EX-4.2
CONVERTIBLE DEBENTURE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND IS BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THIS
SECURITY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR SUCH OTHER LAWS.
7 3/4% CONVERTIBLE DEBENTURE
Company: RMD Technologies, Inc.
Company Address: ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Closing Date: January 27, 2006
Maturity Date: January 27, 2009
Principal Amount: $100,000
First Payment Due Date: March 15, 2006
RMD Technologies, Inc., a California corporation, and any
successor or resulting corporation by way of merger, consolidation,
sale or exchange of all or substantially all of the assets or
otherwise (the "Company"), for value received, hereby promises to pay
to the Holder (as such term is hereinafter defined), or such other
Person (as such term is hereinafter defined) upon order of the Holder,
on the Maturity Date, the Principal Amount (as such term is
hereinafter defined), as such sum may be adjusted pursuant to Article
3, and to pay interest thereon from the Closing Date, monthly in
arrears, on the 15th day of each month (each an "Interest Payment Due
Date" and collectively, the "Interest Payment Due Dates"), commencing
on the First Payment Due Date, at the rate of seven and three-quarter
percent (7 3/4 %) per annum (the "Debenture Interest Rate"), until the
Principal Amount of this Debenture has been paid in full. All
interest payable on the Principal Amount of this Debenture shall be
calculated on the basis of a 360-day year for the actual number of
days elapsed. Payment of interest on this Debenture shall be in cash
or, at the option of the Holder, in shares of Common Stock of the
Company valued at the then applicable Conversion Price (as defined
herein). This Debenture may not be prepaid without the written consent
of the Holder.
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Article
whenever used in this Debenture have the following respective
meanings:
(i) "Affiliate" has the meaning ascribed to such term in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended.
(ii) "Bankruptcy Code" means the United States Bankruptcy
Code of 1986, as amended (11 U.S.C. 101 et. seq.).
(iii) "Business Day" means a day other than Saturday,
Sunday or any day on which banks located in the State of California
are authorized or obligated to close.
(iv) "Capital Shares" means the Common Stock and any other
shares of any other class or series of capital stock, whether now or
hereafter authorized and however designated, which have the right to
participate in the distribution of earnings and assets (upon
dissolution, liquidation or winding-up) of the Company.
(v) "Common Shares" or "Common Stock" means shares of the
Company's Common Stock.
(vi) "Common Stock Issued at Conversion", when used with
reference to the securities deliverable upon conversion of this
Debenture, means all Common Shares now or hereafter Outstanding and
securities of any other class or series into which this Debenture
hereafter shall have been changed or substituted, whether now or
hereafter created and however designated.
(vii) "Conversion" or "conversion" means the repayment
by the Company of the Principal Amount of this Debenture (and, to the
extent the Holder elects as permitted by Section 3.1, accrued and
unpaid interest thereon) by the delivery of Common Stock on the terms
provided in Section 3.2, and "convert," "converted," "convertible" and
like words shall have a corresponding meaning.
(viii) "Conversion Date" means any day on which all or any
portion of the Principal Amount of this Debenture is converted in
accordance with the provisions hereof.
(ix) "Conversion Notice" means a written notice of
conversion substantially in the form annexed hereto as Exhibit A.
(x) "Conversion Price" on any date of determination means
the applicable price for the conversion of this Debenture into Common
Shares on such day as set forth in Section 3.1(a).
(xi) "Current Market Price" on any date of determination
means the closing price of a Common Share on such day as reported on
the NASDAQ OTCBB Exchange; provided that, if such security is not
listed or admitted to trading on the NASDAQ OTCBB, as reported on the
principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted
or listed or admitted to trading on any national securities exchange
or quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by
Bloomberg LP or a similar generally accepted reporting service, as the
case may be.
(xii) "Deadline" means the date that is the 90th day
from the Closing Date.
(xiii) "Debenture" or "Debentures" means this Convertible
Debenture of the Company or such other convertible debenture(s)
exchanged therefor as provided in Section 2.1.
(xiv) "Discount Multiplier" has the meaning set forth in
Section 3.1(a).
(xv) "Event of Default" has the meaning set forth in Section 6.1.
(xvi) "Holder" means La Jolla Cove Investors, Inc., any
successor thereto, or any Person to whom this Debenture is
subsequently transferred in accordance with the provisions hereof.
(xvii) "Interest Payment Due Date" has the meaning set
forth in the opening paragraph of this Debenture.
(xviii) "Market Disruption Event" means any event that
results in a material suspension or limitation of trading of the
Common Shares.
(xix) "Market Price" per Common Share means the lowest
price of the Common Shares during any Trading Day as reported on the
NASDAQ OTCBB; provided that, if such security is not listed or
admitted to trading on the NASDAQ OTCBB, as reported on the principal
national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or
quotation system, the lowest price of the Common Shares during any
Trading Day on the over-the-counter market as reported by Bloomberg LP
or a similar generally accepted reporting service, as the case may be.
