THIS SECURED DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED
----------
STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR THE SECURITIES
---
COMMISSION OF ANY STATE. THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE
HARBOR FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE
--- ----------
OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO
REGULATION D OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL
OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
EXEMPTIONS ARE AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES
MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT.
SECURED DEBENTURE
INTREPID TECHNOLOGY & RESOURCES, INC.
5% SECURED CONVERTIBLE DEBENTURE
MARCH 10, 2008
No. ___ US$450,000
This Secured Debenture (the "Debenture") is issued on March 10, 2008 (the
---------
"Closing Date") by Intrepid Technology & Resources, Inc., an Idaho corporation
-------------
(the "Company"), to Cornell Capital Partners, LP (together with its permitted
-------
successors and assigns, the "Holder") pursuant to exemptions from registration
------
under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 PRINCIPAL AND INTEREST. For value received, the Company
-----------------------
hereby promises to pay to the order of the Holder on March 10, 2005 in lawful
money of the United States of America and in immediately available funds the
principal sum of Seven Hundred Fifty Thousand U.S. Dollars (US$ 750,000),
together with interest on the unpaid principal of this Debenture at the rate of
five percent (5%) per year (computed on the basis of a 365-day year and the
actual days elapsed) from the date of this Debenture until paid. At the
Company's option, the entire principal amount and all accrued interest shall be
either (a) paid to the Holder on the third (3rd) year anniversary from the date
hereof or (b) converted in accordance with Section 1.02 herein provided,
however, that in no event shall the Holder be entitled to convert this Debenture
for a number of shares of Common Stock in excess of that number of shares of
Common Stock
which, upon giving effect to such conversion, would cause the aggregate number
of shares of Common Stock beneficially owned by the Holder and its affiliates to
exceed 4.99% of the outstanding shares of the Common Stock following such
conversion.
Section 1.02 OPTIONAL CONVERSION. The Holder is entitled, at its
--------------------
option, to convert, and sell on the same day, at any time and from time to time,
until payment in full of this Debenture, all or any part of the principal amount
of the Debenture, plus accrued interest, into shares (the "Conversion Shares")
-----------------
of the Company's common stock, par value US$0.005 per share ("Common Stock"), at
------------
the price per share (the "Conversion Price") equal to US$0.055 (the "Fixed
----------------- -----
Price"). The Holder agrees not to convert any amounts prior to fifteen (15)
- -----
days after the date the date the Registration Statement (as such term is defined
in the Investor Registration Rights Agreement), pertaining to the Conversion
Shares, is declared effective by the SEC. No fraction of shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share. To convert this
Debenture, the Holder hereof shall deliver written notice thereof, substantially
in the form of Exhibit "A" to this Debenture, with appropriate insertions (the
"Conversion Notice"), to the Company at its address as set forth herein. The
------------------
date upon which the conversion shall be effective (the "Conversion Date") shall
---------------
be deemed to be the date set forth in the Conversion Notice.
Section 1.03 RESERVATION OF COMMON STOCK. The Company shall reserve
-----------------------------
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of this Debenture, such
number of shares of Common Stock as shall from time to time be sufficient to
effect such conversion, based upon the Conversion Price. If at any time the
Company does not have a sufficient number of Conversion Shares authorized and
available, then the Company shall call and hold a special meeting of its
stockholders within thirty (30) days of that time for the sole purpose of
increasing the number of authorized shares of Common Stock.
Section 1.04 RIGHT OF REDEMPTION. The Company at its option shall have
-------------------
the right to redeem, with three (3) business days advance written notice (the
"Redemption Notice"), a portion or all outstanding convertible debenture. The
------------------
redemption price shall be one hundred twenty percent (120%) of the amount
redeemed plus accrued interest.
In the event the Company exercises a redemption of either all or a portion
the Convertible Debenture, the Holder shall receive a warrant to purchase fifty
thousand (50,000) shares of the Company's Common Stock for every One Hundred
Thousand U.S. Dollars (US$100,000) redeemed, pro rata (the "Warrant"). The
-------
Warrant shall be exercisable on a "cash basis" and have an exercise price equal
to the Fixed Price. The Warrant shall have "piggy-back" and demand registration
rights and shall survive for two (2) years from the Closing Date.
Section 1.05 REGISTRATION RIGHTS. The Company is obligated to register
-------------------
the resale of the Conversion Shares under the Securities Act of 1933, as
amended, pursuant to the terms of a Registration Rights Agreement, between the
Company and the Holder of even date herewith (the "Investor Registration Rights
----------------------------
Agreement").
