Exhibit 10.2
THIS NOTE AND THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT
”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY THE COMPANY OF A WRITTEN OPINION OF
COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE
COMPANY THAT THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES
LAWS.
NOVARAY MEDICAL,
INC.
Senior Secured 12% Convertible
Bridge Note
Date: July 2, 2009
$2,750,000
For value received, NOVARAY MEDICAL,
INC., a Delaware corporation (the “ Company
”), hereby promises to pay to the order of Vision Opportunity
Master Fund, Ltd. (together with its successors, representatives,
and permitted assigns, the “ Holder ”),
in accordance with the terms hereinafter provided, the principal
amount of two million seven hundred fifty thousand dollars
($2,750,000) dollars, together with interest thereon. The Company
is issuing this senior secured 12% convertible bridge note (the
“ Note ”) to the Holder pursuant to the
Purchase Agreement (as defined in Section 1.1
hereof). Any other senior secured 12% convertible bridge notes
issued pursuant to the Purchase Agreement shall hereinafter be
referred to as the “ Other Notes ” and
such Holders as the “ Other Holders ”,
collectively, this Note and the Other Notes are referred to as the
“ Notes .”
All payments under or pursuant to
this Note shall be made in United States Dollars in immediately
available funds to the Holder at the address of the Holder as set
forth in the Purchase Agreement or at such other place as the
Holder may designate from time to time in writing to the Company or
by wire transfer of funds to the Holder’s account,
instructions for which are attached hereto as Exhibit
A . Unless otherwise converted into shares of Qualified
Financing Stock or exchanged for a warrant to purchase Common Stock
in accordance with the terms of this Note, the outstanding
principal balance and all accrued Interest (as defined herein) of
this Note shall be due and payable on December 31, 2009 (the
“ Maturity Date ”) or at such earlier
time as provided herein.
This Note is secured by a Security
Agreement dated the date hereof (the “ Security
Agreement ”) of the Company in favor of the Holder
covering certain collateral (the “ Collateral
”), all as more particularly described and provided therein,
and is entitled to the benefits thereof. The Security Agreement,
the Uniform Commercial Code financing statements in connection with
the Security Agreement and any and all other documents executed and
delivered by the Company to the Holder under which the Holder is
granted liens on assets of the Company are collectively referred to
as the “ Security Documents .”
ARTICLE I
Section 1.1 Purchase
Agreement . This Note has been executed and delivered pursuant
to the Note and Warrant Purchase Agreement dated as of July 2,
2009 (the “ Purchase Agreement ”) by and
among the Company and the purchasers listed therein. Capitalized
terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Purchase Agreement.
Section 1.2 Interest .
Beginning on the issuance date of this Note (the “
Issuance Date ”), the outstanding principal
balance of this Note shall bear interest (“
Interest ”), at a rate per annum equal to
twelve percent (12%), so long as any principal amount evidenced by
this Note remains outstanding. Interest shall be payable in cash on
the Maturity Date. Interest shall be computed on the basis of a
360-day year of twelve (12) 30-day months and shall accrue
commencing on the Issuance Date. Furthermore, upon the occurrence
of an Event of Default (as defined in
Section 2.1 hereof), then to the extent
permitted by law, the Company will pay Interest in cash to the
Holder, payable on demand, on the outstanding principal balance of
this Note from the date of the Event of Default through the date of
payment at a new rate of the lesser of fifteen percent
(15%) and the maximum applicable legal rate per annum (the
“ Default Rate ”).
Section 1.3 Ranking and
Covenants . The Company hereby represents and warrants to the
Holder as of the Issuance Date (except as set forth in the schedule
of exceptions delivered by the Company to the Holder) as
follows:
(a) Subject to the pay-off of debt
owed to Triple Ring Technologies, Inc. and the concomitant release
of its lien on all Company assets, no indebtedness of the Company
is senior to this Note in right of payment, whether with respect to
interest, damages or upon liquidation or dissolution or otherwise.