(xx) "Maximum Rate" has the meaning set forth in Section 6.4.
(xxi) "Outstanding" when used with reference to Common
Shares or Capital Shares (collectively, "Shares") means, on any date
of determination, all issued and outstanding Shares, and includes all
such Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Shares;
provided, however, that any such Shares directly or indirectly owned
or held by or for the account of the Company or any Subsidiary of the
Company shall not be deemed "Outstanding" for purposes hereof.
(xxii) "Person" means an individual, a corporation, a
partnership, an association, a limited liability company, an
unincorporated business organization, a trust or other entity or
organization, and any government or political subdivision or any
agency or instrumentality thereof.
(xxiii) "Principal Amount" means, for any date of
calculation, the principal sum set forth in the first paragraph of
this Debenture (but only such principal amount as to which the Holder
has (a) actually advanced pursuant to the Securities Purchase
Agreement, and (b) not theretofore furnished a Conversion Notice in
compliance with Section 3.2).
(xxiv) "Registration Rights Agreement" means that certain
Registration Rights Agreement of even date herewith by and between the
Company and Holder, as the same may be amended from time to time.
(xxv) "SEC" means the United States Securities and
Exchange Commission.
(xxvi) "Securities Act" means the Securities Act of 1933,
as amended, and the rules and regulations of the SEC thereunder, all
as in effect at the time.
(xxvii) "Securities Purchase Agreement" means that certain
Securities Purchase Agreement of even date herewith by and among the
Company and Holder, as the same may be amended from time to time.
(xxviii) "Subsidiary" means any entity of which securities
or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are owned directly or indirectly by the Company.
(xxix) "Trading Day" means any day on which (i) purchases
and sales of securities on the principal national security exchange or
quotation system on which the Common Shares are traded are reported
thereon, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, as reported by
Bloomberg LP or a similar generally accepted reporting service, as the
case may be, (ii) at least one bid for the trading of Common Shares is
reported and (iii) no Market Disruption Event occurs.
(xxx) "Volume Weighted Average Price" per Common
Share means the volume weighted average price of the Common Shares
during any Trading Day as reported on the NASDAQ OTCBB; provided that,
if such security is not listed or admitted to trading on the NASDAQ
OTCBB, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the
volume weighted average price of the Common Shares during any Trading
Day on the over-the-counter market as reported by Bloomberg LP or a
similar generally accepted reporting service, as the case may be.
All references to "cash" or "$" herein means currency of the
United States of America.
ARTICLE2
EXCHANGES, TRANSFER AND REPAYMENT
Section 2.1 Registration of Transfer of Debentures. This
Debenture, when presented for registration of transfer, shall (if so
required by the Company) be duly endorsed, or be accompanied by a
written instrument of transfer in form reasonably satisfactory to the
Company duly executed, by the Holder duly authorized in writing.
Section 2.2 Loss, Theft, Destruction of Debenture. Upon
receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Debenture and, in the case of any
such loss, theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Debenture, the
Company shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated Debenture, a new Debenture of like tenor and
unpaid Principal ▇▇▇▇▇▇ dated as of the date hereof (which shall
accrue interest from the most recent Interest Payment Due Date on
which an interest payment was made in full). This Debenture shall be
held and owned upon the express condition that the provisions of this
Section 2.2 are exclusive with respect to the replacement of a
mutilated, destroyed, lost or stolen Debenture and shall preclude any
and all other rights and remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the
surrender thereof.
Section 2.3 Who Deemed Absolute Owner. The Company may deem
the Person in whose name this Debenture shall be registered upon the
registry books of the Company to be, and may treat it as, the absolute
owner of this Debenture (whether or not this Debenture shall be
overdue) for the purpose of receiving payment of or on account of the
Principal Amount of this Debenture, for the conversion of this
Debenture and for all other purposes, and the Company shall not be
affected by any notice to the contrary. All such payments and such
conversions shall be valid and effectual to satisfy and discharge the
liability upon this Debenture to the extent of the sum or sums so paid
or the conversion or conversions so made.
Section 2.4 Repayment at Maturity. At the Maturity Date, the
Company shall repay the outstanding Principal Amount of this Debenture
in whole in cash, together with all accrued and unpaid interest
thereon, in cash, to the Maturity Date.
ARTICLE 3
CONVERSION OF DEBENTURE
Section 3.1 Conversion; Conversion Price; Valuation Event.
