Document:

ex4-1.htm

    Exhibit
4.1

     

    NEITHER
THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE.  THESE SECURITIES HAVE BEEN SOLD IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.

     

    IR
BIOSCIENCES HOLDINGS, INC.

     

    Secured
Convertible Debenture

     

    
      	
              Issuance
      Date:  June 12, 2008

            	
              Original
      Principal
      Amount:                                                                $1,000,000

            
	
              No.
      IRBO-1-2

            	 
      

    

    

    FOR VALUE RECEIVED, IR
BIOSCIENCES HOLDINGS, INC., a Delaware corporation (the "Company"), hereby
promises to pay to the order of YA GLOBAL INVESTMENTS, L.P. or registered
assigns (the "Holder") the amount
set out above as the Original Principal Amount (as reduced pursuant to the terms
hereof pursuant to redemption, conversion or otherwise, the "Principal") when due,
whether upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("Interest") on
any outstanding Principal at the applicable Interest Rate from the date set out
above as the Issuance Date (the "Issuance Date") until
the same becomes due and payable, whether upon an Interest Date (as defined
below), the Maturity Date or acceleration, conversion, redemption or otherwise
(in each case in accordance with the terms hereof).  This Secured
Convertible Debenture (including all Secured Convertible Debentures issued in
exchange, transfer or replacement hereof, this "Debenture") is one of
an issue of Secured Convertible Debentures issued pursuant to the Securities
Purchase Agreement (collectively, the "Debentures" and such
other Senior Convertible Debentures, the "Other
Debentures").  Certain capitalized terms used herein are
defined in Section 17.

     

    (1) GENERAL
TERMS

     

    (a) Payment of
Principal.  On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal, accrued and
unpaid Interest.  The "Maturity Date" shall
be May 31, 2011, as may be extended at the option of the Holder (i) in the event
that, and for so long as, an Event of Default (as defined below) shall have
occurred and be continuing on the Maturity Date (as may be extended pursuant to
this Section 1) or any event shall have occurred and be continuing on the
Maturity Date (as may be extended pursuant to this Section 1) that with the
passage of time and the failure to cure would result in an Event of
Default.  Other than as specifically permitted by this Debenture, the
Company may not prepay or redeem any portion of the outstanding Principal
without the prior written consent of the Holder.

     

    (b) Interest.  Interest
shall accrue on the outstanding principal balance hereof at an annual rate equal
to eight percent (8%) (“Interest
Rate”).  Interest shall be calculated on the basis of a 365-day
year and the actual number of days elapsed, to the extent permitted by
applicable law.  Interest hereunder shall be paid on each Interest
Payment Date and on the Maturity Date (or sooner as provided herein) to the
Holder or its assignee in whose name this Debenture is registered on the records
of the Company regarding registration and transfers of Debentures at the option
of the Company in cash, or, provided that the Equity Conditions are then
satisfied (or waived by the Holders) converted into Common Stock at the Interest
Conversion Price on the Trading Day immediately prior to the date
paid.

     

    (c) Security.  The
obligations of the Company hereunder are (i) guaranteed by each subsidiary of
the Company pursuant to a Guaranty Agreement dated the date hereof (the “Guaranty”), (ii)
secured by a pledge of the Pledged Property (as defined in the Security
Agreement (the “Security Agreement”)
among the Holder, the Company, and each subsidiary of the Company, and (iii)
further secured by a pledge of the Patent Collateral (as defined in the Patent
Security Agreement (the “Patent Security Agreement”)
among the Holder, the Company, and each subsidiary of the Company

     

    (2) EVENTS OF
DEFAULT.

     

    (a) An “Event of Default”,
wherever used herein, means any one of the following events (whatever the reason
and whether it shall be voluntary or involuntary or effected by operation of law
or pursuant to any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (i) the
Company's failure to pay to the Holder any amount of Principal, Interest, or
other amounts when and as due under this Debenture (including, without
limitation, the Company's failure to pay any redemption payments or amounts
hereunder) or any other Transaction Document;

     

    (ii) The
Company or any subsidiary of the Company shall commence, or there shall be
commenced against the Company or any subsidiary of the Company under any
applicable bankruptcy or insolvency laws as now or hereafter in effect or any
successor thereto, or the Company or any subsidiary of the Company commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 61 days; or the Company or any
subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or the
Company or any subsidiary of the Company suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;

     

    (iii) The
Company or any subsidiary of the Company shall default in any of its obligations
under any other debenture or any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which there
may be issued, or by which there may be secured or evidenced any indebtedness
for borrowed money or money due under any long term leasing or factoring
arrangement of the Company or any subsidiary of the Company in an amount
exceeding $500,000, whether such indebtedness now exists or shall hereafter be
created and such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

     

    (iv) If the
Common Stock is quoted or listed for trading on any of the following and it
ceases to be so quoted or listed for trading and shall not again be quoted or
listed for trading on any Primary Market within five (5) Trading Days of such
delisting: (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the
Nasdaq Global Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC
Bulletin Board (“OTCBB”) (each, a “Primary Market”);

     

    (v) The
Company or any subsidiary of the Company shall be a party to any Change of
Control Transaction (as defined in Section 6) unless in connection with such
Change of Control Transaction this Debenture is retired;

     

    (vi) the
Company's (A) failure to cure a Conversion Failure by delivery of the required
number of shares of Common Stock within five (5) Business Days after the
applicable Conversion Failure or (B) notice, written or oral, to any holder of
the Debentures, including by way of public announcement, at any time, of its
intention not to comply with a request for conversion of any Debentures into
shares of Common Stock that is tendered in accordance with the provisions of the
Debentures, other than pursuant to Section 4(c);

     

    (vii) The
Company shall fail for any reason to deliver the payment in cash pursuant to a
Buy-In (as defined herein) within three (3) Business Days after such payment is
due;

     

    (viii) The
Company shall fail to observe or perform any other covenant, agreement or
warranty contained in, or otherwise commit any breach or default of any
provision of this Debenture (except as may be covered by Section 2(a)(i) through
2(a)(vii) hereof) or any Transaction Document (as defined in Section 17) which
is not cured within the time prescribed.

     

    (ix) any Event
of Default (as defined in the Other Debentures) occurs with respect to any Other
Debentures.