Except for Permitted Encumbrances (as defined below), the Company
will not, and will not permit any subsidiary to, directly or
indirectly, enter into, create, incur, assume or suffer to exist
any indebtedness of any kind, that is senior in any respect to the
Company’s obligations under the Notes, and the Company will
not, and will not permit any subsidiary to, directly or indirectly,
incur any lien 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 therefrom, except for indebtedness with respect
to capital leases incurred in the ordinary course of
business.
(b) So long as any principal amount
on any Notes are outstanding, neither the Company nor any
subsidiary shall, directly or indirectly, redeem, purchase or
otherwise acquire any of the Company’s capital stock or set
aside any monies for such a redemption, purchase or other
acquisition except for repurchases of shares of Common Stock
pursuant to that certain restricted stock purchase agreement dated
October 23, 2006 with Jack Price and exchange of Series A
Preferred Stock of the Company for Series A-1 Preferred Stock and
cash pursuant to the Exchange Agreements (as defined in the
Purchase Agreement).
(c) The Company shall perform any
and all acts and execute any and all documents (including, without
limitation, the execution, amendment or supplementation of
any
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financing statement and continuation statement)
for filing under the provisions of the Uniform Commercial Code (the
“ UCC ”), and the rules and regulations
thereunder, or any other statute, rule or regulation of any
applicable jurisdiction which are necessary and/or advisable at the
request of the Holder or its counsel in order to maintain in favor
of the Holder of this Note, a valid and perfected lien on the
Collateral (as defined in the Security Agreement).
Section 1.4 Payment on
Non-Business Days . Whenever any payment to be made shall be
due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due on the next succeeding
business day and such next succeeding day shall be included in the
calculation of the amount of accrued Interest payable on such
date.
Section 1.5 Transfer .
Except as set forth below, this Note may be transferred or sold,
subject to the provisions of Section 4.8 of this
Note, or pledged, hypothecated or otherwise granted as security by
the Holder. This Note may not be transferred or sold or pledged,
hypothecated or otherwise granted as security by the Holder by
operation of law or otherwise to any competitor of the Company,
General Electric Co., Koninklijke Philips Electronics N.V., Siemens
AG, Toshiba Corporation, Baytree Capital Associates, LLC or any of
their affiliates without written consent of the Company.
Section 1.6 Replacement
. Upon receipt of a duly executed and notarized written statement
from the Holder with respect to the loss, theft or destruction of
this Note (or any replacement hereof) and a standard indemnity
reasonably satisfactory to the Company, or, in the case of a
mutilation of this Note, upon surrender and cancellation of such
Note, the Company shall issue a new Note, of like tenor and amount,
in lieu of such lost, stolen, destroyed or mutilated
Note.
ARTICLE II
EVENTS OF DEFAULT;
REMEDIES
Section 2.1 Events of
Default . The occurrence of any of the following events shall
be an “ Event of Default ” under this
Note:
(a) the Company shall fail to make
any principal or Interest payments due under this Note on the date
such payments are due and such default is not fully cured within
two (2) business days after the occurrence thereof;
or
(b) default shall be made in the
performance or observance of any covenant, condition or agreement
contained in this Note or any other Transaction Document and such
default is not fully cured within fifteen (15) business days
after the Holder delivers written notice to the Company of the
occurrence thereof; or
(c) any material representation or
warranty made by the Company herein or in the Purchase Agreement,
the Other Notes, the Warrants, the Security Documents or any other
Transaction Document shall prove to have been false or incorrect or
breached in a material respect on the date as of which made;
or
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(d) the Company shall (i) apply
for or consent to the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of itself or of
all or a substantial part of its property or assets, (ii) make
a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the United States
Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic),
(iv) file a petition seeking to take advantage of any
bankruptcy, insolvency, moratorium, reorganization or other similar
law affecting the enforcement of creditors’ rights generally,
(v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any
jurisdiction (foreign or domestic), or (vi) issue a notice of
bankruptcy of ceased operations or issue a press release regarding
same; or
(e) a proceeding or case shall be
commenced in respect of the Company by a party other than a Holder
or Other Holder, without its application or consent, in any court
of competent jurisdiction, seeking (i) the liquidation,
reorganization, moratorium, dissolution, winding up, or composition
or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of
all or any substantial part of its assets in connection with its
liquidation or dissolution or (iii) similar relief in respect
of it under any law providing for the relief of debtors, and such
proceeding or case described in clause (i), (ii) or
(iii) shall continue undismissed, or unstayed and in effect,
for a period of thirty (30) days or any order for relief shall
be entered in an involuntary case under United States Bankruptcy
Code (as now or hereafter in effect) or under the comparable laws
of any jurisdiction (foreign or domestic) against the Company or
action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing shall be taken with respect to
the Company and shall continue undismissed, or unstayed and in
effect for a period of thirty (30) days; or
(f) the occurrence of a material
event of default under any other Transaction Document not otherwise
provided for in Section 2.1(a), (b), (c), (d) or
(e) hereof.