(a) At the option of the Holder, this Debenture may be
converted, either in whole or in part, up to the full Principal Amount
hereof into Common Shares (calculated as to each such conversion to
the nearest 1/100th of a share), at any time and from time to time on
any Business Day, subject to compliance with Section 3.2. The number
of Common Shares into which this Debenture may be converted is equal
to the dollar amount of the Debenture being converted multiplied by
eleven, minus the product of the Conversion Price multiplied by ten
times the dollar amount of the Debenture being converted, and the
entire foregoing result shall be divided by the Conversion Price. In
addition, the Company shall pay to the Holder on the Conversion Date,
in cash, any accrued and unpaid interest on the Debenture being
converted not included at the option of the Holder in clause (i) of
the immediately preceding sentence. The "Conversion Price" shall be
equal to the lesser of (i) 80% of the average of the 3 lowest Volume
Weighted Average Prices during the 20 Trading Days prior to Holder's
election to convert, or (ii) 80% of the Volume Weighted Average Price
on the Trading Day prior to Holder's election to convert (the
percentage figure being a "Discount Multiplier"); provided, that in
the event the Registration Statement has not been declared effective
by the SEC by the Deadline then the applicable Discount Multiplier
shall decrease by three percentage points for each month or partial
month occurring after the Deadline that the Registration Statement is
not effective or, if the Registration Statement has theretofore been
declared effective but is not thereafter effective, then the
applicable Discount Multiplier shall decrease by three percentage
points for each week or partial week that the Registration Statement
is not effective. In addition, if the Registration Statement has
theretofore been declared effective but is not thereafter effective,
Holder, at its option, shall be entitled to the Conversion Price on
the date that the Registration Statement is no longer effective, for a
period beginning on the date that the Registration Statement is
declared effective and continuing for the number of days that a
Registration Statement was not effective.
Beginning in the first full calendar month after the Registration
Statement is declared effective, Holder shall convert at least 5% of
the face value of the Debenture per calendar month into Common Shares
of the Company, provided that the Common Shares are available,
registered and freely tradable. If Holder converts more than 5% of the
face value of the Debenture in any calendar month, the excess over 5%
shall be credited against the next month's minimum conversion amount.
In the event Holder does not convert at least 5% of the Debenture in
any particular calendar month, the Company's remedy shall be limited
to Holder not being entitled to collect interest on the Debenture for
that month if the Company gives ▇▇▇▇▇▇ written notice, at least 5
business days prior to the end of the month, of ▇▇▇▇▇▇'s failure to
convert the minimum required amount for that month.
(b) Notwithstanding the provisions of Section 3.1(a), in the
event the Company's Registration Statement has not been declared
effective by the Deadline or, if the Registration Statement has
theretofore been declared effective but is not thereafter effective,
the following will also apply in addition to any damages incurred by
the Holder as a result thereof:
(i) The Holder may demand repayment of one hundred and
fifty percent (150%) of the Principal Amount of the Debenture,
together with all accrued and unpaid interest thereon, in cash, at any
time prior to the Company's Registration Statement being declared
effective by the SEC or during the period that the Company's
Registration Statement is not effective, such repayment to be made
within three (3) business days of such demand. In the event that the
Debenture is so accelerated, in addition to the repayment of one
hundred and fifty percent (150%) of the Principal Amount together with
accrued interest as aforesaid, the Company shall immediately issue and
pay, as the case may be, to the Holder 50,000 Shares of Common Stock
and $15,000 for each thirty (30) day period, or portion thereof,
during which the Principal Amount, including interest thereon, remains
unpaid, with the monthly payment amount to increase to $20,000 for
each thirty (30) day period, or portion thereof, after the first
ninety (90) day period;
(ii) If the Holder does not elect to accelerate the
Debenture, the Company shall immediately issue or pay, as the case may
be, to Holder 50,000 Shares of Common Stock and $15,000 for each
thirty (30) day period, or portion thereof, that the Registration
Statement is not effective, with the monthly payment amount to
increase to $20,000 for each thirty (30) day period, or portion
thereof, after the first ninety (90) day period.
(iii) If the SEC indicates that the Company's
Registration Statement will be declared effective upon request by the
Company, and the Company does not, within 3 business days of the SEC
indication, request that the Registration Statement become effective,
the amounts set forth in subsections (ii) and (iii) above shall double.
Section 3.2 Exercise of Conversion Privilege.