     

    (b) During
the time that any portion of this Debenture is outstanding, if any Event of
Default has occurred, the full unpaid Principal amount of this Debenture,
together with interest and other amounts owing in respect thereof, to the date
of acceleration shall become at the Holder's election, immediately due and
payable in cash; provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the
Company.  Furthermore, in addition to any other remedies, the Holder
shall have the right (but not the obligation) to convert this Debenture at any
time after (x) an Event of Default or (y) the Maturity Date at the applicable
Conversion Price.  The Holder need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind, (other than
required notice of conversion) and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Holder at any time prior to payment
hereunder. No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (3) COMPANY CONVERSION OR
REDEMPTION.

     

    (a) Company Cash
Redemption.  The Company at its option shall have the right to
redeem (“Optional
Redemption”) a portion or all amounts outstanding under this Debenture
prior to the Maturity Date by delivering a written notice to the Holder of its
intention to make a redemption (the “Redemption Notice”)
setting forth the amount of Principal it desires to redeem, Interest thereon,
and any applicable Redemption Premium (as defined below) (collectively, the
“Redemption
Amount”), confirming that the conditions to such redemption have been
satisfied, and setting forth the date the Optional Redemption is to be made (the
“Redemption
Date”).  Once a Redemption Notice is delivered to the Holder,
the Debenture (or portion thereof) called for redemption shall become
irrevocably due and payable on the applicable Redemption Date and at the
applicable Redemption Amount.

     

    (b) Redemption Below the Fixed
Conversion Price.  If on the date of delivery of a
Redemption Notice (a “Redemption Notice Date”) the Closing Bid Price of the
Common Stock is less than the Fixed Conversion Price, then the Company may
redeem any amounts provided that as of the Redemption Notice Date (i) the Equity
Conditions have been satisfied, (ii) no Event of Default has occurred, and (iii)
the Company pays the Redemption Amount on the Redemption Date, which in the case
of an Optional Redemption pursuant to this Section 3(b) shall be four business
days after the Redemption Notice Date.  The Redemption Premium shall
be equal to twenty percent (20%) of the Principal amount being redeemed for an
Option Redemption made in accordance with this Section 3(b).  After
receipt of the Redemption Notice the Holder shall have right to elect to convert
all or any portion of this Debenture, subject to the limitations set forth in
Section 4(b) during the period from the Redemption Notice Date until the
Redemption Date.  On the Redemption Date, the Company shall deliver to
the Holder the Redemption Amount with respect to the Principal amount redeemed
after giving effect to any conversions effected during the period between the
Redemption Notice Date and the Redemption Date.

     

    (c) Redemption Above the Fixed
Conversion Price.  If on the date of delivery of a Redemption
Notice (a “Redemption Notice Date”) the Closing Bid Price of the Common Stock
greater than the Fixed Conversion Price, then the Company may redeem any amounts
provided that as of the Redemption Notice Date (i) the Equity Conditions have
been satisfied, (ii) no Event of Default has occurred, (iii) the Volume Weighted
Average Price is greater than 130% of the Fixed Conversion Price for at least 20
out of the 30 Trading Days immediately prior to the Redemption Notice Date, and
(iv) the Company pays the Redemption Amount on the Redemption Date, which in the
case of an Optional Redemption pursuant to this Section 3(c) shall be at least
30 but no more than 60 days after the Redemption Notice Date.  There
shall be no Redemption Premium for an Optional Redemption made in accordance
with this Section 3(c).  After receipt of the Redemption Notice the
Holder shall have right to elect to convert all or any portion of this
Debenture, subject to the limitations set forth in Section 4(b) during the
period from the Redemption Notice Date until the Redemption Date. On the
Redemption Date the Company shall deliver to the Holder the Redemption Amount
with respect to the Principal amount redeemed after giving effect to any
conversions effected during the period between the Redemption Notice Date and
the Redemption Date.

     

    (d) Redemption Upon
Acquisition.  In the event that the Company is acquired by an
Industry Partner within 7 months of the date hereof and the acquisition is at a
value per share greater than 120% of the Fixed Conversion Price, then the Holder
shall waive any otherwise applicable Redemption Premium.

     

    (e) Company Call Option.
The Company shall have the option to force the Holder to convert this Debenture
(a “Company
Call”) prior to the Maturity Date by delivering to the Holder a written
notice (“Company Call
Notice”) provided that the following conditions have been satisfied: (i)
the Equity Conditions have been satisfied, (ii) the number of shares underlying
the particular Company Call does not exceed the Volume Limitation, (iii) The
effective date of the Company Call is at least 5 Trading Days following the date
of the Company Call Notice, (iv) at least 40 Business Days have elapsed since
the last Company Call, and (v) the Volume Weighted Average Price of the Common
Stock shall have exceeded 150% of the Fixed Conversion Price for at least 20
trading days of the 30 trading days immediately prior to the date of the Company
Call Notice, and (vi) the Closing Bid Price of the Common Stock shall have
exceeded 150% of the Fixed Conversion Price on the last Trading Day immediately
preceding the Company Call date. The Principal amount of any Company Call shall
be up to (i) 50% of the total Principal amount outstanding under the Debenture
if the Volume Weighted Average Price of the Common Stock exceeds 150% of the
Fixed Conversion Price for at least 20 trading days of the 30 trading days
immediately prior to the date of the Company Call Notice and (ii) 100% of the
total Principal amount outstanding under the Debenture if the Volume Weighted
Average Price of the Common Stock exceeds 175% of the Fixed Conversion Price for
at least 20 trading days of the 30 trading days immediately prior to the date of
the Company Call Notice.

     

    (4) CONVERSION OF
DEBENTURE.   This Debenture shall be convertible into
shares of the Company's Common Stock, on the terms and conditions set forth in
this Section 4.

     

    (a) Conversion
Right.  Subject to the provisions of Section 4(c), at any time
or times on or after the Issuance Date, the Holder shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount (as defined below)
into fully paid and nonassessable shares of Common Stock in accordance with
Section 4(b), at the Conversion Rate (as defined below).  The number
of shares of Common Stock issuable upon conversion of any Conversion Amount
pursuant to this Section 4(a) shall be determined by dividing (x) such
Conversion Amount by (y) the Conversion Price (the "Conversion
Rate").  The Company shall not issue any fraction of a share of
Common Stock upon any conversion.  If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole
share.  The Company shall pay any and all transfer, stamp and similar
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon conversion of any Conversion Amount.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (i) "Conversion Amount"
means the portion of the Principal and accrued Interest to be converted,
redeemed or otherwise with respect to which this determination is being
made.

