1
EXHIBIT 99.2
THE SECURITIES REPRESENTED HEREBY AND ANY SHARES (AS DEFINED BELOW) ISSUED UPON
THE EXERCISE OF CONVERSION RIGHTS HEREUNDER HAVE BEEN AND WILL BE ISSUED
PURSUANT TO REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), AND HAVE NOT BEEN REGISTERED UNDER THE 1933 ACT. SUCH
SECURITIES MAY NOT BE TRANSFERRED, OFFERED OR SOLD PRIOR TO THE END OF THE FORTY
(40) DAY PERIOD (THE "RESTRICTED PERIOD") COMMENCING ON DECEMBER 20, 1996 UNLESS
SUCH TRANSFER, OFFER OR SALE IS MADE IN AN "OFFSHORE TRANSACTION" AND NOT TO OR
FOR THE ACCOUNT OF OR BENEFIT OF A "U.S. PERSON" (AS SUCH TERMS ARE DEFINED IN
REGULATION S) AND IS OTHERWISE IN ACCORDANCE WITH THE REQUIREMENTS OF REGULATION
S. THIS NOTE MAY NOT BE CONVERTED INTO SHARES BY OR ON BEHALF OF ANY U.S.
PERSON. FOLLOWING THE EXPIRATION OF THE RESTRICTED PERIOD, THE SECURITIES
REPRESENTED HEREBY AND ANY SHARES ISSUED UPON THE EXERCISE OF CONVERSION RIGHTS
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A
U.S. PERSON UNLESS THE SECURITIES ARE REGISTERED UNDER THE 1933 ACT AND
APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
PINNACLE MICRO, INC.
6% CONVERTIBLE NOTE DUE DECEMBER 20, 2001
THIS NOTE is one of a duly authorized issue of Convertible Notes of PINNACLE
MICRO, INC., a Corporation duly organized and existing under the laws of the
state of Delaware (the "Company") designated as its 6% Convertible Notes Due
December 20, 2001, in an aggregate principal amount of up to $5,000,000 (the
"Notes").
FOR VALUE RECEIVED, the Company promises to pay to _______________ or the
permitted registered holder hereof (the "Holder"), the principal sum of
$______________ (United States Dollars) (the "Initial Principal Amount") or such
lesser principal amount as is indicated on the table (the "Table") below
following the conversion or conversions of this Note in accordance with
Paragraph 4 (the "Outstanding Principal Amount") on December 20, 2001 (the
"Maturity Date"), and to pay interest on the Outstanding Principal Amount from
time to time, semi-annually in arrears on the first day of each June and
December (the "Interest Payment Dates"), at the rate of 6% per annum accruing
from the date of issuance. Accrual of interest shall commence on the first
business day to occur after the date hereof until repayment in full of the
principal sum has been made or duly provided for. Accrued and unpaid interest
shall bear interest at the same rate from the due date of the interest payment,
until paid. The interest so payable will be paid at the option of the Company,
either in cash or in shares of the Company's common stock (the "Common Stock")
at the then applicable conversion price (computed as described in Paragraph 4
below) on June 20 and December 20 to the person in whose name this Note (or one
or more predecessor Notes) is registered on the records of the Company regarding
registration and transfers of the Notes (the "Note Register") on the tenth day
prior to the Interest Payment Date. The principal of, and interest on, this Note
are payable in such coin or currency of the United States of America as at the
time of
2
EXHIBIT 99.2 (CONTINUED)
payment is legal tender for payment of public and private debts, at the address
last appearing on the Note Register of the Company as designated in writing by
the Holder from time to time. The Company will pay the principal of and interest
upon this Note on the due date, free of any withholding or deduction of any kind
(subject to the provisions of Paragraph 2 below), to the registered Holder of
this Note as of the due date and addressed to such Holder at the last address
appearing on the Note Register. The forwarding of such check shall constitute a
payment of principal and interest hereunder and shall satisfy and discharge the
liability for principal and interest on this Note to the extent of the sum
represented by such check plus any amounts so deducted.
TABLE
OUTSTANDING
CONVERSION CONVERSION PRINCIPAL AUTHORIZED
DATE AMOUNT AMOUNT SIGNATURE
N/A N/A 2~ N/A
3
EXHIBIT 99.2 (CONTINUED)
This Note is subject to the following additional provisions:
1. The Notes are originally issuable in amounts of not less than
$100,000 and in denominations of $25,000 and integral multiples
thereof.