(a) Conversion of this Debenture may be exercised on any
Business Day by the Holder by telecopying an executed and completed
Conversion Notice to the Company. Each date on which a Conversion
Notice is telecopied to the Company in accordance with the provisions
of this Section 3.2 shall constitute a Conversion Date. The Company
shall convert this Debenture and issue the Common Stock Issued at
Conversion in the manner provided below in this Section 3.2, and all
voting and other rights associated with the beneficial ownership of
the Common Stock Issued at Conversion shall vest with the Holder,
effective as of the Conversion Date at the time specified in the
Conversion Notice. The Conversion Notice also shall state the name or
names (with addresses) of the persons who are to become the holders of
the Common Stock Issued at Conversion in connection with such
conversion. As promptly as practicable after the receipt of the
Conversion Notice as aforesaid, but in any event not more than two (2)
Business Days after the Company's receipt of such Conversion Notice,
the Company shall (i) issue the Common Stock Issued at Conversion in
accordance with the provisions of this Article 3 and (ii) cause to be
mailed for delivery by overnight courier, or if a Registration
Statement covering the Common Stock has been declared effective by the
SEC cause to be electronically transferred, to Holder (x) a
certificate or certificate(s) representing the number of Common Shares
to which the Holder is entitled by virtue of such conversion, (y)
cash, as provided in Section 3.3, in respect of any fraction of a
Common Share deliverable upon such conversion and (z) cash or shares
of Common Stock, as applicable, representing the amount of accrued and
unpaid interest on this Debenture as of the Conversion Date. Such
conversion shall be deemed to have been effected at the time at which
the Conversion Notice indicates, and at such time the rights of the
Holder of this Debenture, as such (except if and to the extent that
any Principal Amount thereof remains unconverted), shall cease and the
Person and Persons in whose name or names the Common Stock Issued at
Conversion shall be issuable shall be deemed to have become the holder
or holders of record of the Common Shares represented thereby, and all
voting and other rights associated with the beneficial ownership of
such Common Shares shall at such time vest with such Person or
Persons. The Conversion Notice shall constitute a contract between
the Holder and the Company, whereby the Holder shall be deemed to
subscribe for the number of Common Shares which it will be entitled to
receive upon such conversion and, in payment and satisfaction of such
subscription (and for any cash adjustment to which it is entitled
pursuant to Section 3.4), to surrender this Debenture and to release
the Company from all liability thereon (except if and to the extent
that any Principal Amount thereof remains unconverted). No cash
payment aggregating less than $1.00 shall be required to be given
unless specifically requested by the Holder.
(b) If, at any time after the date of this Debenture, (i) the
Company challenges, disputes or denies the right of the Holder hereof
to effect the conversion of this Debenture into Common Shares or
otherwise dishonors or rejects any Conversion Notice delivered in
accordance with this Section 3.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
legal proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny,
enjoin, limit, modify, delay or dispute the right of the Holder hereof
to effect the conversion of this Debenture into Common Shares, then
the Holder shall have the right, but not the obligation, by written
notice to the Company, to require the Company to promptly redeem this
Debenture for cash at one hundred and fifty (150%) of the Principal
Amount thereof, together with all accrued and unpaid interest thereon
to the date of redemption. Under any of the circumstances set forth
above, the Company shall be responsible for the payment of all costs
and expenses of the Holder, including reasonable legal fees and
expenses, as and when incurred in defending itself in any such action
or pursuing its rights hereunder (in addition to any other rights of
the Holder).
(c) The Holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under the
Bankruptcy Code. In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. 362 in
respect of the Holder's conversion privilege. The Company hereby
waives to the fullest extent permitted any rights to relief it may
have under 11 U.S.C. 362 in respect of the conversion of this
Debenture. The Company agrees, without cost or expense to the Holder,
to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. 362.
Section 3.3 Fractional Shares. No fractional Common Shares or
scrip representing fractional Common Shares shall be delivered upon
conversion of this Debenture. Instead of any fractional Common Shares
which otherwise would be delivered upon conversion of this Debenture,
the Company shall pay a cash adjustment in respect of such fraction in
an amount equal to the same fraction multiplied by the Current Market
Price on the Conversion Date. No cash payment of less than $1.00
shall be required to be given unless specifically requested by the Holder.
Section 3.4 Adjustments. The Conversion Price and the number
of shares deliverable upon conversion of this Debenture are subject to
adjustment from time to time as follows:
(i) Reclassification, Etc. In case the Company shall
reorganize its capital, reclassify its capital stock, consolidate or
merge with or into another Person (where the Company is not the
survivor or where there is a change in or distribution with respect to
the Common Stock of the Company), sell, convey, transfer or otherwise
dispose of all or substantially all its property, assets or business
to another Person, or effectuate a transaction or series of related
transactions in which more than fifty percent (50%) of the voting
power of the Company is disposed of (each, a "Fundamental Corporate
Change") and, pursuant to the terms of such Fundamental Corporate
Change, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common
stock of the successor or acquiring corporation ("Other Property") are
to be received by or distributed to the holders of Common Stock of the
Company, then the Holder of this Debenture shall have the right
thereafter, at its sole option, to (x) require the Company to prepay
this Debenture for cash at one hundred and fifty percent (150%) of the
Principal Amount thereof, together with all accrued and unpaid
interest thereon to the date of prepayment, (y) receive the number of
shares of common stock of the successor or acquiring corporation or of
the Company, if it is the surviving corporation, and Other Property as
is receivable upon or as a result of such Fundamental Corporate Change
by a holder of the number of shares of Common Stock into which the
outstanding portion of this Debenture may be converted at the
Conversion Price applicable immediately prior to such Fundamental
Corporate Change or (z) require the Company, or such successor,
resulting or purchasing corporation, as the case may be, to, without
benefit of any additional consideration therefor, execute and deliver
to the Holder a debenture with substantial identical rights,
privileges, powers, restrictions and other terms as this Debenture in
an amount equal to the amount outstanding under this Debenture
immediately prior to such Fundamental Corporate Change. For purposes
hereof, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred
as to dividends or assets over any other class of stock of such
corporation and which is not subject to prepayment and shall also
include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or
the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions
shall similarly apply to successive Fundamental Corporate Changes.