     

    (ii) "Conversion Price"
means, as of any Conversion Date (as defined below) before the occurrence of any
Triggering Event, $0.20, subject to adjustment as provided herein (the “Fixed Conversion
Price”), and as of any Conversion Date following the occurrence of any
Triggering Event, the lower of (a) the Fixed Conversion Price or (b) eighty
percent (80%) of the lowest daily Volume Weighted Average Price during the
five (5) Trading Days immediately preceding the Conversion Date (the “Market Conversion
Price”).

     

    (b) Mechanics of
Conversion.

     

    (i) Optional
Conversion.  To convert any Conversion Amount into shares of
Common Stock on any date (a "Conversion Date"),
the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed
notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice")
to the Company and (B) if required by Section 4(b)(iv), surrender this Debenture
to a nationally recognized overnight delivery service for delivery to the
Company (or an indemnification undertaking reasonably satisfactory to the
Company with respect to this Debenture in the case of its loss, theft or
destruction).  On or before the third Business Day following the date
of receipt of a Conversion Notice (the "Share Delivery
Date"), the Company shall (X) if legends are not required to be placed on
certificates of Common Stock pursuant to the Securities Purchase Agreement and
provided that the Transfer Agent is participating in the Depository Trust
Company's ("DTC") Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder's or its designee's
balance account with DTC through its Deposit Withdrawal Agent Commission system
or (Y) if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the address as specified in
the Conversion Notice, a certificate, registered in the name of the Holder or
its designee, for the number of shares of Common Stock to which the Holder shall
be entitled which certificates shall not bear any restrictive legends unless
required pursuant to Section 2(g) of the Securities Purchase
Agreement.  If this Debenture is physically surrendered for conversion
and the outstanding Principal of this Debenture is greater than the Principal
portion of the Conversion Amount being converted, then the Company shall as soon
as practicable and in no event later than three (3) Business Days after receipt
of this Debenture and at its own expense, issue and deliver to the holder a new
Debenture representing the outstanding Principal not converted.  The
Person or Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Debenture shall be treated for all purposes as the record
holder or holders of such shares of Common Stock upon the transmission of a
Conversion Notice.

     

    (ii) Company's
Failure to Timely Convert. The Company understands that a delay in the delivery
of the certificates representing the Common Stock issuable upon conversion of
this Debenture could result in economic loss to the Holder. In addition to any
other rights of the Holder, as compensation to the Holder for such late delivery
of Common Stock upon conversion of this Debenture the amount of $100 per
Business Day for each $10,000 of Common Stock (measured by the relevant
Conversion Price as of the Conversion Date and prorated for amounts other than
$10,000) after the third Trading Day after the Company’s receipt of a facsimile
copy of a Conversion Notice  (the “Share Delivery Due
Date”) and continuing until the date on which the certificate
representing such Common Stock is delivered to the Holder.  The
Company shall pay any payments incurred under this paragraph in immediately
available funds upon demand.  If after the Share Delivery Due Date the
Company has failed to issue and deliver a certificate to the Holder or credit
the Holder's balance account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon such holder's conversion of any Conversion
Amount (a "Conversion Failure"), and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by the Holder of Common Stock issuable upon such
conversion that the Holder anticipated receiving from the Company (a "Buy-In"),
then the Company shall, within three (3) Business Days after the Holder's
request and in the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions and other out of pocket expenses, if any) for the shares of Common
Stock so purchased (the "Buy-In Price"), at which point the Company's obligation
to deliver such certificate (and to issue such Common Stock) shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Stock and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Bid Price on the
Conversion Date.

     

    (iii) Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon conversion of
any portion of this Debenture in accordance with the terms hereof, the Holder
shall not be required to physically surrender this Debenture to the Company
unless (A) the full Conversion Amount represented by this Debenture is being
converted or (B) the Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
this Debenture upon physical surrender of this Debenture.  The Holder
and the Company shall maintain records showing the Principal and Interest
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Debenture upon conversion.

     

    (c) Limitations on
Conversions.

     

    (i) Beneficial
Ownership.  The Company shall not effect any conversions of
this Debenture and the Holder shall not have the right to convert any portion of
this Debenture or receive shares of Common Stock as payment of interest
hereunder to the extent that after giving effect to such conversion or receipt
of such interest payment, the Holder, together with any affiliate thereof, would
beneficially own (as determined in accordance with Section 13(d) of the Exchange
Act and the rules promulgated thereunder) in excess of 9.99% of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of
interest.    Since the Holder will not be obligated to
report to the Company the number of shares of Common Stock it may hold at the
time of a conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 9.99% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of this
Debenture is convertible shall be the responsibility and obligation of the
Holder.  If the Holder has delivered a Conversion Notice for a
principal amount of this Debenture that, without regard to any other shares that
the Holder or its affiliates may beneficially own, would result in the issuance
in excess of the permitted amount hereunder, the Company shall notify the Holder
of this fact and shall honor the conversion for the maximum principal amount
permitted to be converted on such Conversion Date in accordance with Section
4(a) and, any principal amount tendered for conversion in excess of the
permitted amount hereunder shall remain outstanding under this Debenture. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 65 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (d) Other
Provisions.

     

    (i) The
Company shall at all times reserve and keep available out of its authorized
Common Stock the full number of shares of Common Stock issuable upon conversion
of all outstanding amounts under this Debenture; and within three (3) Business
Days following the receipt by the Company of a Holder's notice that such minimum
number of Underlying Shares is not so reserved, the Company shall promptly
reserve a sufficient number of shares of Common Stock to comply with such
requirement.

     

    (ii) All
calculations under this Section 4 shall be rounded to the nearest $0.0001 or
whole share.

     

    (iii) The
Company covenants that it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of this Debenture and payment of interest on this
Debenture, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder, not less
than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in this Debenture or in the Transaction Documents) be issuable (taking
into account the adjustments and restrictions set forth herein) upon the
conversion of the outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and, if the Underlying Shares Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Shares Registration
Statement.

