Exhibit 4.1
Dated: September 7, 2005
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
No. MEP 1 $300,000
IN VERITAS MEDICAL DIAGNOSTICS, INC.
Secured Convertible Debenture
Due September 7, 2006
This Secured Convertible Debenture (the "Debenture") is issued by IN
VERITAS MEDICAL DIAGNOSTICS, INC., a Colorado corporation (the "Obligor"), to
MONTGOMERY EQUITY PARTNERS, LTD. (the "Holder"), pursuant to that certain
Securities Purchase Agreement (the "Securities Purchase Agreement") of even date
herewith.
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the Holder or its
successors and assigns the principal sum of Three Hundred Thousand Dollars
($300,000), together with accrued but unpaid interest on or before the one year
anniversary of the date hereof (the "Maturity Date") in accordance with the
following terms:
Payments. Interest on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, commencing on the one month anniversary of the
date hereof and shall continue on the same day of each subsequent calendar month
thereafter that any amounts under this Debenture are due and payable until the
first Principal Payment Date (each, an "Interest Payment Date"). Principal shall
be due and payable in monthly installments of not less than $35,000 each, a
redemption premium equal to 12% ("Redemption Premium") of each such principal
installment, and plus accrued and unpaid interest, or the highest rate permitted
by applicable law, if lower. The installments of principal shall be due and
payable commencing on the date six (6) months from the date hereof and
subsequent installments shall be due and payable on the same day of each
subsequent calendar month thereafter ("Principal Payment Date") until the
outstanding principal balance is paid in full or the Maturity Date. All payments
in respect of the indebtedness evidenced hereby shall be made in collected
funds, and shall be applied to principal, accrued interest and charges and
expenses owing under or in connection with this Debenture in such order as the
Holder elects, except that payments shall be applied to accrued interest before
principal. Notwithstanding the foregoing, this Debenture shall become due and
immediately payable, including all accrued but unpaid interest pursuant to an
Event of Default (as defined in Section 2 hereof).
Interest. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to 18%. Interest shall be calculated on the basis of a
360-day year and the actual number of days elapsed, to the extent permitted by
applicable law. Interest hereunder will be paid to the Holder or its assignee
(as defined in Section 4) in whose name this Debenture is registered on the
records of the Obligor regarding registration and transfers of Debentures (the
"Debenture Register"). On the date hereof, the Obligor shall prepay $22,500 of
interest, which shall be applied to the first two months of interest on the
first two Interest Payment Dates.
Right of Redemption. The Company at its option shall have the right,
with three (3) business days advance written notice ("Redemption Notice"), to
redeem a portion or all amounts outstanding under this Debenture prior to the
Maturity Date or any Principal Payment date. The Redemption Premium shall apply
to any such early redemptions whether on, before, or after any Principal Payment
Date or the Maturity Date. The Holder shall retain all its rights to convert
this Debenture pursuant to Section 3 hereof after receipt of a Redemption
Notice.
Security Agreement. This Debenture is secured by a Security Agreement (the
"Security Agreement") of even date herewith between the Obligor and the Holder.
Consent of Holder to Sell Capital Stock or Grant Security Interests. Except
as set forth in Schedule 4(k) of the Securities Purchase Agreement and except
for the capital stock to be issued pursuant to the Standby Equity Distribution
Agreement of even date herewith between the Obligator and Cornell Capital
Partners, LP, so long as any of the principal amount or interest on this
Debenture remains unpaid and unconverted, the Obligor shall not, without the
prior consent of the Holder, (i) issue or sell any common stock or preferred
stock without consideration or for a consideration per share less than the bid
price of common stock 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 consideration or for a consideration per share less than the bid
price of common stock 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 Obligor, or (iv) file any registration statements on Form S-8.
This Debenture is subject to the following additional provisions:
Section 1.
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This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 2. Events of Default.