Section 3.5 Certain Conversion Limits.
For a period of one year after the Closing Date, if and to the extent
that, on any date, the holding by the Holder of this Debenture would
result in the Holder's being deemed the beneficial owner of more than
9.99% of the then Outstanding shares of Common Stock, then the Holder
shall not have the right, and the Company shall not have the
obligation, to convert any portion of this Debenture as shall cause
such Holder to be deemed the beneficial owner of more than 9.99% of
the then Outstanding shares of Common Stock. If any court of
competent jurisdiction shall determine that the foregoing limitation
is ineffective to prevent a Holder from being deemed the beneficial
owner of more than 9.99% of the then Outstanding shares of Common
Stock, then the Company shall prepay such portion of this Debenture as
shall cause such Holder not to be deemed the beneficial owner of more
than 9.99% of the then Outstanding shares of Common Stock. Upon such
determination by a court of competent jurisdiction, the Holder shall
have no interest in or rights under such portion of the Debenture.
Any and all interest paid on or prior to the date of such
determination shall be deemed interest paid on the remaining portion
of this Debenture held by the Holder. Such prepayment shall be for
cash at a prepayment price of one hundred and fifty percent (150%) of
the Principal Amount thereof, together with all accrued and unpaid
interest thereon to the date of prepayment.
Section 3.6 Surrender of Debentures. Upon any redemption of
this Debenture pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity
pursuant to Section 2.4, the Holder shall either deliver this
Debenture by hand to the Company at its principal executive offices or
surrender the same to the Company at such address by nationally
recognized overnight courier. Payment of the redemption price or the
amount due on maturity specified in Section 2.4, shall be made by the
Company to the Holder against receipt of this Debenture (as provided
in this Section 3.5) by wire transfer of immediately available funds
to such account(s) as the Holder shall specify by written notice to
the Company. If payment of such redemption price is not made in full
by the redemption date, or the amount due on maturity is not paid in
full by the Maturity Date, the Holder shall again have the right to
convert this Debenture as provided in Article 3 hereof or to declare
an Event of Default.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
Section 4.1 Status of Debenture. This Debenture constitutes a
legal, valid and binding obligation of the Company, enforceable in
accordance with its terms subject, as to enforceability, to general
principles of equity and to principles of bankruptcy, insolvency,
reorganization and other similar laws of general applicability
relating to or affecting creditors' rights and remedies generally.
Section 4.2 Restrictions on Transfer. This Debenture, and any
Common Shares deliverable upon the conversion hereof, have not been
registered under the Securities Act. The Holder by accepting this
Debenture agrees that this Debenture and the shares of Common Stock to
be acquired as interest on and upon conversion of this Debenture may
not be assigned or otherwise transferred unless and until (i) the
Company has received the opinion of counsel for the Holder that this
Debenture or such shares may be sold pursuant to an exemption from
registration under the Securities Act or (ii) a registration statement
relating to this Debenture or such shares has been filed by the
Company and declared effective by the SEC.
Each certificate for shares of Common Stock deliverable hereunder
shall bear a legend as follows unless and until such securities have
been sold pursuant to an effective registration statement under the
Securities Act:
"The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended (the "Securities Act"). The
securities may not be offered for sale, sold or
otherwise transferred except (i) pursuant to an
effective registration statement under the
Securities Act or (ii) pursuant to an exemption
from registration under the Securities Act in
respect of which the issuer of this certificate
has received an opinion of counsel satisfactory to
the issuer of this certificate to such effect.
Copies of the agreement covering both the purchase
of the securities and restrictions on their
transfer may be obtained at no cost by written
request made by the holder of record of this
certificate to the Secretary of the issuer of this
certificate at the principal executive offices of
the issuer of this certificate."
ARTICLE 5
COVENANTS
Section 5.1 Conversion. The Company shall cause the transfer
agent, not later than two (2) Business Days after the Company's
receipt of a Conversion Notice, to issue and deliver to the Holder the
requisite shares of Common Stock Issued at Conversion. Such delivery
shall be by electronic transfer if a Registration Statement covering
the Common Stock has been declared effective by the SEC.
Section 5.2 Notice of Default. If any one or more events
occur which constitute or which, with notice, lapse of time, or both,
would constitute an Event of Default, the Company shall forthwith give
notice to the Holder, specifying the nature and status of the Event of
Default or such other event(s), as the case may be.
Section 5.3 Payment of Obligations. So long as this Debenture
shall be outstanding, the Company shall pay, extend, or discharge at
or before maturity, all its respective material obligations and
liabilities, including, without limitation, tax liabilities, except
where the same may be contested in good faith by appropriate
proceedings.