     

    (iv) Nothing
herein shall limit a Holder's right to pursue actual damages or declare an Event
of Default pursuant to Section 2 herein for the Company 's failure to deliver
certificates representing shares of Common Stock upon conversion within the
period specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief, in each case without
the need to post a bond or provide other security. The exercise of any such
rights shall not prohibit the Holder from seeking to enforce damages pursuant to
any other Section hereof or under applicable law.

     

    (5) Adjustments to Conversion
Price

     

    (a) Adjustment of Conversion
Price upon Issuance of Common Stock.  If the Company, at any
time while this Debenture is outstanding, issues or sells, or in accordance with
this Section 5(a) is deemed to have issued or sold, any shares of Common Stock,
excluding shares of Common Stock, Convertible Securities or  Options
deemed to have been issued or sold by the Company in connection with any
Excluded Securities, for a consideration per share (the “New Issuance Price”)
less than a price equal to the Conversion Price in effect immediately prior to
such issue or sale (such price the "Applicable Price")
(the foregoing a "Dilutive Issuance"),
then immediately after such Dilutive Issuance the Conversion Price then in
effect shall be reduced to an amount equal to the product of (A) the Conversion
Price in effect immediately prior to such Dilutive Issuance and (B) the quotient
determined by dividing (1) the sum of (I) the product derived by multiplying the
Conversion Price in effect immediately prior to such Dilutive Issuance and the
number of shares of Common Stock Deemed Outstanding immediately prior to such
Dilutive Issuance plus (II) the consideration, if any, received by the Company
upon such Dilutive Issuance, by (2) the product derived by multiplying (I) the
Conversion Price in effect immediately prior to such Dilutive Issuance by (II)
the number of shares of Common Stock Deemed Outstanding immediately after such
Dilutive Issuance.  For purposes of determining the adjusted
Conversion Price under this Section 5(a), the following shall be
applicable:

     

    (i) Issuance of
Options.  If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of such Option is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share.  For
purposes of this Section, the "lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon conversion
or exchange or exercise of any Convertible Securities issuable upon exercise of
such Option" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon granting or sale of the Option, upon exercise of the Option
and upon conversion or exchange or exercise of any Convertible Security issuable
upon exercise of such Option.  No further adjustment of the Conversion
Price shall be made upon the actual issuance of such share of Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange or exercise of such
Convertible Securities.

     

    (ii) Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange or exercise thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per
share.  For the purposes of this Section, the "lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
or exercise" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion or exchange or exercise of such Convertible Security.  No
further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion or exchange or exercise
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which adjustment
of the Conversion Price had been or are to be made pursuant to other provisions
of this Section, no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii) Change in Option Price or
Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exchange or exercise of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable or
exercisable for Common Stock changes at any time, the Conversion Price in effect
at the time of such change shall be adjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible Securities
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold.  For purposes of this Section, if the terms of any Option or
Convertible Security that was outstanding as of the Issuance Date are changed in
the manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change.  No adjustment shall be made if such adjustment
would result in an increase of the Conversion Price then in effect.

     

    (iv) Calculation of Consideration
Received.  In case any Option is issued in connection with the
issue or sale of other securities of the Company, together comprising one
integrated transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have been issued
for the difference of (x) the aggregate fair market value of such Options and
other securities issued or sold in such integrated transaction, less (y) the
fair market value of the securities other than such Option, issued or sold in
such transaction and the other securities issued or sold in such integrated
transaction will be deemed to have been issued or sold for the balance of the
consideration received by the Company.  If any Common Stock, Options
or Convertible Securities are issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor will be deemed to be the
gross amount raised by the Company; provided, however, that such gross amount is
not greater than 110% of the net amount received by the Company
therefor.  If any Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Closing Bid Price of such securities on the date of receipt.  If any
Common Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be.  The fair value of any consideration
other than cash or securities will be determined jointly by the Company and the
Holder.  If such parties are unable to reach agreement within ten (10)
days after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holder.  The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne by the Company.

     

    (v) Record
Date.  If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.

     

    (b) Adjustment of Conversion
Price upon Subdivision or Combination of Common Stock.  If the
Company, at any time while this Debenture is outstanding, shall (a) pay a
stock dividend or otherwise make a distribution or distributions on shares of
its Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock, (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (d) issue
by reclassification of shares of the Common Stock any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.

     

    (c) Purchase
Rights.  If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"),
then the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Debenture (without taking into account any
limitations or restrictions on the convertibility of this Debenture) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.

     

    (d) Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 4 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Debenture; provided that no
such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 5.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (e) Other Corporate
Events.  In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any transaction pursuant to which
holders of shares of Common Stock are entitled to receive securities or other
assets with respect to or in exchange for shares of Common Stock (a "Corporate Event"),
the Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon a conversion of this Debenture, at the
Holder's option, (i) in addition to the shares of Common Stock receivable upon
such conversion, such securities or other assets to which the Holder would have
been entitled with respect to such shares of Common Stock had such shares of
Common Stock been held by the Holder upon the consummation of such Corporate
Event (without taking into account any limitations or restrictions on the
convertibility of this Debenture) or (ii) in lieu of the shares of Common Stock
otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would have
been entitled to receive had this Debenture initially been issued with
conversion rights for the form of such consideration (as opposed to shares of
Common Stock) at a conversion rate for such consideration commensurate with the
Conversion Rate.  Provision made pursuant to the preceding sentence
shall be in a form and substance satisfactory to the Holder.  The
provisions of this Section shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of this Debenture.

     

    (f) Whenever
the Conversion Price is adjusted pursuant to Section 5 hereof, the Company shall
promptly mail to the Holder a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.