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(a) An "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):
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(i) Any default in the payment of the principal of, interest on
or other charges in respect of this Debenture, free of any claim of
subordination, as and when the same shall become due and payable
(whether on an installment, a Principal Payment Date, an Interest
Payment Date, a Conversion Date or the Maturity Date or by
acceleration or otherwise);
(ii) The Obligor shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach or default of any provision of this Debenture (except as may be
covered by Section 2(a)(i) hereof) or any Transaction Document (as
defined in Section 4) which is not cured with in the time prescribed;
(iii) The Obligor or any subsidiary of the Obligor shall
commence, or there shall be commenced against the Obligor or any
subsidiary of the Obligor under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, or the Obligor or any subsidiary of the Obligor commences any
other proceeding under any reorganization, arrangement, adjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Obligor or any subsidiary of the Obligor or there is
commenced against the Obligor or any subsidiary of the Obligor any
such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 61 days; or the Obligor or any subsidiary
of the Obligor is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is
entered; or the Obligor or any subsidiary of the Obligor suffers any
appointment of any custodian, private or court appointed receiver or
the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of sixty one (61)
days; or the Obligor or any subsidiary of the Obligor makes a general
assignment for the benefit of creditors; or the Obligor or any
subsidiary of the Obligor shall fail to pay, or shall state that it is
unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Obligor or any subsidiary of the Obligor shall call
a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or the Obligor or any
subsidiary of the Obligor shall by any act or failure to act expressly
indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Obligor or
any subsidiary of the Obligor for the purpose of effecting any of the
foregoing;
(iv) The Obligor or any subsidiary of the Obligor shall default
in any of its obligations under any other debenture or any mortgage,
credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by
which there may be secured or evidenced any indebtedness for borrowed
money or money due under any long term leasing or factoring
arrangement of the Obligor or any subsidiary of the Obligor in an
amount exceeding $100,000, whether such indebtedness now exists or
shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable;
(v) The Common Stock shall cease to be quoted for trading or
listed for trading on either the Nasdaq OTC Bulletin Board ("OTC"),
Nasdaq SmallCap Market, New York Stock Exchange, American Stock
Exchange or the Nasdaq National Market (each, a "Subsequent Market")
and shall not again be quoted or listed for trading thereon within
five (5) Trading Days of such delisting;
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(vi) The Obligor or any subsidiary of the Obligor shall be a
party to any Change of Control Transaction (as defined in Section 4);
(vii) The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in Section 4) with the Commission
(as defined in Section 4), or the Underlying Shares Registration
Statement shall not have been declared effective by the Commission, in
each case within the time periods set forth in the Registration Rights
Agreement of even date herewith between the Obligor and the Holder;
(viii) If the effectiveness of the Underlying Shares Registration
Statement lapses for any reason or the Holder shall not be permitted
to resell the shares of Common Stock underlying this Debenture under
the Underlying Shares Registration Statement, in either case, for more
than five (5) consecutive Trading Days or an aggregate of eight
Trading Days (which need not be consecutive Trading Days);
(ix) The Obligor shall fail for any reason to deliver Common
Stock certificates to a Holder prior to the fifth (5th) Trading Day
after a Conversion Date or the Obligor shall provide notice to the
Holder, including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of this
Debenture in accordance with the terms hereof;
(x) The Obligor shall fail for any reason to deliver the payment
in cash pursuant to a Buy-In (as defined herein) within three (3) days
after notice is claimed delivered hereunder;
(b) During the time that any portion of this Debenture is outstanding,
if any Event of Default has occurred, the full principal amount of this
Debenture, together with interest and other amounts owing in respect
thereof, to the date of acceleration shall become at the Holder's election,
immediately due and payable in cash, provided however, the Holder may
request (but shall have no obligation to request) payment of such amounts
in Common Stock of the Obligor. In addition to any other remedies, the
Holder shall have the right (but not the obligation) to convert this
Debenture at any time after (x) an Event of Default or (y) the Maturity
Date at the Conversion Price then in-effect. The Holder need not provide
and the Obligor hereby waives any presentment, demand, protest or other
notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Holder at any time prior to
payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon. Upon an
Event of Default, notwithstanding any other provision of this Debenture or
any Transaction Document, the Holder shall have no obligation to comply
with or adhere to any limitations, if any, on the conversion of this
Debenture or the sale of the Underlying Shares.