Section 2.2 Remedies Upon An
Event of Default . If an Event of Default shall have occurred
and shall be continuing, the Holder of this Note may at any time at
its option, (a) declare the entire unpaid principal balance of
this Note, together with all Interest accrued hereon, due and
payable, and thereupon, the same shall be accelerated and so due
and payable, without presentment, demand, protest, or notice, all
of which are hereby expressly unconditionally and irrevocably
waived by the Company; provided, however , that upon the
occurrence of an Event of Default described in Sections
2.1(d) or (e) , the outstanding principal
balance and accrued Interest hereunder shall be automatically due
and payable, or (b) exercise or otherwise enforce any one or
more of the Holder’s rights, powers, privileges, remedies and
interests under this Note, the Purchase Agreement, the Security
Documents or applicable law. No course of delay on the part of the
Holder shall operate as a waiver thereof or otherwise prejudice the
right of the Holder. No remedy conferred hereby shall be exclusive
of any other remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise.
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ARTICLE III
MANDATORY CONVERSION; ANTI-DILUTION;
ETC.
Section 3.1 Mandatory
Conversion . Effective as of the closing (the “
Mandatory Conversion Date ”) of a Qualified
Financing (as defined below) and subject to Section 3.4 below,
any and all outstanding principal and accrued Interest represented
by this Note shall automatically (without further act or deed of
the Holder or the Company) convert (the “ Mandatory
Conversion ”) into the type or package of securities
of the Company issued or issuable by the Company in the Qualified
Financing (the “ Qualified Financing Stock
”) by dividing (x) the outstanding principal balance and
accrued Interest under this Note as of the Mandatory Conversion
Date by (y) a conversion price which shall be equal to the
lesser of (i) eighty-five percent (85%) of the price per
share at which the Company sells a share of Qualified Financing
Stock in the Qualified Financing or (ii) the Conversion Price
(as defined in Section 3.2(a) ). A “
Qualified Financing ” shall occur when a sale
by the Company of shares of equity of the Company to one or more
purchasers generates not less than gross proceeds to the Company of
$5,000,000 (exclusive of amounts paid for cancellation or
conversion of the Notes) prior to the Maturity Date in a
transaction or series of related transactions as part of multiple
closings under materially similar set of terms. Qualified Financing
Stock shall include subsequent issuances of equity issued pursuant
to definitive agreements for such Qualified Financing. The Company
shall cause notice of the Mandatory Conversion (the “
Mandatory Conversion Notice ”) to be mailed to
the Holder, at such Holder’s address, at least ten
(10) days prior to the Mandatory Conversion Date. On or before
the Mandatory Conversion Date, the Holder shall surrender this Note
at the place designated in such notice, together with a statement
of the name or names (with address) in which the certificate or
certificates for shares of Qualified Financing Stock which shall be
issuable on such conversion shall be issued.
Section 3.2 Conversion
Price .
(a) The term “
Conversion Price ” shall mean $2.67, subject to
adjustment under Section 3.5 hereof.
(b) The term “
Conversion Securities ” shall mean Qualified
Financing Stock issuable upon a Mandatory Conversion of this Note
in connection with the occurrence of a Qualified
Financing.
