THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
POWER3
MEDICAL PRODUCTS, INC.
15%
CONVERTIBLE DEBENTURE SERIES
DUE
DECEMBER 30, 2008
FOR
VALUE RECEIVED, POWER3 MEDICAL PRODUCTS, INC., a corporation
organized and existing under the laws of the State of New York
(the "Company"), promises to pay to ___________________, the
registered holder hereof (the "Holder"), the principal sum of
Two Hundred Thousand and 00/100 Dollars (US $200,000) on
December 30, 2008 (the “Maturity Date”) and to pay
interest on the principal sum outstanding on a monthly basis,
with the first payment payable 30 days after the closing, at
the rate of 15% per annum, accruing from June 30, 2008, the
date of initial issuance of this Debenture (the “Issue
Date”), on the date (each, an “Interest Payment
Date”) which is the earlier of (i) the next Conversion
Date (as defined below), or (ii) the Maturity Date, as the
case may be. Interest shall accrue monthly (pro-rated on a
daily basis for any period longer or shorter than a month)
from the later of the Issue Date or the previous Interest
Payment Date and shall be payable, subject to the other
provisions of this Debenture, in cash or in Common Stock. If
not paid in full on an Interest Payment Date, interest shall
be fully cumulative and shall accrue on a daily basis, based
on a 365-day year, monthly or until paid, whichever is
earlier. Additional provisions regarding the payment of
interest are provided in Section 4(D) below (the terms of
which shall govern as if this sentence were not included in
this Debenture).
This
Debenture is subject to the following additional
provisions:
1.
The
Debentures will initially be issued in denominations
determined by the Company, but are exchangeable for an equal
aggregate principal amount of Debentures of different
denominations, as requested by the Holder surrendering the
same. No service charge will be made for such registration or
transfer or exchange.
2.
The
Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts
required to be withheld under the applicable provisions of the
United States income tax laws or other applicable laws at the
time of such payments, and Holder shall execute and deliver
all required documentation in connection
therewith.
3.
This
Debenture has been issued subject to investment
representations of the original purchaser hereof and may be
transferred or exchanged only in compliance with the
Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws and the terms of
the Securities Purchase Agreement. In the event of any
proposed transfer of this Debenture, the Company may require,
prior to issuance of a new Debenture in the name of such other
person, that it receive reasonable transfer documentation that
is sufficient to evidence that such proposed transfer complies
with the Act and other applicable state and foreign securities
laws and the terms of the Securities Purchase Agreement. Prior
to due presentment for transfer of this Debenture, the Company
and any agent of the Company may treat the person in whose
name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other
purposes, whether or not this Debenture be overdue, and
neither the Company nor any such agent shall be affected by
notice to the contrary.
4.
A.
(i)
At any time on or after the Issue Date and prior to the time
this Debenture is paid in full in accordance with its terms
(including, without limitation, after the occurrence of an
Event of Default, as defined below, or, if the Debenture is
not fully paid or converted after the Maturity Date), the
Holder of this Debenture is entitled, at its option, subject
to the following provisions of this Section 4, to convert this
Debenture at any time into shares of Common Stock, $0.001 par
value ("Common Stock"), of the Company at the Conversion Price
(as defined below). Any such conversion is referred to as a
“Conversion.”
(ii)
On the Maturity Date the Company shall pay the principal and
accrued interest (through the actual date of payment) of any
portion of this Debenture which is then
outstanding.
(iii)
For purposes of this Debenture, the following terms shall have
the meanings indicated below:
“Conversion
Price” means the (i) the VWAP for the three (3) Regular
Trading Days (which need not be consecutive) selected by the
Holder from the 20 Trading Days ending on the Trading Day
immediately before the relevant Conversion Date, multiplied by
(ii) seventy percent (70%).
“Regular
Trading Day,” “Reporting Service,”
“Trading Day,” and “VWAP” have the
meanings ascribed to them in the Securities Purchase
Agreement.
“Conversion
Date” means the date on which the Holder faxes or
otherwise delivers a Notice of Conversion to the Company so
that it is received by the Company on or before such specified
date.
“Conversion
Shares” has the meaning ascribed to in Section 4(H)
hereof.
B.
A
Conversion shall be effectuated by the Holder by faxing a
notice of conversion (“Notice of Conversion”) to
the Company as provided in this paragraph. The Notice of
Conversion shall be executed by the Holder of this Debenture
and shall evidence such Holder's intention to convert this
Debenture or a specified portion hereof in the form annexed
hereto as Exhibit A. Delivery of the Notice of Conversion
shall be accepted by the Company by hand, mail or courier
delivery at the address specified in said Exhibit A or at the
facsimile number specified in said Exhibit A (each of such
address or facsimile number may be changed by notice given to
the Holder in the manner provided in the Securities Purchase
Agreement). If so indicated on the first page of this
Debenture, a portion of the purchase price for this Debenture
was represented by the Specific Purchase Note. If the Specific
Purchase Note was issued, and it is subsequently paid or
otherwise satisfied in full, the Company will promptly
acknowledge such payment or satisfaction in writing (but the
absence of such acknowledgment shall not affect the
Holder’s rights hereunder). Notwithstanding the
foregoing, if the Specific Purchase Note was issued on the
Issue Date, this Debenture may be converted by way of a
Conversion only after such Specific Purchase Note has been
paid or otherwise satisfied in full.
C.