Section 3. Conversion.
-----------------------
(a) (i) Conversion at Option of Holder.
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(A) This Debenture shall be convertible into shares of
Common Stock at the option of the Holder, in whole or in part at
any time and from time to time, after the Original Issue Date (as
defined in Section 4) (subject to the limitations on conversion
set forth in Section 3(a)(ii) hereof). The number of shares of
Common Stock issuable upon a conversion hereunder equals the
quotient obtained by dividing (x) the outstanding amount of this
Debenture to be converted by (y) the Conversion Price (as defined
in Section 3(c)(i)). The Obligor shall deliver Common Stock
certificates to the Holder prior to the Fifth (5th) Trading Day
after a Conversion Date.
(B) Notwithstanding anything to the contrary contained
herein, if on any Conversion Date: (1) the number of shares of
Common Stock at the time authorized, unissued and unreserved for
all purposes, or held as treasury stock, is insufficient to pay
principal and interest hereunder in shares of Common Stock; (2)
the Common Stock is not listed or quoted for trading on the OTC
or on a Subsequent Market; (3) the Obligor has failed to timely
satisfy its conversion; or (4) the issuance of such shares of
Common Stock would result in a violation of Section 3(a)(ii),
then, at the option of the Holder, the Obligor, in lieu of
delivering shares of Common Stock pursuant to Section 3(a)(i)(A),
shall deliver, within three (3) Trading Days of each applicable
Conversion Date, an amount in cash equal to the product of the
outstanding principal amount to be converted plus any interest
due therein divided by the Conversion Price and multiplied by the
highest closing price of the stock from date of the conversion
notice till the date that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in
respect of conversion of this Debenture or as payment of interest
thereon by the fifth (5th) Trading Day after the Conversion Date,
the Holder may, by notice to the Obligor, require the Obligor to
issue shares of Common Stock pursuant to Section 3(c), except
that for such purpose the Conversion Price applicable thereto
shall be the lesser of the Conversion Price on the Conversion
Date and the Conversion Price on the date of such Holder demand.
Any such shares will be subject to the provisions of this
Section.
(C) The Holder shall effect conversions by delivering to the
Obligor a completed notice in the form attached hereto as Exhibit
A (a "Conversion Notice"). The date on which a Conversion Notice
is delivered is the "Conversion Date." Unless the Holder is
converting the entire principal amount outstanding under this
Debenture, the Holder is not required to physically surrender
this Debenture to the Obligor in order to effect conversions.
Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Debenture plus all accrued
and unpaid interest thereon in an amount equal to the applicable
conversion. The Holder and the Obligor shall maintain records
showing the principal amount converted and the date of such
conversions. In the event of any dispute or discrepancy, the
records of the Holder shall be controlling and determinative in
the absence of manifest error.
(ii) Certain Conversion Restrictions.
(A) A Holder may not convert this Debenture or receive
shares of Common Stock as payment of interest hereunder to the
extent such conversion or receipt of such interest payment would
result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section
13(d) of the Exchange Act and the rules promulgated thereunder)
in excess of 4.9% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and
payment of interest on, this Debenture held by such
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Holder after application of this Section. Since the Holder will
not be obligated to report to the Obligor the number of shares of
Common Stock it may hold at the time of a conversion hereunder,
unless the conversion at issue would result in the issuance of
shares of Common Stock in excess of 4.9% of the then outstanding
shares of Common Stock without regard to any other shares which
may be beneficially owned by the Holder or an affiliate thereof,
the Holder shall have the authority and obligation to determine
whether the restriction contained in this Section will limit any
particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies,
the determination of which portion of the principal amount of
this Debenture is convertible shall be the responsibility and
obligation of the Holder. If the Holder has delivered a
Conversion Notice for a principal amount of this Debenture that,
without regard to any other shares that the Holder or its
affiliates may beneficially own, would result in the issuance in
excess of the permitted amount hereunder, the Obligor shall
notify the Holder of this fact and shall honor the conversion for
the maximum principal amount permitted to be converted on such
Conversion Date in accordance with the periods described in
Section 3(a)(i)(A) and, at the option of the Holder, either
retain any principal amount tendered for conversion in excess of
the permitted amount hereunder for future conversions or return
such excess principal amount to the Holder. The provisions of
this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 65 days prior notice
to the Obligor. Other Holders shall be unaffected by any such
waiver.