2. All payments on account of the principal of and interest on this Note
and all other amounts payable under this Note (whether made by the
Company or any other person) to or for the account of the Holder
hereunder shall be made free and clear of and without reduction by
reason of any present and future income, stamp, registration and
other taxes, levies, duties, costs and charges whatsoever imposed,
assessed, levied or collected by the United States or any political
subdivision or taxing authority thereof or therein, together with
interest thereon and penalties with respect thereto, if any, on or in
respect of this Note (all such taxes, levies, duties, costs and
charges being herein collectively called "United States Taxes").
Should any such payment be subject to any United States Tax and the
provisions of the preceding sentence of this Paragraph 2 either
cannot be effected or do not result in the Holder actually receiving
free and clear of all United States Taxes an amount equal to the full
amount provided under this Note, the Company shall pay to the Holder
such additional amounts as may be necessary to ensure that the Holder
receives a net amount equal to the full amount that it would have
received had such payment not been made subject to United States
Taxes unless withholding arises because holder has failed to furnish
the data described below in this Paragraph 2. In addition to the
United States Taxes paid by the Company or additional amounts paid to
the Holder, in each case pursuant to the preceding provisions of this
Paragraph 2 ("Additional Payments"), the Company shall also pay to
the Holder upon demand such additional amounts as may be necessary to
compensate the Holder, on an after-tax basis, for any tax or levy
imposed or assessed by any jurisdiction on or with respect to any
such Additional Payments (including any income taxes payable by the
Holder with respect to Additional Payments pursuant to the income tax
laws of the jurisdiction of its principal office or lending office or
any political subdivision or taxing authority thereof). Holder agrees
to provide Company a Form W-8, a certification under penalty of
perjury, or a certificate from a financial institution described in
Section 871(h)(4)(B) of the Internal Revenue Code of 1986
demonstrating that the Holder is not a United States person.
3. If at any time there occurs a transaction in which in excess of 50%
of the Company's voting power is transferred (excluding any public or
private offering of Company equity securities), including any
consolidation or merger of the Company with or into any other
corporation or other entity or person (whether or not the Company is
the surviving corporation), or any other corporate reorganization or
transaction or series of related transactions, the Holder of this
Note then outstanding may participate in any such transaction as a
class with common stockholders on the same basis as if this Note had
been converted one day prior to the effective date of such
transaction; provided, however, that at the option of the Holder of
this Note if such Holder may treat the effective date of any
transaction that occurs prior to December 20, 1998 as a redemption
date and shall be entitled to have the Company redeem this Note at a
price
4
EXHIBIT 99.2 (CONTINUED)
equal to 122.5% of the Outstanding Principal Amount of this Note,
plus accrued but unpaid interest. Such holder shall be entitled to
make such election at any time up to ten (10) days prior to the
effective date of the transaction. The Company shall not effect any
stock split, subdivision or combination with an effective date within
three (3) trading days preceding the effective date of a merger or
consolidation. The Company shall not make, or fix a record date for
the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of Common
Stock, with an effective date within three (3) trading days prior to
the effective date of a merger or consolidation.