     

    (g) Rights Upon Fundamental
Transaction.  If at any time while this Debenture is
outstanding, (1) the Company effects any merger or consolidation of the Company
or any subsidiary of the Company with or into another Person where the Company
is not the surviving party, (2) the Company or any subsidiary of the Company
effects any sale of more than one-half of the assets of the Company in one or a
series of related transactions, or (3) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property (collectively, a “Fundamental
Transaction”), the Holder shall have the right to (A) require the
redemption of all amounts owed under this Debenture, including Principal,
accrued and unpaid Interest, and any other charges, (B) convert the aggregate
amount of this Debenture then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such Fundamental Transaction, and such Holder shall be
entitled upon such event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into which such
aggregate amount of this Debenture could have been converted immediately prior
to such Fundamental Transaction would have been entitled, or (C) in the case of
a merger or consolidation, require the surviving entity to issue to the Holder a
convertible debenture with a principal amount equal to the aggregate principal
amount of this Debenture then held by such Holder, plus all accrued and unpaid
interest and other amounts owing thereon, which such newly issued convertible
Debenture shall have terms identical (including with respect to conversion) to
the terms of this Debenture, and shall be entitled to all of the rights and
privileges of the Holder of this Debenture set forth herein and the agreements
pursuant to which this Debentures were issued. In the case of clause (C), the
conversion price applicable for the newly issued convertible debenture shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any Acquisition Transaction shall include such terms so as to continue
to give the Holder the right to receive the securities, cash and property set
forth in this Section upon any conversion or redemption following such event.
This provision shall similarly apply to successive such events.  In
the event that the Holder chooses to require the redemption of the Debenture
pursuant to clause (A) of this section and the valuation of the Company for the
purposes of the Fundamental Transaction is less than $0.35 per share, then the
exercise price of the Warrants shall be adjusted downward to a price equal to a
forty percent discount to the per share valuation of the Fundamental
Transaction.

     

    (6) REISSUANCE OF THIS
DEBENTURE.

     

    (a) Transfer.  If
this Debenture is to be transferred, the Holder shall surrender this Debenture
to the Company, whereupon the Company will, subject to the satisfaction of the
transfer provisions of the Securities Purchase Agreement, forthwith issue and
deliver upon the order of the Holder a new Debenture (in accordance with Section
6(d)), registered in the name of the registered transferee or assignee,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Debenture
(in accordance with Section 6(d)) to the Holder representing the outstanding
Principal not being transferred.  The Holder and any assignee, by
acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of Section 4(b)(iii) following conversion or redemption of any
portion of this Debenture, the outstanding Principal represented by this
Debenture may be less than the Principal stated on the face of this
Debenture.

     

    (b) Lost, Stolen or Mutilated
Debenture.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Debenture, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Debenture,
the Company shall execute and deliver to the Holder a new Debenture (in
accordance with Section 6(d)) representing the outstanding
Principal.

     

    (c) Debenture Exchangeable for
Different Denominations.  This Debenture is exchangeable, upon
the surrender hereof by the Holder at the principal office of the Company, for a
new Debenture or Debentures (in accordance with Section 6(d)) representing in
the aggregate the outstanding Principal of this Debenture, and each such new
Debenture will represent such portion of such outstanding Principal as is
designated by the Holder at the time of such surrender.

     

    (d) Issuance of New
Debentures.  Whenever the Company is required to issue a new
Debenture pursuant to the terms of this Debenture, such new Debenture (i) shall
be of like tenor with this Debenture, (ii) shall represent, as indicated on the
face of such new Debenture, the Principal remaining outstanding (or in the case
of a new Debenture being issued pursuant to Section 6(a) or Section 6(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Debentures issued in connection with such issuance,
does not exceed the Principal remaining outstanding under this Debenture
immediately prior to such issuance of new Debentures), (iii) shall have an
issuance date, as indicated on the face of such new Debenture, which is the same
as the Issuance Date of this Debenture, (iv) shall have the same rights and
conditions as this Debenture, and (v) shall represent accrued and unpaid
Interest from the Issuance Date.

     

    
      (7) NOTICES.  Any
notices, consents, waivers or other communications required or permitted to be
given under the terms hereof must be in writing and will be deemed to have been
delivered:  (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one (1) Trading Day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same.  The addresses and facsimile numbers for such
communications shall be:

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    

    
      	
              If
      to the Company, to:

            	
              IR
      Biosciences Holdings, Inc.

            
	 
      	
              8767
      E. Via De Ventura, Suite 190

            
	 
      	
              Scottsdale,
      AZ 85258

            
	 
      	
              Attention:  Chief
      Executive Officer

            
	 
      	
              Telephone:                          (480)
      922-4781

            
	 
      	
              Facsimile:                             (602)
      684-2677

            
	 
      	 
      
	
              With
      a copy to:

            	
              Kirkpatrick
      & Lockhart Preston Gates Ellis, LLP

            
	 
      	
              10100
      Santa Monica Blvd., 7th
      Floor

            
	 
      	
              Los
      Angeles, CA 90067

            
	 
      	
              Attention:                            Thomas
      J. Poletti

            
	 
      	
              Telephone:                           (310)
      552-5045

            
	 
      	
              Facsimile:                              (310)
      552-5001

            

    

    

    
      	
              If
      to the Holder:

            	
              YA
      Global Investments, LP

            
	 
      	
              101
      Hudson Street, Suite 3700

            
	 
      	
              Jersey
      City, NJ  07302

            
	 
      	
              Attention:                             Mark
      Angelo

            
	 
      	
              Telephone:                            (201)
      985-8300

            
	 
      	 
      
	
              With
      a copy to:

            	
              Troy
      Rillo, Esq.

            
	 
      	
              101
      Hudson Street – Suite 3700

            
	 
      	
              Jersey
      City, NJ 07302

            
	 
      	
              Telephone:                            (201)
      985-8300

            
	 
      	
              Facsimile:                               (201)
      985-8266

            
	 
      	 
      

    

    

    or at
such other address and/or facsimile number and/or to the attention of such other
person as the recipient party has specified by written notice given to each
other party three (3) Business Days prior to the effectiveness of such
change.  Written confirmation of receipt (i) given by the recipient of
such notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

     

    (8) Except as
expressly provided herein, no provision of this Debenture shall alter or impair
the obligations of the Company, which are absolute and unconditional, to pay the
principal of, interest and other charges (if any) on, this Debenture at the
time, place, and rate, and in the coin or currency, herein
prescribed.  This Debenture is a direct obligation of the Company. As
long as this Debenture is outstanding, the Company shall not and shall cause
their subsidiaries not to, without the consent of the Holder, (i) amend its
certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder; (ii) repay, repurchase or offer to
repay, repurchase or otherwise acquire shares of its Common Stock or other
equity securities other than as to the Underlying Shares to the extent permitted
or required under the Transaction Documents; or (iii) enter into any agreement
with respect to any of the foregoing.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (9) 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.

     

    (10) RESERVED.