(b) (i) Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default pursuant to Section 2 herein for the
Obligor 's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific performance
and/or injunctive relief, in each case without the need to post a bond or
provide other security. The exercise of any such rights shall not prohibit
the Holder from seeking to enforce damages pursuant to any other Section
hereof or under applicable law.
(ii) In addition to any other rights available to the Holder, if
the Obligor fails to deliver to the Holder such certificate or
certificates pursuant to Section 3(a)(i)(A) by the fifth (5th) Trading
Day after the Conversion Date, and if after such fifth (5th) Trading
Day the Holder purchases (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by such Holder of
the Underlying Shares which the Holder anticipated receiving upon such
conversion (a "Buy-In"), then the Obligor shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so
purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the market price of the Common
Stock at the time of the sale giving rise to such purchase obligation
and (B) at the option of the Holder, either reissue a Debenture in the
principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common
Stock that would have been issued had the Obligor timely complied with
its delivery requirements under Section 3(a)(i)(A). For example, if
the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of
Debentures with respect to which the market price of the Underlying
Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Obligor shall be
required to pay the Holder $1,000. The Holder shall provide the
Obligor written notice indicating the amounts payable to the Holder in
respect of the Buy-In.
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(c) (i) The conversion price (the "Conversion Price") in effect on any
Conversion Date shall be equal to $0.144, which may be adjusted pursuant to
the other terms of this Debenture.
(ii) If the Obligor, at any time while this Debenture is
outstanding, shall (a) pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any
other equity or equity equivalent securities payable in shares of
Common Stock, (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number
of shares, or (d) issue by reclassification of shares of the Common
Stock any shares of capital stock of the Obligor, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the
case of a subdivision, combination or re-classification.
(iii) If the Obligor, at any time while this Debenture is
outstanding, shall issue rights, options or warrants to all holders of
Common Stock (and not to the Holder) entitling them to subscribe for
or purchase shares of Common Stock at a price per share less than the
Closing Bid Price at the record date mentioned below, then the
Conversion Price shall be multiplied by a fraction, of which the
denominator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants (plus the number of additional
shares of Common Stock offered for subscription or purchase), and of
which the numerator shall be the number of shares of the Common Stock
(excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants, plus the number of shares which
the aggregate offering price of the total number of shares so offered
would purchase at such Closing Bid Price. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
However, upon the expiration of any such right, option or warrant to
purchase shares of the Common Stock the issuance of which resulted in
an adjustment in the Conversion Price pursuant to this Section, if any
such right, option or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the
provisions of this Section after the issuance of such rights or
warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights, options or warrants been made on the basis of
offering for subscription or purchase only that number of shares of
the Common Stock actually purchased upon the exercise of such rights,
options or warrants actually exercised.