4. The Holder of this Note is entitled, at its option, at any time
commencing (a) fifty-one (51) days after the Closing Date as defined
in the Subscription Agreement (as defined below) until maturity
hereof to convert thirty percent (30%) or any lesser portion of the
Initial Principal Amount which is at least $25,000 into shares of
Common Stock ("Shares") at a conversion price for each Share equal to
eighty-five percent (85%) of the average closing bid price of the
Common Stock for the five (5) trading days immediately preceding the
conversion date (b) eighty-one (81) days after the Closing Date, an
additional forty percent (40%) of the Initial Principal Amount may be
converted and the conversion price for each Share equal to eighty-two
and one half percent (82.5%) of the average closing bid price of the
Common Stock for the five (5) trading days immediately preceding the
conversion date, and (c) one hundred and eleven (111) days after the
Closing Date the remaining thirty percent (30%) of the Initial
Principal Amount may be converted and the conversion price for each
Share after the one hundred eleventh date shall be equal to eighty
percent (80%) of the average closing bid price of the Common Stock
for the five (5) trading days immediately preceding the conversion
date, respectively, provided, however, that in no event shall the
Holder be entitled to convert any portion of this Note in excess of
that portion of this Note upon conversion of which 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 this Note and the unexercised portion of the Warrant, as defined
in the Subscription Agreement) and (2) the number of Shares issuable
upon the conversion of the portion of this Note 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
4.9% of the outstanding Shares. 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, and Regulations 13 D-G thereunder,
except as otherwise provided in clause (1) of such proviso. In the
event of any stock split, dividend, combination or similar event
occurring after the Conversion Date and prior to the issuance of the
respective stock certificates, the conversion price will be subject
to appropriate adjustment. For purposes of this section, the closing
bid price of the Common Stock shall be the closing bid price as
reported by The Nasdaq Stock Market, or the closing bid price in the
over-the-counter market or, if the Common Stock is listed on a stock
exchange, the closing bid price on such exchange as reported in The
Wall Street Journal. Such conversion
5
EXHIBIT 99.2 (CONTINUED)
shall be effectuated by surrendering the Notes to be converted to the
Company, with the form of conversion notice attached to the Note as
Exhibit A, executed by the Holder of the Note evidencing such
Holder's intention to convert this Note, and accompanied, if required
by the Company, by proper assignment hereof in blank. Interest
accrued or accruing from the date of issuance to the date of
conversion on the amount so converted shall be paid in cash or at the
Company's option, in shares of common stock of the Company,
calculated at the same conversion price (as determined above), as
would apply on the conversion date of the principal amount being
converted but using the discount percentage applicable as of such
date and shall constitute payment in full of any such interest on the
same terms as would otherwise apply to the conversion of the
principal amount hereof. No fractional Shares 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. The date
on which notice of conversion is given (the "Conversion Date") shall
be deemed to be the date on which the Holder notifies to the Company
of its intention to convert by delivery, by facsimile transmission or
otherwise, of a copy of the Conversion Notice (as defined below).
Notice may be given by facsimile to the Company at (714) 789-3045.
This Note, together with the original executed copy of the Notice of
Conversion, shall be delivered to the Company as soon as practicable
following the date on which notice of conversion is given as
described above. Any unconverted principal amount and accrued
interest thereon shall at the maturity date be paid, at the option of
the Holder, in either (a) cash or (b) Shares valued at a price equal
to the average closing bid price of the Common Stock for the five (5)
trading days immediately preceding the maturity date.
Upon the surrender of this Note, accompanied by a Notice of
Conversion of Convertible Note in the form attached hereto as Exhibit
A, properly completed and duly executed by the Holder (a "Conversion
Notice"), the Company shall issue and, within five (5) business days
(the "Deadline") after actual delivery of this Note with the
Conversion Notice, deliver to or upon the order of the Holder (1)
that number of Shares for the portion of the Note converted as shall
be determined in accordance herewith and (2) this Note with the
appropriate notation to the Table by an authorized officer of the
Company to account for the remaining balance of the principal amount
hereof following conversion, if any. Without in any way limiting the
Holder's right to pursue other remedies, including actual damages
and/or equitable relief, the parties agree that if delivery of the
Shares issuable upon conversion of this Note is more than one (1)
business day after the Deadline the Company shall pay to the Holder
$150 per day in cash, for the first day beyond the Deadline and $500
per day for each day thereafter that the Company fails to deliver the
Shares. Such cash amount shall be paid to Holder by the fifth day of
the month following the month in which it has accrued or, at the
option of the Holder (by written notice to the Company by the first
day of the month following the month in which it has accrued), shall
be added to the principal amount of this Note, in which event
interest shall accrue thereon in accordance with the terms of this
Note and such additional principal amount shall be convertible into
Shares in accordance with the terms of this Note.
6
EXHIBIT 99.2 (CONTINUED)
The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing (i) the sum
of (A) that portion of the principal amount of the Note to be
converted plus (B) the "Conversion Date Interest" (as defined below),
by (ii) the Conversion Price in effect on the date the Conversion
Notice is delivered to the Company by the Holder. Conversion Date
Interest means the product of (i) the principal amount of the Note to
be converted, multiplied by (ii) a fraction (A) the numerator of
which is the number of days elapsed since the date of issuance of
this Note and (B) the denominator of which is 365, multiplied by
(iii) .06.