     

    (11) This
Debenture shall be governed by and construed in accordance with the laws of the
State of New Jersey, without giving effect to conflicts of laws
thereof.  Each of the parties consents to the jurisdiction of the
Superior Courts of the State of New Jersey sitting in Hudson County, New Jersey
and the U.S. District Court for the District of New Jersey sitting in
Newark, New Jersey in connection with any dispute arising under this Debenture
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens to the bringing of any
such proceeding in such jurisdictions.

     

    (12) If the
Company fails to strictly comply with the terms of this Debenture, then the
Company shall reimburse the Holder promptly for all fees, costs and expenses,
including, without limitation, attorneys’ fees and expenses incurred by the
Holder in any action in connection with this Debenture, including, without
limitation, those incurred: (i) during any workout, attempted workout, and/or in
connection with the rendering of legal advice as to the Holder’s rights,
remedies and obligations, (ii) collecting any sums which become due to the
Holder, (iii) defending or prosecuting any proceeding or any counterclaim to any
proceeding or appeal; or (iv) the protection, preservation or enforcement of any
rights or remedies of the Holder.

     

    (13) Any
waiver by the Holder of a breach of any provision of this Debenture shall not
operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Debenture. The failure of the
Holder to insist upon strict adherence to any term of this Debenture on one or
more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Debenture. Any waiver must be in writing.

     

    (14) If any
provision of this Debenture is invalid, illegal or unenforceable, the balance of
this Debenture shall remain in effect, and if any provision is inapplicable to
any person or circumstance, it shall nevertheless remain applicable to all other
persons and circumstances. If it shall be found that any interest or other
amount deemed interest due hereunder shall violate applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on this Debenture as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may lawfully do
so) hereby expressly waives all benefits or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impeded
the execution of any power herein granted to the Holder, but will suffer and
permit the execution of every such as though no such law has been
enacted.

     

    (15) Whenever
any payment or other obligation hereunder shall be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business
Day.

     

    (16) THE
PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF
THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

     

    (17) CERTAIN
DEFINITIONS  For purposes of this Debenture, the following
terms shall have the following meanings:

     

    (a) “Approved Stock Plan”
means a stock option plan that has been approved by the Board of Directors of
the Company,

     

    (b) "Bloomberg" means
Bloomberg Financial Markets.

     

    (c) “Business Day” means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday in the United States or a day on which banking institutions are
authorized or required by law or other government action to close.

     

    (d) “Change of Control
Transaction” means the occurrence of (a) an acquisition after the date
hereof by an individual or legal entity or “group” (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
through legal or beneficial ownership of capital stock of the Company, by
contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Company (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Company which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), or (c) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (a) or (b).

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (e) “Closing Bid Price”
means the price per share in the last reported trade of the Common Stock on a
Primary Market or on the exchange  which the Common Stock is then
listed as quoted by Bloomberg.

     

    (f) “Convertible
Securities” means any stock or securities (other than Options) directly
or indirectly convertible into or exercisable or exchangeable for Common
Stock.

     

    (g) “Commission” means the
Securities and Exchange Commission.

     

    (h) “Common Stock” means
the common stock, par value $.001, of the Company and stock of any other class
into which such shares may hereafter be changed or reclassified.

     

    (i) "Equity Conditions"
means each of the following conditions: (i) on each day during the period
beginning two (2) weeks prior to the applicable date of determination and ending
on and including the applicable date of determination (the "Equity Conditions
Measuring Period"), either (x) the Underling Shares shall be subject to an
Underlying Shares Registration Statement which is effective and available for
the resale of all applicable shares of Common Stock to be issued in connection
with the event requiring determination or (y) all applicable shares of Common
Stock to be issued in connection with the event requiring determination shall be
eligible for sale without restriction and without the need for registration
under any applicable federal or state securities laws; (ii) on each day during
the Equity Conditions Measuring Period, the Common Stock is designated for
quotation on the Principal Market and shall not have been suspended from trading
on such exchange or market nor shall delisting or suspension by such exchange or
market been threatened or pending either (A) in writing by such exchange or
market or (B) by falling below the then effective minimum listing maintenance
requirements of such exchange or market; (iii) during the Equity Conditions
Measuring Period, the Company shall have delivered Conversion Shares upon
conversion of the Debentures to the Holder on a timely basis as set forth in
Section 4(b)(ii) hereof; (iv) any applicable shares of Common Stock to be issued
in connection with the event requiring determination may be issued in full
without violating Section 4(c) hereof; (v) during the Equity Conditions
Measuring Period, there shall not have occurred either (A) an Event of Default
or (B) an event that with the passage of time or giving of notice would
constitute an Event of Default; and (vii) the Company shall have no knowledge of
any fact that would cause any applicable shares of Common Stock to be issued in
connection with the event requiring determination not to be eligible for sale
without restriction for at least the next 45 days. 

     

    (j) “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

     

    (k) “Excluded Securities”
means, (a) shares or options issued or deemed to have been issued by the Company
pursuant to an Approved Stock Plan (b) shares of Common Stock issued or deemed
to be issued by the Company upon the conversion, exchange or exercise of any
right, option, obligation or security outstanding on the date prior to date of
the Securities Purchase Agreement, provided that the terms of such right,
option, obligation or security are not amended or otherwise modified on or after
the date of the Securities Purchase Agreement, and provided that the conversion
price, exchange price, exercise price or other purchase price is not reduced,
adjusted or otherwise modified and the number of shares of Common Stock issued
or issuable is not increased (whether by operation of, or in accordance with,
the relevant governing documents or otherwise) on or after the date of the
Securities Purchase Agreement, (c) shares issued in connection with any
acquisition by the Company, whether through an acquisition of stock or a merger
of any business, assets or technologies, leasing arrangement or any other
transaction the primary purpose of which is not to raise equity capital, and
(d) the shares of Common Stock issued or deemed to be issued by the Company
upon conversion of this Debenture.

     

    (l) "Holder Pro Rata
Amount" means a fraction (i) the numerator of which is the Original
Principal Amount of this Debenture on the Issuance Date and (ii) the denominator
of which is the aggregate Purchase Price (as defined in the Securities Purchase
Agreement).

     

    (m) "Interest Conversion
Price" means that price which shall be computed as ninety percent (90%)
of the average Volume Weighted Average Prices of the Common Stock during the ten
(10) consecutive Trading Days immediately preceding the applicable date of
determination.  All such determinations to be appropriately adjusted
for any stock split, stock dividend, stock combination or other similar
transaction.