Section 5.4 Compliance with Laws. So long as this Debenture
shall be outstanding, the Company shall comply with all applicable
laws, ordinances, rules, regulations and requirements of governmental
authorities, except for such noncompliance which would not have a
material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results of operations of the
Company and the Subsidiaries.
Section 5.5 Inspection of Property, Books and Records. So
long as this Debenture shall be outstanding, the Company shall keep
proper books of record and account in which full, true and correct
entries shall be made of all material dealings and transactions in
relation to its business and activities and shall permit
representatives of the Holder at the Holder's expense to visit and
inspect any of its respective properties, to examine and make
abstracts from any of its respective books and records, not reasonably
deemed confidential by the Company, and to discuss its respective
affairs, finances and accounts with its respective officers and
independent public accountants, all at such reasonable times and as
often as may reasonably be desired.
Section 5.6 Right of First Refusal on Other Financing. In the
event that the Company obtains a commitment for any other financing
(either debt, equity, or a combination thereof) which is to close
during the term of this Debenture, Holder shall be entitled to a right
of first refusal to enable it to, at Holder's option, either: (i)
match the terms of the other financing, or (ii) add additional
principal to this Debenture, in the amount of such other financing, on
the same terms and conditions as this Debenture. The Company shall
deliver to Holder, at least 10 days prior to the proposed closing date
of such transaction, written notice describing the proposed
transaction, including the terms and conditions thereof, and providing
Holder an option during the 10 day period following delivery of such
notice to either provide the financing being offered in such
transaction on the same terms as contemplated by such transaction, or
to add additional principal to this Debenture, in the amount of such
other financing, on the same terms and conditions as this Debenture.
ARTICLE 6
EVENTS OF DEFAULT; REMEDIES
Section 6.1 Events of Default. "Event of Default" wherever
used herein means any one of the following events:
(i) the Company shall default in the payment of principal
of or interest on this Debenture as and when the same shall be due and
payable and, in the case of an interest payment default, such default
shall continue for five (5) Business Days after the date such interest
payment was due, or the Company shall fail to perform or observe any
other covenant, agreement, term, provision, undertaking or commitment
under this Debenture, the Warrants (as defined in the Securities
Purchase Agreement), the Securities Purchase Agreement or the
Registration Rights Agreement and such default shall continue for a
period of ten (10) Business Days after the delivery to the Company of
written notice that the Company is in default hereunder or thereunder;
(ii) any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement, the Registration
Rights Agreement or in any certificate or financial or other written
statements heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of this
Debenture, the Warrants, the Securities Purchase Agreement or the
Registration Rights Agreement shall be false or misleading in a
material respect on the Closing Date;
(iii) under the laws of any jurisdiction not otherwise
covered by clauses (iv) and (v) below, the Company or any Subsidiary
(A) becomes insolvent or generally not able to pay its debts as they
become due, (B) admits in writing its inability to pay its debts
generally or makes a general assignment for the benefit of creditors,
(C) institutes or has instituted against it any proceeding seeking (x)
to adjudicate it a bankrupt or insolvent, (y) liquidation, winding-up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors including any plan of
compromise or arrangement or other corporate proceeding involving or
affecting its creditors or (z) the entry of an order for relief or the
appointment of a receiver, trustee or other similar person for it or
for any substantial part of its properties and assets, and in the case
of any such official proceeding instituted against it (but not
instituted by it), either the proceeding remains undismissed or
unstayed for a period of sixty (60) calendar days, or any of the
actions sought in such proceeding (including the entry of an order for
relief against it or the appointment of a receiver, trustee, custodian
or other similar official for it or for any substantial part of its
properties and assets) occurs or (D) takes any corporate action to
authorize any of the above actions;
(iv) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or
in respect of the Company under the Bankruptcy Code or any other
applicable Federal or state law, or appointing a receiver, liquidator,
assignee, trustee or sequestrator (or other similar official) of the
Company or of any substantial part of its property, or ordering the
winding-up or liquidation of its affairs, and any such decree or order
continues and is unstayed and in effect for a period of sixty (60)
calendar days;
(v) the institution by the Company or any Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent
by it to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under the Bankruptcy Code or any
other applicable federal or state law, or the consent by it to the
filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar
official) of the Company or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts
generally as and when they become due, or the taking of corporate
action by the Company in furtherance of any such action; a final
judgment or final judgments for the payment of money shall have been
entered by any court or courts of competent jurisdiction against the
Company and remains undischarged for a period (during which execution
shall be effectively stayed) of thirty (30) days, provided that the
aggregate amount of all such judgments at any time outstanding (to the
extent not paid or to be paid, as evidenced by a written communication
to that effect from the applicable insurer, by insurance) exceeds One
Hundred Thousand Dollars ($100,000);
(vi) it becomes unlawful for the Company to perform or
comply with its obligations under this Debenture, the Conversion
Warrant, the Securities Purchase Agreement or the Registration Rights
Agreement in any respect;
(vii) the Common Shares shall be delisted from the
NASDAQ OTCBB (the "Trading Market" or, to the extent the Company
becomes eligible to list its Common Stock on any other national
security exchange or quotation system, upon official notice of listing
on any such exchange or system, as the case may be, it shall be the
"Trading Market") or suspended from trading on the Trading Market, and
shall not be reinstated, relisted or such suspension lifted, as the
case may be, within five (5) days or;
(viii) the Company shall default (giving effect to any
applicable grace period) in the payment of principal or interest as
and when the same shall become due and payable, under any
indebtedness, individually or in the aggregate, of more than One
Hundred Thousand Dollars ($100,000);
Section 6.2 Acceleration of Maturity; Rescission and
Annulment. If an Event of Default occurs and is continuing, then and
in every such case the Holder may, by a notice in writing to the
Company, rescind any outstanding Conversion Notice and declare that
all amounts owing or otherwise outstanding under this Debenture are
immediately due and payable and upon any such declaration this
Debenture shall become immediately due and payable in cash at a price
of one hundred and fifty percent (150%) of the Principal Amount
thereof, together with all accrued and unpaid interest thereon to the
date of payment; provided, however, in the case of any Event of
Default described in clauses (iii), (iv), (v) or (vii) of Section 6.1,
such amount automatically shall become immediately due and payable
without the necessity of any notice or declaration as aforesaid.
