (60) days after such appointment; or
(g) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within sixty (60) days thereafter; or
(h) Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty (60) days after such
institution or the Company shall by any action or answer approve of, consent to,
or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding; or
(i) The Company shall have its Common Stock suspended or delisted from
trading on the Principal Market for in excess of ten (10) Trading Days.
Upon the occurrence of an Event of Default, or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder's sole
discretion, the Holder may consider this Debenture immediately due and payable,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately
enforce any and all of the Holder's rights and remedies provided herein or any
other rights or remedies afforded by law; provided, that any payment of this
Debenture in connection with an Event of Default may, at the option of the
Holder, be made in shares of Common Stock of the Company which number of shares
shall be calculated based upon at the lesser of the closing sale price of the
Common Stock on the date the Debenture becomes due and payable or $0.05. Such
payment of shares shall be made within twenty (20) Trading Days of such demand.
(10) No Rights as Stockholder. Nothing contained in this Debenture shall be
construed as conferring upon the Holder the right to vote or to receive
dividends or to consent or receive notice as a stockholder in respect of any
meeting of stockholders or any rights whatsoever as a stockholder of the
Company, unless and to the extent converted in accordance with the terms hereof.
(11) Additional Conversion Restriction. In no event shall any holder be
entitled to convert the outstanding principal amount and accrued interest of
this Debenture for shares of Common Stock in excess of that number of shares of
Common Stock that, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its "affiliates" (as defined in Rule 405 under the Securities Act) to exceed
4.99% of the outstanding shares of the Common Stock of the Company following
such conversion. For purposes of this Section 14, the aggregate number of shares
of Common Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of the
Debenture with respect to which the determination is being made, but shall
exclude the number of shares of Common Stock that would be issuable upon (i)
conversion of any remaining, unconverted portion of this Debenture and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
Securities (including, without limitation, any warrants) subject to a limitation
on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder and its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 14, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Section 14, in determining the number of
outstanding shares of Common Stock a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-QSB or Form 10-KSB, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of any holder, the
Company shall immediately confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
conversions of portions of the Debenture by such Holder since the date as of
which such number of outstanding shares of Common Stock was reported. To the
extent that the limitation contained in this Section 14 applies, the
determination of whether the Debenture is convertible (in relation to other
securities owned by a Holder) and of which portion of this Debenture is
convertible shall be in the sole discretion of the Holder, and the submission of
a Notice of Conversion shall be deemed to be the Holder's determination that the
Debenture is convertible, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation or right to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of a holder to convert the Debenture at such time
as such conversion will not violate the provisions of this Section 14.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
by its officer thereunto duly authorized as of the day and year first above
written.
IN VERITAS MEDICAL DIAGNOSTICS, INC.
By: /s/ Martin Thorp
------------------
Name: Martin Thorp
Title: Chief Financial Officer
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount of the above Debenture No. ___ into Shares of Common Stock
of In Veritas Medical Diagnostics, Inc. (the "Company") according to the
conditions hereof, as of the date written below.
Date of Conversion ____________________________________________________________
Applicable Conversion Price __________________________________________________
Accrued Interest_______________________________________________________________
Number of Shares to be Issued ________________________________________________
Name of Holder ________________________________________________________________
Signature of Holder ___________________________________________________________
Address for Delivery of Shares or DTC
Account Number for Electronic Delivery of Shares: _____________________________
_______________________________________________________________________________
_______________________________________________________________________________
SCHEDULE I
SENIOR SECURED INDEBTEDNESS
o Montgomery Equity Partners Secured Convertible Debenture dated as of
September 7, 2005, as amended on October 19, 2006.