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(iv) If the Obligor or any subsidiary thereof, as applicable, at
any time while this Debenture is outstanding, shall issue shares of
Common Stock or rights, warrants, options or other securities or debt
that are convertible into or exchangeable for shares of Common Stock
("Common Stock Equivalents") entitling any Person to acquire shares of
Common Stock, at a price per share less than the Conversion Price (if
the holder of the Common Stock or Common Stock Equivalent so issued
shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares
of Common Stock at a price per share which is less than the Conversion
Price, such issuance shall be deemed to have occurred for less than
the Conversion Price), then, at the sole option of the Holder, the
Conversion Price shall be adjusted to mirror the conversion, exchange
or purchase price for such Common Stock or Common Stock Equivalents
(including any reset provisions thereof) at issue. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents
are issued. The Obligor shall notify the Holder in writing, no later
than one (1) business day following the issuance of any Common Stock
or Common Stock Equivalent subject to this Section, indicating therein
the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms. This adjustment shall
apply whether or not any such issuances are permitted under the
Section entitled "Consent of Holder to Sell Capital Stock or Grant
Security Interests" hereto, except that no adjustment under this
Section shall be made as a result of issuances and exercises of
options to purchase shares of Common Stock issued for compensatory
purposes to employees, officers, or directors pursuant to any of the
Obligor's stock option or stock purchase plans which have been
approved by the Board of Directors.
(v) If the Obligor, at any time while this Debenture is
outstanding, shall distribute to all holders of Common Stock (and not
to the Holder) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such
case the Conversion Price at which this Debenture shall thereafter be
convertible shall be determined by multiplying the Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the Closing Bid Price determined as of
the record date mentioned above, and of which the numerator shall be
such Closing Bid Price on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the
Common Stock as determined by the Board of Directors in good faith. In
either case the adjustments shall be described in a statement provided
to the Holder of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date mentioned above.
(vi) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holder shall
have the right thereafter to, at its option, (A) convert the then
outstanding principal amount, together with all accrued but unpaid
interest and any other amounts then owing hereunder in respect of this
Debenture into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of the Common
Stock following such reclassification or share exchange, and the
Holder of this Debenture shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the
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Common Stock of the Obligor into which the then outstanding principal
amount, together with all accrued but unpaid interest and any other
amounts then owing hereunder in respect of this Debenture could have
been converted immediately prior to such reclassification or share
exchange would have been entitled, or (B) require the Obligor to
prepay the outstanding principal amount of this Debenture, plus all
interest and other amounts due and payable thereon. The entire
prepayment price shall be paid in cash. This provision shall similarly
apply to successive reclassifications or share exchanges.
(vii) The Obligor shall maintain a share reserve of not less than
100% of the shares of Common Stock issuable upon conversion of this
Debenture; and within three (3) Business Days following the receipt by
the Obligor of a Holder's notice that such minimum number of
Underlying Shares is not so reserved, the Obligor shall promptly
reserve a sufficient number of shares of Common Stock to comply with
such requirement.
(viii) All calculations under this Section 3 shall be rounded up
to the nearest $0.001 of a share.
(ix) Whenever the Conversion Price is adjusted pursuant to
Section 3 hereof, the Obligor shall promptly mail to the Holder a
notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.
(x) If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare a
special nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Obligor shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; (D) the
approval of any stockholders of the Obligor shall be required in
connection with any reclassification of the Common Stock, any
consolidation or merger to which the Obligor is a party, any sale or
transfer of all or substantially all of the assets of the Obligor, of
any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property; or (E) the Obligor shall
authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Obligor; then, in each case, the
Obligor shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Debenture, and shall cause to be
mailed to the Holder at its last address as it shall appear upon the
stock books of the Obligor, at least twenty (20) calendar days prior
to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the
holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger,
sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of
the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity
of the corporate action required to be specified in such notice. The
Holder is entitled to convert this Debenture during the 20-day
calendar period commencing the date of such notice to the effective
date of the event triggering such notice.