- ---------
2
Section 1.06 INTEREST PAYMENTS. The interest so payable will be paid
------------------
at the time of maturity or conversion to the person in whose name this Debenture
is registered. At the time such interest is payable, the Holder, in its sole
discretion, may elect to receive the interest in cash (via wire transfer or
certified funds) or in the form of Common Stock. In the event of default, as
described in Article III Section 3.01 hereunder, the Holder may elect that the
interest be paid in cash (via wire transfer or certified funds) or in the form
of Common Stock. If paid in the form of Common Stock, the amount of stock to be
issued will be calculated as follows: the value of the stock shall be the
Closing Bid Price on: (i) the date the interest payment is due; or (ii) if the
interest payment is not made when due, the date the interest payment is made. A
number of shares of Common Stock with a value equal to the amount of interest
due shall be issued. No fractional shares will be issued; therefore, in the
event that the value of the Common Stock per share does not equal the total
interest due, the Company will pay the balance in cash.
Section 1.07 PAYING AGENT AND REGISTRAR. Initially, the Company will
---------------------------
act as paying agent and registrar. The Company may change any paying agent,
registrar, or Company-registrar by giving the Holder not less than ten (10)
business days' written notice of its election to do so, specifying the name,
address, telephone number and facsimile number of the paying agent or registrar.
The Company may act in any such capacity.
Section 1.08 SECURED NATURE OF DEBENTURE. This Debenture is secured by
---------------------------
all of the assets and property of the Company as set forth on Exhibit A to the
Security Agreement dated the date hereof between the Company and the Holder (the
"Security Agreement"). As set forth in the Security Agreement, Holder's
-------------------
security interest shall terminate upon the occurrence of an Expiration Event as
defined in the Security Agreement.
ARTICLE II.
Section 2.01 AMENDMENTS AND WAIVER OF DEFAULT. The Debenture may not
---------------------------------
be amended. Notwithstanding the above, without the consent of the Holder, the
Debenture may be amended to cure any ambiguity, defect or inconsistency, or to
provide for assumption of the Company obligations to the Holder.
ARTICLE III.
Section 3.01 EVENTS OF DEFAULT. An Event of Default is defined as
-------------------
follows: (a) failure by the Company to pay amounts due hereunder within fifteen
(15) days of the date of maturity of this Debenture; (b) failure by the Company
to comply with the terms of the Irrevocable Transfer Agent Instructions attached
to the Securities Purchase Agreement; (c) failure by the Company's transfer
agent to issue freely tradeable Common Stock to the Holder within five (5) days
of the Company's receipt of the attached Notice of Conversion from Holder; (d)
failure by the Company for ten (10) days after notice to it to comply with any
of its other agreements in the Debenture; (e) events of bankruptcy or
insolvency; (f) a breach by the Company of its obligations under the Securities
Purchase Agreement or the Investor Registration Rights Agreement which is not
cured by the Company within ten (10) days after receipt of written notice
thereof. Upon the occurrence of an Event of Default, the Holder may, in its
sole discretion, accelerate full repayment of all debentures outstanding and
accrued interest thereon or may, notwithstanding any limitations contained in
this Debenture and/or the Securities Purchase
3
Agreement dated the date hereof between the Company and Cornell Capital
Partners, L.P. (the "Securities Purchase Agreement"), convert all debentures
------------------------------
outstanding and accrued interest thereon into shares of Common Stock pursuant to
Section 1.02 herein.
Section 3.02 FAILURE TO ISSUE UNRESTRICTED COMMON STOCK. As indicated
-------------------------------------------
in Article III Section 3.01, a breach by the Company of its obligations under
the Investor Registration Rights Agreement shall be deemed an Event of Default,
which if not cured within ten (10) days, shall entitle the Holder to accelerate
full repayment of all debentures outstanding and accrued interest thereon or,
notwithstanding any limitations contained in this Debenture and/or the
Securities Purchase Agreement, to convert all debentures outstanding and accrued
interest thereon into shares of Common Stock pursuant to Section 1.02 herein.
The Company acknowledges that failure to honor a Notice of Conversion shall
cause irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 RIGHTS AND TERMS OF CONVERSION. This Debenture, in whole
------------------------------
or in part, may be converted at any time following the Closing Date, into shares
of Common Stock at a price equal to the Conversion Price as described in Section
1.02 above.
Section 4.02 RE-ISSUANCE OF DEBENTURE. When the Holder elects to
--------------------------
convert a part of the Debenture, then the Company shall reissue a new Debenture
in the same form as this Debenture to reflect the new principal amount.
Section 4.03 TERMINATION OF CONVERSION RIGHTS. The Holder's right to
---------------------------------
convert the Debenture into the Common Stock in accordance with paragraph 4.01
shall terminate on the date that is the third (3rd) year anniversary from the
date hereof and this Debenture shall be automatically converted on that date in
accordance with the formula set forth in Section 4.01 hereof, and the
appropriate shares of Common Stock and amount of interest shall be issued to the
Holder.
ARTICLE V.