Section 6.3 Late Payment Penalty. If any portion of the
principal of or interest on this Debenture shall not be paid within
ten (10) days of when it is due, the Discount Multiplier under this
Debenture shall decrease by one percentage point (1%) for all
conversions of this Debenture thereafter.
Section 6.4 Maximum Interest Rate. Notwithstanding anything
herein to the contrary, if at any time the applicable interest rate as
provided for herein shall exceed the maximum lawful rate which may be
contracted for, charged, taken or received by the Holder in accordance
with any applicable law (the "Maximum Rate"), the rate of interest
applicable to this Debenture shall be limited to the Maximum Rate. To
the greatest extent permitted under applicable law, the Company hereby
waives and agrees not to allege or claim that any provisions of this
Note could give rise to or result in any actual or potential violation
of any applicable usury laws.
Section 6.5 Remedies Not Waived. No course of dealing between
the Company and the Holder or any delay in exercising any rights
hereunder shall operate as a waiver by the Holder.
Section 6.6 Remedies. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the
Holder, by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Debenture
will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Debenture, that the
Holder shall be entitled to all other available remedies at law or in
equity, and in addition to the penalties assessable herein, to an
injunction or injunctions restraining, preventing or curing any breach
of this Debenture and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without
any bond or other security being required.
Section 6.7 Payment of Certain Amounts. Whenever pursuant to
this Debenture the Company is required to pay an amount in excess of
the Principal Amount plus accrued and unpaid interest, the Company and
the Holder agree that the actual damages to the Holder from the
receipt of cash payment on this Debenture may be difficult to
determine and the amount to be so paid by the Company represents
stipulated damages and not a penalty and is intended to compensate the
Holder in part for loss of the opportunity to convert this Debenture
and to earn a return from the sale of shares of Common Stock acquired
upon conversion of this Debenture at a price in excess of that price
paid for such shares pursuant to this Debenture. The Company and the
Holder hereby agree that such amount of stipulated damages is not
disproportionate to the possible loss to the Holder from the receipt
of a cash payment without the opportunity to convert this Debenture
into shares of Common Stock.
ARTICLE 7
MISCELLANEOUS
Section 7.1 Notice of Certain Events. In the case of the
occurrence of any event described in Section 3.4 of this Debenture,
the Company shall cause to be mailed to the Holder of this Debenture
at its last address as it appears in the Company's security registry,
at least twenty (20) days prior to the applicable record, effective or
expiration date hereinafter specified (or, if such twenty (20) days'
notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice thereof,
including, if applicable, a statement of (y) the date on which a
record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record is
not to be taken, the date as of which the holders of record of Common
Stock to be entitled to such dividend, distribution, issuance or
granting of rights, options or warrants are to be determined or (z)
the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of
record of Common Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale transfer, dissolution,
liquidation or winding-up.
Section 7.2 Register. The Company shall keep at its principal
office a register in which the Company shall provide for the
registration of this Debenture. Upon any transfer of this Debenture
in accordance with Articles 2 and 4 hereof, the Company shall register
such transfer on the Debenture register.
Section 7.3 Withholding. To the extent required by applicable
law, the Company may withhold amounts for or on account of any taxes
imposed or levied by or on behalf of any taxing authority in the
United States having jurisdiction over the Company from any payments
made pursuant to this Debenture.