     

    (n) “Interest Payment
Date” shall mean the last day of each calendar quarter beginning on
September 30, 2008.

     

    (o) “Options” means any
rights, warrants or options to subscribe for or purchase shares of Common Stock
or Convertible Securities.

     

    (p) “Original Issue Date”
means the date of the first issuance of this Debenture regardless of the number
of transfers and regardless of the number of instruments, which may be issued to
evidence such Debenture.

     

    (q) “Person” means a
corporation, an association, a partnership, organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.

     

    (r)  “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

     

    (s) “Securities Purchase
Agreement” means the Securities Purchase Agreement dated January 3, 2008
by and among the Company and the Buyers listed on Schedule I attached
thereto.

     

    (t) “Security Documents”
means collectively, the Security Agreement, the Patent Security Agreement, and
the Guaranty.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (u) “Trading Day” means a
day on which the shares of Common Stock are quoted on the OTCBB or quoted or
traded on such Primary Market on which the shares of Common Stock are then
quoted or listed; provided, that in the event that the shares of Common Stock
are not listed or quoted, then Trading Day shall mean a Business
Day.

     

    (v) “Transaction
Documents” means the Securities Purchase Agreement or any other agreement
delivered in connection with the Securities Purchase Agreement, including,
without limitation, the Security Documents, the Irrevocable Transfer Agent
Instructions.

     

    (w) Triggering Event”
means the occurrence of any of the following: (i) December 31, 2009, or (ii) a
failure by the Company’s to achieve any of the Triggering
Milestones.

     

    (x) “Triggering
Milestones” means each of

     

    (i) successful
completion of preclinical studies of Homspera in stem cells designed to
show evidence of biological activity (defined as a response by the stem cells,
either by molecular or cellular markers or other cellular characterization,
including, for example, proliferation and colony forming activity) on this
cell type by June 30, 2008,

     

    (ii) completion
of preclinical H5N1 challenge study in ferrets, which studies shall including
evaluating whole animal and immunological responses to Homspera treatment
following H5N1 infection and which would suggest and/or support therapeutic
activity by December 31, 2008, or

     

    (iii) submission
of  a complete Investigational New Drug Application (“IND”) for the use of
Homspera in humans which IND shall be submitted to the FDA for at least one
clinical trial (Phase I) in humans by June 30, 2009.

     

    (y) “Underlying Shares”
means the shares of Common Stock issuable upon conversion of this Debenture or
as payment of interest in accordance with the terms hereof.

     

    (z) "Volume Limitation"
means 25% of the aggregate dollar trading volume (as reported on Bloomberg) of
the Common Stock on the Principal Market over the thirty (30) consecutive
Trading Day period ending on the Trading Day immediately preceding the
applicable date of determination.

     

    (aa) "Volume Weighted Average
Price" means, for any security as of any date, the daily dollar
volume-weighted average price for such security on the Primary Market as
reported by Bloomberg through its “Historical Prices – Px Table with Average
Daily Volume” functions, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC.

     

    (bb) "Warrants" has the
meaning ascribed to such term in the Securities Purchase Agreement, and shall
include all warrants issued in exchange therefor or replacement
thereof.

     

    [Signature
Page Follows]

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    IN WITNESS WHEREOF, the
Company has caused this Secured Convertible Debenture to be duly executed by a
duly authorized officer as of the date set forth above.

     

    

    
      	 
      	
              COMPANY:

            
	 
      	
              IR
      BIOSCIENCES HOLDINGS, INC.

            
	 
      	 
      
	 
      	
              By:  /s/
      Michael K.
      Wilhelm                           
                                                                 

            
	 
      	
              Name:
      Michael K. Wilhelm  

            
	 
      	
              Title:  
      President and Chief Executive Officer

            
	 
      	 
      

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
I

     

     

    CONVERSION
NOTICE

     

     

    (To
be executed by the Holder in order to Convert the Debenture)

     

    

    
      	
              TO:

            

    

    

    The
undersigned hereby irrevocably elects to convert $ of the principal amount of
Debenture No.IRBO-1-2 into Shares of Common Stock of IR BIOSCIENCES HOLDINGS, INC.,
according to the conditions stated therein, as of the Conversion Date written
below.

     

    
      	
              Conversion
      Date:

            	 
      
	
              Conversion
      Amount to be converted:

            	
              $                                                                                     

            
	
              Conversion
      Price:

            	
              $                                                                                     

            
	
              Number
      of shares of Common Stock to be issued:

            	 
      
	
              Amount
      of Debenture Unconverted:

            	
              $___________________________________                                                                                     

            
	 
      	 
      
	 
      	 
      
	
              Please
      issue the shares of Common Stock in the following name and to the
      following address:

            
	
              Issue
      to:

            	 
      
	 
      	 
      
	
              Authorized
      Signature:

            	 
      
	
              Name:

            	 
      
	
              Title:

            	 
      
	
              Broker
      DTC Participant Code:

            	 
      
	
              Account
      Number:Warrant

 Exhibit 4.1 
 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO RULE 144 OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. 
 WARRANT TO PURCHASE STOCK 
  

			
	Corporation:	  	TORREYPINES THERAPEUTICS, INC., a Delaware corporation
	Number of Shares:	  	78,832
	Class of Stock:	  	Common
	Initial Exercise Price:	  	$1.37
	Issue Date:	  	June 11, 2008
	Expiration Date:	  	June 11, 2013 (Subject to Section 4.1)