Section 5.01 ANTI-DILUTION. In the event that the Company shall at any
-------------
time subdivide the outstanding shares of Common Stock, or shall issue a stock
dividend on the outstanding Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in the event that the Company shall at any time
combine the outstanding shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination as the case may be.
Section 5.02 CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT SECURITY
----------------------------------------------------------
INTERESTS. Except for the Standby Equity Distribution Agreement dated the date
- ---------
hereof between the Company and Cornell Capital Partners, LP, so long as any of
the principal of or interest on this Debenture remains unpaid and unconverted,
the Company shall not, without the prior consent of the Holder, issue or sell
(i) any Common Stock or Preferred Stock without consideration or for a
consideration per share less than its fair market value determined immediately
prior to its issuance, (ii) issue or sell any Preferred Stock, warrant, option,
right, contract, call, or other security or instrument granting the holder
thereof the right to acquire Common Stock without
4
consideration or for a consideration per share less than such Common Stock's
fair market value determined immediately prior to its issuance, (iii) enter into
any security instrument granting the holder a security interest in any of the
assets of the Company, or (iv) file any registration statement on Form S-8.
Notwithstanding the foregoing restriction, the Company may file one (1)
registration statement on Form S-8 (the "Permitted Form S-8 Registration") for
-------------------------------
1,000,000 shares, provided however, the Company shall not issue or grant any
shares pursuant to the Permitted Form S-8 Registration until at least six (6)
months after the date the Registration Statement becomes effective.
ARTICLE VI.
Section 6.01 NOTICE. Notices regarding this Debenture shall be sent to
------
the parties at the following addresses, unless a party notifies the other
parties, in writing, of a change of address:
If to the Company, to: Intrepid Technology & Resources, Inc.
501 West Broadway - Suite 200
Idaho Falls, ID 83402
Attention: Dr. Dennis D. Keiser
Telephone: (208) 529-5337
Facsimile: (208) 529-1014
With a copy to: Kirkpatrick & Lockhart Nicholson Graham LLP
201 South Biscayne Boulevard - Suite 2000
Miami, FL 33131-2399
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 358-7095
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a copy to: David Gonzalez, Esq.
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
Section 6.02 GOVERNING LAW. This Debenture shall be deemed to be
-------------
made under and shall be construed in accordance with the laws of the State of
New Jersey without giving effect to the principals of conflict of laws thereof.
Each of the parties consents to the jurisdiction of the U.S. District Court
sitting in the District of the State of New Jersey or the state courts of the
State of New Jersey sitting in Hudson County, New Jersey in connection with any
dispute arising
5
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.
Section 6.03 SEVERABILITY. The invalidity of any of the provisions of
------------
this Debenture shall not invalidate or otherwise affect any of the other
provisions of this Debenture, which shall remain in full force and effect.
Section 6.04 ENTIRE AGREEMENT AND AMENDMENTS. This Debenture
----------------------------------
represents the entire agreement between the parties hereto with respect to the
subject matter hereof and there are no representations, warranties or
commitments, except as set forth herein. This Debenture may be amended only by
an instrument in writing executed by the parties hereto.
Section 6.05 COUNTERPARTS. This Debenture may be executed in multiple
------------
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company
as executed this Debenture as of the date first written above.
INTREPID TECHNOLOGY & RESOURCES, INC.
By:
----------------------------------
Name: Dr. Dennis D. Keiser
Title: President & CEO
6
EXHIBIT "A"
-----------
NOTICE OF CONVERSION
--------------------
(TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE)
TO:
The undersigned hereby irrevocably elects to convert US$_______ of the
principal amount of the above Debenture into Shares of Common Stock of Intrepid
Technology & Resources, Inc., according to the conditions stated therein, as of
the Conversion Date written below.
CONVERSION DATE: ___________________________________________
APPLICABLE CONVERSION PRICE: ___________________________________________
SIGNATURE: ___________________________________________
NAME: ___________________________________________
ADDRESS: ___________________________________________
AMOUNT TO BE CONVERTED: US$________________________________________
AMOUNT OF DEBENTURE UNCONVERTED: US$________________________________________
CONVERSION PRICE PER SHARE: US$________________________________________
NUMBER OF SHARES OF COMMON
STOCK TO BE ISSUED: ___________________________________________
PLEASE ISSUE THE SHARES OF
COMMON STOCK IN THE FOLLOWING
NAME AND TO THE FOLLOWING
ADDRESS: ___________________________________________
ISSUE TO: ___________________________________________
AUTHORIZED SIGNATURE: ___________________________________________
NAME: ___________________________________________
TITLE: ___________________________________________
PHONE NUMBER: ___________________________________________
BROKER DTC PARTICIPANT CODE: ___________________________________________
ACCOUNT NUMBER: ___________________________________________
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