Notwithstanding
any other provision hereof or of any of the other Transaction
Agreements, in no event (except (i) as specifically provided
herein as an exception to this provision, or (ii) while there
is outstanding a tender offer for any or all of the shares of
the Company’s Common Stock) shall the Holder be entitled
to convert any portion of this Debenture, or shall the Company
have the obligation to convert such Debenture (and the Company
shall not have the right to pay interest hereon in shares of
Common Stock) to the extent that, after such conversion or
issuance of stock in payment of interest, the sum of (1) the
number of shares of Common Stock beneficially owned by the
Holder and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership
of the unconverted portion of the Debentures or other
convertible securities or of the unexercised portion of
warrants or other rights to purchase Common Stock), and (2)
the number of shares of Common Stock issuable upon the
conversion of the Debentures with respect to which the
determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more
than 4.99% of the outstanding shares of Common Stock (after
taking into account the shares to be issued to the Holder upon
such conversion). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, except as otherwise provided
in clause (1) of such sentence. Nothing herein shall preclude
the Holder from disposing of a sufficient number of other
shares of Common Stock beneficially owned by the Holder so as
to thereafter permit the continued conversion of this
Debenture.
D.
(i)
Subject to the terms of Section 4(C) and to the other terms of
this Section 4(D),
(x)
interest on the principal amount of this Debenture converted
pursuant to a Notice of Conversion, and
(y)
any other amounts due to the Holder with respect to this
Debenture or pursuant to any other provision of any of the
Transaction Agreements, including but not necessarily limited
to, Administrative Costs (collectively, “Other
Costs”),
shall
be due and payable, at the option of the Holder, in cash or in
shares of Common Stock on the Interest Payment
Date.
(ii)
If the interest payable in connection with a Conversion or if
Other Costs are to be paid in cash, the Company shall make
such payment within three (3) Trading Days after the Interest
Payment Date (for interest) or of the demand for such Other
Costs by the Holder, as the case may be.
(iii)
If interest or Other Costs are to be paid in Common Stock, the
number of shares of Common Stock to be received shall be
determined by dividing the dollar amount of the interest by
the Conversion Price in effect on the relevant Interest
Payment Date or on the date of demand for such Other Costs by
the Holder, as the case may be. For such purposes, the date of
a demand for Other Costs by the Holder shall be treated (with
respect to the amount of such Other Costs) as an Interest
Payment Date.
E.
The
Company shall have the right to prepay, at any time, any or
all of the outstanding principal and interest due pursuant to
this Debenture, without the prior written consent of the
Holder.
F.
(i)
The following provisions apply to the issuances of Common
Stock in payment of the amounts due under this Debenture,
whether as principal or interest, as provided in the preceding
provisions of this Section 4.
(ii)
No fractional shares of Common Stock or scrip representing
fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest
whole share.
(iii)
All shares issuable with respect to a Conversion Date or
Interest Payments Date shall be deemed “Conversion
Shares” for all purposes of this Debenture and the other
Transaction Agreements. Certificates representing the relevant
Conversion Shares (“Conversion Certificates”) will
be delivered to the Holder at the address specified in the
relevant Notice of Conversion or demand for payment of Other
Costs (and if none, the Holder’s the Holder’s
address for notices as contemplated by the Securities Purchase
Agreement, which address the Holder may change from time to
time in the manner provided therein), via express courier, by
electronic transfer or otherwise, within three (3) Trading
Days (such third Trading Day, the “Delivery Date”)
after the relevant Conversion Date. The Holder shall be deemed
to be the holder of the shares issuable to it in accordance
with the relevant provisions of this Debenture on the
Conversion Date or Interest Payment Date, as the case may
be.
G.
Except
as may specified in a specific provision of this Debenture,
any payments under this Debenture shall be applied in the
following order of priority: (i) first to Other Costs, (ii)
then to accrued but unpaid interest; and (iii) then, to
principal in the inverse order of maturity.
5.
No
provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or
currency or where contemplated herein in shares of its Common
Stock, as applicable, as herein prescribed. This Debenture and
all other Debentures now or hereafter issued of similar terms
are direct obligations of the Company.
6.
A.
Each
Pledgor (as defined in the Pledge Agreement) is personally
guarantying to the Holder the timely and full fulfillment of
all of the obligations of the Company under this Debenture on
the terms provided above and in the Guarantee, which has been
executed by such Pledgor in favor of, and delivered to, the
Holder.
B.
The
obligations of the Company under this Debenture and of each
respective Pledgor under the Guarantee executed and delivered
by such Pledgor are secured under the terms of the Pledge
Agreement, to which the Holder and the Pledgor are parties
(the "Pledge Agreement"), the terms of which are incorporated
herein by reference, by a pledge from each respective Pledgor
of the number of shares of the Company's Common Stock
identified opposite such Pledgor’s name, of which shares
the relevant Pledgor is the record and beneficial owner. If
the Holder forecloses on any of the Pledged Shares, the
obligations of the Company will be reduced only to the extent
of the proceeds actually realized from such foreclosure, in
the priority specified in Section 4(G) hereof.
7.
Except
as provided in Sections 5 and 6 above or in a separate
instrument signed by the party to be charged therewith, no
recourse shall be had for the payment of the principal of, or
the interest on, this Debenture, or for any claim based
hereon, or otherwise in respect hereof (including, but not
limited to, a claim for Other Costs), against any
incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the
issue hereof, expressly waived and released.
8.
All
payments contemplated hereby to be made “in cash”
shall be made in immediately available good funds of United
States of America currency by wire trans
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