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(xi) In case of any (1) merger or consolidation of the Obligor or
any subsidiary of the Obligor with or into another Person, or (2) sale
by the Obligor or any subsidiary of the Obligor of more than one-half
of the assets of the Obligor in one or a series of related
transactions, a Holder shall have the right to (A) exercise any rights
under Section 2(b), (B) convert the aggregate amount of this Debenture
then outstanding into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common
Stock following such merger, consolidation or sale, and such Holder
shall be entitled upon such event or series of related events to
receive such amount of securities, cash and property as the shares of
Common Stock into which such aggregate principal amount of this
Debenture could have been converted immediately prior to such merger,
consolidation or sales would have been entitled, or (C) in the case of
a merger or consolidation, require the surviving entity to issue to
the Holder a convertible Debenture with a principal amount equal to
the aggregate principal amount of this Debenture then held by such
Holder, plus all accrued and unpaid interest and other amounts owing
thereon, which such newly issued convertible Debenture shall have
terms identical (including with respect to conversion) to the terms of
this Debenture, and shall be entitled to all of the rights and
privileges of the Holder of this Debenture set forth herein and the
agreements pursuant to which this Debentures were issued. In the case
of clause (C), the conversion price applicable for the newly issued
shares of convertible preferred stock or convertible Debentures shall
be based upon the amount of securities, cash and property that each
share of Common Stock would receive in such transaction and the
Conversion Price in effect immediately prior to the effectiveness or
closing date for such transaction. The terms of any such merger, sale
or consolidation shall include such terms so as to continue to give
the Holder the right to receive the securities, cash and property set
forth in this Section upon any conversion or redemption following such
event. This provision shall similarly apply to successive such events.
(d) The Obligor covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely
for the purpose of issuance upon conversion of this Debenture and payment
of interest on this Debenture, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holder, not less than such number of shares of the Common
Stock as shall (subject to any additional requirements of the Obligor as to
reservation of such shares set forth in this Debenture) be issuable (taking
into account the adjustments and restrictions of Sections 2(b) and 3(c))
upon the conversion of the outstanding principal amount of this Debenture
and payment of interest hereunder. The Obligor covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if the
Underlying Shares Registration Statement has been declared effective under
the Securities Act, registered for public sale in accordance with such
Underlying Shares Registration Statement.
(e) Upon a conversion hereunder the Obligor shall not be required to
issue stock certificates representing fractions of shares of the Common
Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Closing Bid Price at such time.
If the Obligor elects not, or is unable, to make such a cash payment, the
Holder shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Common Stock.
10
(f) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Obligor shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of such
Debenture so converted and the Obligor shall not be required to issue or
deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Obligor the amount of such tax
or shall have established to the satisfaction of the Obligor that such tax
has been paid.
(g) Any notices, consents, waivers or other communications required or
permitted to be given under the terms hereof must be in writing and will be
deemed to have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file
by the sending party); or (iii) one (1) Trading Day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company, to: In Veritas Medical Diagnostics, inc.
The Green House
Beechwood Business Park North
Inverness - Scotland L2 IV2 3BL
Telephone: +44 (0) 146-366-7347
Facsimile: +44 (0) 146-366-7310
With a copy to: Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, NY 10018
Attention: Richard Friedman, Esq
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Mark Angelo
Telephone: (201) 985-8300
With a copy to: David Gonzalez, Esq.
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
11
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 4. Definitions.
-----------------------
For the purposes hereof, the following terms shall have the following
meanings:
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Change of Control Transaction" means the occurrence of (a) an acquisition
after the date hereof by an individual or legal entity or "group" (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Obligor,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Obligor (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Obligor which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of
the assets of the Obligor or any subsidiary of the Obligor in one or a series of
related transactions with or into another entity, or (d) the execution by the
Obligor of an agreement to which the Obligor is a party or by which it is bound,
providing for any of the events set forth above in (a), (b) or (c).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.001, of the Obligor and
stock of any other class into which such shares may hereafter be changed or
reclassified.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Original Issue Date" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"Closing Bid Price" means the price per share in the last reported trade of
the Common Stock on the OTC or on the exchange which the Common Stock is then
listed as quoted by Bloomberg, LP.
12
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are quoted on
the OTC or quoted or traded on such Subsequent Market on which the shares of
Common Stock are then quoted or listed; provided, that in the event that the
shares of Common Stock are not listed or quoted, then Trading Day shall mean a
Business Day.
"Transaction Documents" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Security Agreement, the Pledge and Escrow
Agreement, and the Investor Registration Rights Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
"Underlying Shares Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement,
covering among other things the resale of the Underlying Shares and naming the
Holder as a "selling stockholder" thereunder.