Section 7.4 Transmittal of Notices. Except as may be
otherwise provided herein, any notice or other communication or
delivery required or permitted hereunder shall be in writing and shall
be delivered personally, or sent by telecopier machine or by a
nationally recognized overnight courier service, and shall be deemed
given when so delivered personally, or by telecopier machine or
overnight courier service as follows:
(1) if to the Company, to:
RMD Technologies, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(2) if to the Holder, to:
La Jolla Cove Investors, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Each of the Holder or the Company may change the foregoing address by
notice given pursuant to this Section 7.4.
Section 7.5 Attorneys' Fees. Should any party hereto employ
an attorney for the purpose of enforcing or construing this Debenture,
or any judgment based on this Debenture, in any legal proceeding
whatsoever, including insolvency, bankruptcy, arbitration, declaratory
relief or other litigation, the prevailing party shall be entitled to
receive from the other party or parties thereto reimbursement for all
reasonable attorneys' fees and all reasonable costs, including but not
limited to service of process, filing fees, court and court reporter
costs, investigative costs, expert witness fees, and the cost of any
bonds, whether taxable or not, and that such reimbursement shall be
included in any judgment or final order issued in that proceeding.
The "prevailing party" means the party determined by the court to
most nearly prevail and not necessarily the one in whose favor a
judgment is rendered.
Section 7.6 Governing Law. This Debenture shall be governed
by, and construed in accordance with, the laws of the State of
California (without giving effect to conflicts of laws principles).
With respect to any suit, action or proceedings relating to this
Debenture, the Company irrevocably submits to the exclusive
jurisdiction of the courts of the State of California sitting in San
Diego and the United States District Court located in the City of San
Diego and hereby waives, to the fullest extent permitted by applicable
law, any claim that any such suit, action or proceeding has been
brought in an inconvenient forum. Subject to applicable law, the
Company agrees that final judgment against it in any legal action or
proceeding arising out of or relating to this Debenture shall be
conclusive and may be enforced in any other jurisdiction within or
outside the United States by suit on the judgment, a certified copy of
which judgment shall be conclusive evidence thereof and the amount of
its indebtedness, or by such other means provided by law.
Section 7.7 Waiver of Jury Trial. To the fullest extent
permitted by law, each of the parties hereto hereby knowingly,
voluntarily and intentionally waives its respective rights to a jury
trial of any claim or cause of action based upon or arising out of
this Debenture or any other document or any dealings between them
relating to the subject matter of this Debenture and other documents.
Each party hereto (i) certifies that neither of their respective
representatives, agents or attorneys has represented, expressly or
otherwise, that such party would not, in the event of litigation, seek
to enforce the foregoing waivers and (ii) acknowledges that it has
been induced to enter into this Debenture by, among other things, the
mutual waivers and certifications herein.
Section 7.8 Headings. The headings of the Articles and
Sections of this Debenture are inserted for convenience only and do
not constitute a part of this Debenture.
Section 7.9 Payment Dates. Whenever any payment hereunder
shall be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day.
Section 7.10 Binding Effect. Each Holder by accepting this
▇▇▇▇▇▇▇▇▇ agrees to be bound by and comply with the terms and
provisions of this Debenture.
Section 7.11 No Stockholder Rights. Except as otherwise
provided herein, this Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Company, 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 Company, unless and to
the extent converted into shares of Common Stock in accordance with
the terms hereof.
Section 7.12 Facsimile Execution. Facsimile execution shall
be deemed originals.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
by its duly authorized officer on the date of this Debenture.
RMD Technologies, Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
EXHIBIT A
DEBENTURE CONVERSION NOTICE
TO: RMD Technologies, Inc.
The undersigned owner of this Convertible Debenture due January
27, 2009 (the "Debenture") issued by RMD Technologies, Inc. (the
"Company") hereby irrevocably exercises its option to convert
$__________ Principal Amount of the Debenture into shares of Common
Stock in accordance with the terms of the Debenture. The undersigned
hereby instructs the Company to convert the portion of the Debenture
specified above into shares of Common Stock Issued at Conversion in
accordance with the provisions of Article 3 of the Debenture. The
undersigned directs that the Common Stock and certificates therefor
deliverable upon conversion, the Debenture reissued in the Principal
Amount not being surrendered for conversion hereby, [the check or
shares of Common Stock in payment of the accrued and unpaid interest
thereon to the date of this Notice,] together with any check in
payment for fractional Common Stock, be registered in the name of
and/or delivered to the undersigned unless a different name has been
indicated below. All capitalized terms used and not defined herein
have the respective meanings assigned to them in the Debenture. The
conversion pursuant hereto shall be deemed to have been effected at
the date and time specified below, and at such time the rights of the
undersigned as a Holder of the Principal Amount of the Debenture set
forth above shall cease and the Person or Persons in whose name or
names the Common Stock Issued at Conversion shall be registered shall
be deemed to have become the holder or holders of record of the Common
Shares represented thereby and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time
vest with such Person or Persons.
Date and time: __________________
______________________________
By: ___________________________
Title: _________________________
Fill in for registration of Debenture:
Please print name and address
(including ZIP code number):