 THIS WARRANT TO PURCHASE STOCK (“WARRANT”) CERTIFIES THAT, for good and valuable
consideration, the receipt of which is hereby acknowledged, COMERICA BANK, a Texas banking association, or its assignee (“Holder”), is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the
“Shares”) of TORREYPINES THERAPEUTICS, INC. (the “Company”) at the initial exercise price per Share (the “Warrant Price”) all as set forth above and as adjusted pursuant to this Warrant, subject to the provisions and
upon the terms and conditions set forth in this Warrant. 
 ARTICLE 1. EXERCISE. 
 1.1 Method of Exercise. Holder may exercise this Warrant by delivering this Warrant and a duly executed Notice of Exercise in substantially the
form attached as Appendix 1 to the principal office of the Company. Holder shall also deliver to the Company a check or wire for the aggregate Warrant Price for the Shares being purchased. 
 1.2 Intentionally Omitted. 
 1.3
Delivery of Certificate and New Warrant. Within 45 days after Holder exercises this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised and has not expired, a new
warrant representing the Shares not so acquired. 
 1.4 Replacement of Warrants. In the case of loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of
this Warrant, a new warrant of like tenor. 
 1.5 Acquisition of the Company. 
 1.5.1 “Acquisition.” For the purpose of this Warrant, “Acquisition” means (a) any sale, license, or
other disposition of all or substantially all of the assets (including intellectual property) of the Company, or (b) any reorganization, consolidation, merger or sale of the voting securities of the Company or any other similar transaction
where the holders of the Company’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity or its parent after the transaction. 
 1.5.2 Assumption of Warrant. Upon the closing of any Acquisition (other than an Acquisition in which the consideration received by
the Company’s stockholders consists solely of cash), and as a condition precedent thereto, the successor or surviving entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly, and the Warrant Price and number and class of Shares shall continue to be subject to adjustment from time to time in accordance with the provisions hereof. 
  

 1 

 1.6 Price Per Share. The Initial Exercise Price hereof shall be $1.37. 
 ARTICLE 2. ADJUSTMENTS TO THE SHARES. 
 2.1 Stock
Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock payable in common stock, or other securities, or subdivides the outstanding common stock into a greater amount of common stock, then upon exercise of this
Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision
occurred. 
 2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that
results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. The Company or its successor shall promptly issue to Holder a new warrant for such
new securities or other property. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant
Price and to the number of securities or property issuable upon exercise of the new warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 
 2.3 Adjustments for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification, reverse split or otherwise,
into a lesser Number of Shares, the Warrant Price shall be proportionately increased and the number of Shares issuable under this Warrant shall be proportionately decreased. If the outstanding Shares are split or multiplied, by reclassification or
otherwise, into a greater Number of Shares, the Warrant Price shall be proportionately decreased and the number of Shares issuable under this Warrant shall be proportionately increased. 
 2.4 Intentionally Omitted. 
 2.5
No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all the provisions of this Article 2 and in taking all such
action as may be necessary or appropriate to protect Holder’s rights under this Article 2 against impairment. 
 2.6 Certificate as
to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate signed by its Chief Financial Officer setting forth such adjustment and the facts
upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. 
 2.7 Fractional Shares. No fractional Shares shall be issuable upon exercise of this Warrant and the Number of Shares to be issued shall be rounded
down to the nearest whole Share. If a fractional share interest arises upon any exercise of the Warrant, the Company shall eliminate such fractional share interest by paying Holder an amount computed by multiplying the fractional interest by the
fair market value, as determined by the Company’s Board of Directors, of a full Share. 
  

 2 

 ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 
 3.1 Representations and Warranties. The Company hereby represents and warrants to, and agrees with, the Holder that all Shares which may be issued
upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. 
 3.2
Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon its stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer
for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of stock; or (d) to merge or
consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up, then, in connection with each such event, the Company shall give Holder (1) at
least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of stock will be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (a) and (b) above; and (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place
(and specifying the date on which the holders of stock will be entitled to exchange their stock for securities or other property deliverable upon the occurrence of such event). 
 ARTICLE 4. MISCELLANEOUS. 
 4.1 Term; Exercise Upon Expiration. This Warrant is exercisable in
whole or in part, at any time and from time to time on or before the Expiration Date set forth above. The Company shall give Holder written notice of Holder’s right to exercise this Warrant not less than 90 days before the Expiration Date. If
the notice is not so given, the Expiration Date shall automatically be extended until 90 days after the date the Company delivers such notice to Holder. 
 4.2 Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO RULE 144 OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. 
 4.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares
issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state
securities laws by the transferor and the transferee. 
 4.4 Transfer Procedure. Subject to the provisions of Section 4.3, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of this Warrant
being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder, if applicable); provided, however, that
Holder may transfer all or part of this Warrant to its affiliates, including, without limitation, Comerica Incorporated, at any time without notice or the delivery of any other instrument to the Company, and such affiliate shall then be entitled to
all the rights of Holder under this Warrant and any related agreements, and the Company shall cooperate fully in ensuring that any stock issued upon exercise of this Warrant is issued in the name of the affiliate that exercises this Warrant. The
terms and conditions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective permitted successors and assigns. Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the right to refuse to transfer any portion of this Warrant to any person who directly competes with the Company. 
  

 3 

 4.5 Notices. All notices and other communications from the Company to the Holder, or vice versa,
shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the
Company or such Holder from time to time. All notices to the Holder shall be addressed as follows: 
 Comerica Bank c/o
Comerica Incorporated 
 Attn: Warrant Administrator 
 1717 Main Street, 5th Floor 
 Dallas, TX 75201 
 All notices to the Company shall be addressed as follows: 
 TORREYPINES THERAPEUTICS, INC. 
 Attn: Chief
Financial Officer 
 11085 N. Torrey Pines Road, Suite 300 
 La Jolla, CA 92037 
 4.6 Amendments. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 
 4.7 Attorneys’ Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other
party all costs incurred in such dispute, including reasonable attorneys’ fees. 
 [Balance of Page Intentionally Left
Blank] 
  

 4 

 4.8 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of
the State of California, without giving effect to its principles regarding conflicts of law. 
  

			
	TORREYPINES THERAPEUTICS, INC.
		
	By:	 	/s/ Craig A. Johnson

			
	 Name:
	 	 Craig A. Johnson

			
	 Title:
	 	 Chief Financial Officer

			
		
	 By:
	 	 

			
		
	 Name:
	 	 

			
		
	 Title:
	 	 
		 	

 [Signature Page to Warrant to Purchase Stock]

 APPENDIX 1 
 NOTICE OF EXERCISE 
 1. The undersigned hereby elects to purchase
                     shares of the
                     stock of TORREYPINES THERAPEUTICS, INC. pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full. 
 2. Please issue a certificate or certificates representing said shares in the name of the
undersigned or in such other name as is specified below: 
 Comerica Bank 
 Attn: Warrant Administrator 
 1717 Main
Street, 5th Floor 
 Dallas, TX 75201 
 3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws.

 COMERICA BANK or Assignee 

	
	
	  
	(Signature)
	
	  
	(Name and Title)
	
	  
	(Date)

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