Section 3.3 Mechanics of
Conversion . Not later than ten (10) Trading Days after
the Mandatory Conversion Date (the “ Delivery
Date ”), the Company or its designated transfer
agent, as applicable, shall issue and deliver to the Holder, the
Conversion Securities as specified in the Mandatory Conversion
Notice. Notwithstanding the foregoing, in the alternative, not
later than the Delivery Date, the Company shall deliver to the
Holder by express courier a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than
those required by Section 5.1 of the Purchase
Agreement and/or the related documentation of the Qualified
Financing, as the case may be) representing the number of
Conversion Securities being acquired upon the conversion of this
Note.
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Section 3.4 Ownership Cap
and Certain Conversion Restrictions . Notwithstanding anything
to the contrary set forth in Section 3 of this
Note, at no time may all or a portion of this Note be converted
into shares of Common Stock if the number of shares of Common Stock
to be issued pursuant to such conversion would exceed, when
aggregated with all other shares of Common Stock owned by the
Holder and its affiliates at such time, the number of shares of
Common Stock which would result in the Holder and its affiliates
beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder)
more than 9.99% of all of the Common Stock outstanding at such
time; provided , however , that upon the Holder of
this Note providing the Company with sixty-one (61) days
notice (pursuant to Section 4.1 hereof) (the
“ Waiver Notice ”) that such Holder would
like to waive this Section 3.4 with regard to
any or all shares of Common Stock issuable upon conversion of this
Note, this Section 3.4 will be of no force or
effect with regard to all or a portion of the Note referenced in
the Waiver Notice; provided , further , that during
the sixty-one (61) day period prior to the Maturity Date of
this Note the Holder may waive this Section 3.4
upon providing the Waiver Notice at any time during such sixty-one
(61) day period; and provided , further , that
any Waiver Notice during the sixty-one (61) day period prior
to the Maturity Date will not be effective until the Maturity Date.
In the event of a Qualified Financing and all or a portion of this
Note cannot be converted into shares of Common Stock as a result of
the restrictions set forth in this Section 3.4 (the
“Ownership Limitation”), the Company shall comply with
its Mandatory Conversion obligations set forth in Section 3.1
above to the extent consistent with such Ownership Limitation. In
the event that the Common Stock issuable to the Holder upon such
Qualified Financing exceeds the Ownership Limitation, on the
Mandatory Conversion Date, the Company shall issue to Holder a
warrant exerciseable for that number of shares of Common Stock that
such Holder would have received above the Ownership Limitation had
the Note been fully converted in accordance with Section 3.1
(the “ Conversion Warrant ”). The
Conversion Warrant shall have an exercise price of $0.001 per share
and be substantially in the form attached hereto as Exhibit A. The
issuance of the Conversion Warrant shall be in full satisfaction of
all indebtedness owed by the Company pursuant to the
Note.
Section 3.5 Adjustment of
Conversion Price .
(a) Until such time that no
outstanding principal balance remains under this Note, the
Conversion Price shall be subject to adjustment from time to time
as follows:
(i) Adjustments for Stock Splits
and Combinations . If the Company shall at any time or from
time to time after the Issuance Date, effect a stock split of the
outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately
decreased. If the Company shall at any time or from time to time
after the Issuance Date, combine the outstanding shares of Common
Stock, the applicable Conversion Price in effect immediately prior
to the combination shall be proportionately increased. Any
adjustments under this Section 3.5(a)(i) shall
be effective at the close of business on the date the stock split
or combination occurs.
(ii) Adjustments for Certain
Dividends and Distributions . If the Company shall at any time
or from time to time after the Issuance Date, make or issue or set
a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in
shares of Common Stock, then, and in each event, the
applicable
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Conversion Price in effect immediately prior to
such event shall be decreased as of the time of such issuance or,
in the event such record date shall have been fixed, as of the
close of business on such record date, by multiplying, the
applicable Conversion Price then in effect by a
fraction:
(1) the numerator of which shall be
the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date; and
(2) the denominator of which shall
be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of
shares
