SECURED CONVERTIBLE PROMISSORY
NOTE
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$2,219,000
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September 7, 2005
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FOR VALUE
RECEIVED , the undersigned, Sutura, Inc. , a Delaware
corporation (the “ Maker ”), hereby
promises to pay to the order of Whitebox Hedged High Yield
Partners, L.P. , a British Virgin Islands limited partnership,
or its assigns (the “ Payee ”), at such
place as the Payee may designate in writing, the principal sum of
Two Million Two Hundred Nineteen Thousand Dollars ($2,219,000)
under the terms set forth herein. This Note is one of a series of
four Notes (together, the “Series Notes”) being
issued by Maker on the date hereof.
1.
Interest . The unpaid principal balance hereof from
time to time outstanding shall bear interest from the date hereof
at the rate of eight percent (8%) per annum.
2.
Payment . Subject to earlier mandatory prepayment
under Section 6 below or any default hereunder, the principal
and interest hereof is payable as follows:
(a) Interest
only is payable in cash quarterly in arrears on the last day of
each calendar quarter beginning September 30, 2005;
and
(b) Beginning
on April 30, 2007, and on the last day of each month
thereafter, through and including August 2008, Maker shall
make principal payments of $79,250 on this Note.
(c) On
September 7, 2008 (the “Maturity Date”), the
remaining outstanding principal balance of this Note will be due
and payable in a single lump sum together with all then-accrued,
but unpaid interest (including any then-accrued, but unpaid
Contingent Additional Interest, as defined below).
(d) In the
event that Maker fails
(i) by
the 150th day after August 19, 2005, to file a registration
statement (the “ Payee Registration Statement
”) under the Securities Act of 1933, as amended (the “
Securities Act ”) pursuant to Section 2.1
of that certain Second Amended Registration Rights Agreement of
this date among Maker, Payee and the other purchasers named therein
(the “ Registration Rights Agreement ”),
or
(ii) within
seven (7) months after August 19, 2005, to obtain
effectiveness under the Securities Act and applicable state
securities laws of the Payee Registration Statement, then for each
full month (prorated for partial months) that either or both of
these failures continue (as aggregated together, the “
Failure Term ”), Maker shall pay in arrears in
cash, with each next otherwise scheduled interest payment under
Section 2(a) above, additional interest (the “
Contingent Additional Interest ”) at a rate
equal to 0.75% per month of the Failure Term thereafter, of the
original principal balance of this Note.
(e) The Maker
will have the right to prepay up to $79,250 of principal on the
last day of each month at any time prior to the Maturity Date by
the issuance of its common stock, $0.001 par value per share (the
“Common Stock” ), based on the Per Share Value
of the Common Stock (as defined in Section 3(a)). The
provisions of Sections 3(b) and 3(c) shall apply to any prepayment
pursuant to this Section 2(e).
3.
Optional Payment in Stock .
(a) In lieu
of making a cash payment under Section 2(b), Maker may pay the
scheduled principal payment, or any portion thereof, by the
issuance of shares of its Common Stock based on the Per Share Value
of the Common Stock. For purposes of this Note, the “Per
Share Value” of the Common Stock as of any principal payment
date is 92% (rounded to the nearest $.01) of the average of the
closing bid prices of Maker’s Common Stock on the Trading
System for the 20 consecutive trading days immediately preceding
the relevant principal payment date. For purposes of this Note, the
term “Trading System” means the Nasdaq National Market
or, if the securities are not then quoted on the Nasdaq National
Market, the OTC Bulletin Board as reported by bigcharts.com or, if
this service is discontinued, such other reporting services as is
mutually acceptable to Maker and Payee.
(b) Payment
in shares of Common Stock shall be deemed to be made by the Maker
by giving written notice to Payee; provided that certificates
representing those shares are delivered to Payee within 10 business
days after the due date of such principal payment.
(c) Despite
the foregoing, the Maker may not issue shares of its Common Stock
as payment pursuant to this Section 3 (or Section 2(e))
unless all of the following conditions are met:
(i) the
Maker gives the Payee written notice at least thirty (30) days
prior to the relevant principal payment date of the Maker’s
intention to make a payment using shares of Common Stock (and
specifying the payment amount to be settled by the issuance of
shares);
(ii) on
the date that the relevant principal payment is due or payable, the
Maker has, pursuant to the terms of the Registration Rights
Agreement, an effective registration statement under the Securities
Act and applicable state securities laws covering the public resale
of such shares by Payee;
(iii) the
number of shares of Common Stock that may be issued to pay all or
any portion of any particular monthly principal payment may not
exceed 25% of the sum of the trading volume of the Common Stock for
the 20 trading days immediately preceding such monthly principal
payment date; and
(iv) the
number of shares of Common Stock to be issued, which when added to
the number of shares of Common Stock beneficially owned (within the
meaning set forth in Section 8) by Payee and its affiliates,
may not cause Payee to beneficially own more than 9.99% of the
Maker’s outstanding Common Stock.
-2-
(a) At any
time while any portion of the principal or interest of this Note is
outstanding, the Payee may give the Maker written notice (the
“ Payee Notice ”) of its intention to
convert all or any portion of the outstanding principal and/or
accrued but unpaid interest on this Note into shares of the
Maker’s Common Stock based on a conversion rate as described
below (the “ Conversion Rate ”). Upon
receipt of the Payee Notice, the Maker shall immediately cause
certificates dated the Payee Notice date and representing these
shares to be delivered to Payee within 20 days of, and payment
shall be deemed to have been made on, the date of the Payee
Notice.
(b) The
Conversion Rate shall initially be equal to the quotient of
$250,000,000 / “New N” (as defined below).
“ New
N ” is the number of shares of Maker’s Common
Stock outstanding as of the close of business on the trading day
immediately preceding the Payee Notice, assuming the exercise of
all then outstanding options, warrants or other rights to acquire
shares of Maker’s Common Stock or securities convertible or
exchangeable for Maker’s Common Stock (or convertible or
exchangeable for securities themselves convertible or exchangeable
for Maker’s Common Stock), but without assuming (i) the
conversion of the Series Notes or (ii) the exercise of
the warrants being issued contemporaneously herewith to Payee and
to other holders of the Series Notes or (iii) the
exercise of options to purchase up to a maximum of 13,500,000
shares of Maker’s Common Stock granted pu
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