Section 5.
----------
Except as expressly provided herein, no provision of this Debenture shall
alter or impair the obligations of the Obligor, which are absolute and
unconditional, to pay the principal of, interest and other charges (if any) on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Obligor. This Debenture
ranks pari passu with all other Debentures now or hereafter issued under the
terms set forth herein. As long as this Debenture is outstanding, the Obligor
shall not and shall cause their subsidiaries not to, without the consent of the
Holder, (i) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holder; (ii) repay,
repurchase or offer to repay, repurchase or otherwise acquire shares of its
Common Stock or other equity securities other than as to the Underlying Shares
to the extent permitted or required under the Transaction Documents; or (iii)
enter into any agreement with respect to any of the foregoing.
Section 6.
----------
This Debenture shall not entitle the Holder to any of the rights of a
stockholder of the Obligor, including without limitation, the right to vote, to
receive dividends and other distributions, or to receive any notice of, or to
attend, meetings of stockholders or any other proceedings of the Obligor, unless
and to the extent converted into shares of Common Stock in accordance with the
terms hereof.
Section 7.
----------
If this Debenture is mutilated, lost, stolen or destroyed, the Obligor
shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Obligor.
13
Section 8.
----------
No indebtedness of the Obligor is senior to this Debenture in right of
payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise. Without the Holder's consent, the Obligor will not and
will not permit any of their subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any indebtedness of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits there from that is senior in
any respect to the obligations of the Obligor under this Debenture.
Section 9.
----------
This Debenture shall be governed by and construed in accordance with the
laws of the State of New Jersey, without giving effect to conflicts of laws
thereof. Each of the parties consents to the jurisdiction of the Superior Courts
of the State of New Jersey sitting in Hudson County, New Jersey and the U.S.
District Court for the District of New Jersey sitting in Newark, New Jersey 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.
Section 10.
-----------
If the Obligor fails to strictly comply with the terms of this Debenture,
then the Obligor shall reimburse the Holder promptly for all fees, costs and
expenses, including, without limitation, attorneys' fees and expenses incurred
by the Holder in any action in connection with this Debenture, including,
without limitation, those incurred: (i) during any workout, attempted workout,
and/or in connection with the rendering of legal advice as to the Holder's
rights, remedies and obligations, (ii) collecting any sums which become due to
the Holder, (iii) defending or prosecuting any proceeding or any counterclaim to
any proceeding or appeal; or (iv) the protection, preservation or enforcement of
any rights or remedies of the Holder.
Section 11.
-----------
Any waiver by the Holder of a breach of any provision of this Debenture
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Debenture. The failure
of the Holder to insist upon strict adherence to any term of this Debenture on
one or more occasions shall not be considered a waiver or deprive that party of
the right thereafter to insist upon strict adherence to that term or any other
term of this Debenture. Any waiver must be in writing.
Section 12.
-----------
If any provision of this Debenture is invalid, illegal or unenforceable,
the balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances. If it shall be found that any
interest or other amount deemed interest due hereunder shall violate applicable
laws governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of interest. The
Obligor covenants (to the extent that it may lawfully do so) that it shall not
at any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Obligor from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Obligor (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
14
Section 13.
-----------
Whenever any payment or other obligation hereunder shall be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day.
Section 14.
-----------
THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT
ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT.
[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]
15
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
IN VERITAS MEDICAL DIAGNOSTICS, INC.
By: /s/ John Fuller
----------------------------
Name: John Fuller
Title: Chief Executive Officer
16
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 $______________ of the
principal amount of the above Debenture into Shares of Common Stock of In
Veritas Medical Diagnostics, 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: $
- -------------------------------------------------------------------------------
Amount of Debenture unconverted: $
- -------------------------------------------------------------------------------
Conversion Price per share: $
- -------------------------------------------------------------------------------
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:
- -------------------------------------------------------------------------------