5. Not used.
6. At any time commencing one year after the Closing, Company may, by
written notice to Holder at Holder's registered address, prepay this
Note in whole or in part. Such notice shall be given at least ten
(10) business days prior to the payment date and on such date Company
shall pay the outstanding principal and all accrued interest on this
Note, unless prior to such payment date Holder has delivered a Notice
of Conversion. Upon delivery of a Notice of Conversion, the
provisions of Paragraph 4 shall apply, except that no further
interest shall accrue after the proposed payment date.
7. No provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal
of, and interest on, this Note at the time, place, and rate, and in
the coin or currency, herein prescribed. This Note and all other
Notes now or hereafter issued on similar terms are direct obligations
of the Company. This Note ranks equally with all other Notes now or
hereafter issued under the terms set forth herein. In the event of
any liquidation, reorganization, winding up or dissolution repayment
of this Note shall be subordinate in all respects to any other
indebtedness for borrowed money of the Company, whether outstanding
as of the date of this Note or hereafter incurred. Such subordination
shall extend without limiting the generality of the foregoing, to all
indebtedness of the Company to banks, financial institutions, other
secured lenders, equipment lessors and equipment finance companies,
but shall exclude trade debts; and any warrants, options or other
securities convertible into stock of the Company shall rank pari
passu with the Notes in all respects.
8. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of
dishonor, notice of acceleration or intent to accelerate, bringing of
suit and diligence in taking any action to collect amounts called for
hereunder and shall be directly and primarily liable for the payment
of all sums owing and to be owing hereon, regardless of and without
any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
7
EXHIBIT 99.2 (CONTINUED)
9. If the Company at any time or from time to time after the Closing
Date makes, a dividend or other distribution to holders of Common
Stock payable in securities of the Company other than Shares, then
and in each such event provision shall be made so that the Holder
shall receive upon conversion of this Note pursuant to Paragraph 4
hereof, in addition to the number of Shares receivable thereupon, the
amount of such other securities of the Company to which the Holder on
the relevant record or payment date, as applicable, of the number of
Shares so receivable upon conversion would have been entitled, plus
any dividends or other distributions which would have been received
with respect to such securities had the Holder thereafter, during the
period from the date of such event to and including the Conversion
Date retained such securities, subject to all other adjustments
called for during such period under this Note with respect to the
rights of the Holder.
10. If at any time or from time to time after the Closing Date, the
Common Stock issuable upon the conversion of the Note is changed into
the same or different number of shares of any class or classes of
stock, whether by re-capitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Note or a merger or
consolidation, provided for in Paragraph 3), then and in each such
event the Holder shall have the right thereafter to convert the Note
into the kind of stock receivable upon such re-capitalization,
reclassification or other change by holders of shares of Common
Stock, all subject to further adjustment as provided herein. In such
event, the formulae set forth herein for conversion and redemption
shall be equitably adjusted to reflect such change in number of
shares or, if shares of a new class of stock are issued, to reflect
the market price of the class or classes of stock issued in
connection with the above described transaction.
11. If at any time or from time to time after the Closing Date there is
a capital reorganization of the Common Stock (other than a
re-capitalization, subdivision, combination, reclassification
exchange of shares provided for elsewhere in this Note) then, as a
part of such reorganization, provision shall be made so that the
Holder shall thereafter be entitled to receive upon conversion of
this Note the number of shares of stock or other securities or
property to which a holder of the number of Shares deliverable upon
conversion would have been entitled on such capital reorganization.
In any such case, appropriate adjustment shall be made in the
application of the provisions of this Note with respect to the rights
of the Holder after the reorganization to the end that the provisions
of this Note shall be applicable after that event and be as nearly
equivalent as may be practicable, including, by way of illustration
and not limitation, by equitably adjusting the formulae set forth
herein for conversion and redemption to reflect the market price of
the securities or property issued in connection with the above
described transaction.
12. If one or more of the "Events of Default" as described in Paragraph
13 shall occur, the Company agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred by the
Holder in collecting any amount due under this Note.
8
EXHIBIT 99.2 (CONTINUED)
13. If one or more of the following described "Events of Default" shall
occur:
(a) The Company shall default in the payment of principal or
interest on this Note; or
(b) Any of the representations or warranties made by the Company
herein, in the Offshore Securities Subscription Agreement
dated as of December 20, 1996 between the Company and the
Holder (the "Subscription Agreement"), or in any certificate
or financial or other statements heretofore or hereafter
furnished by or on behalf of the Company in connection with
the execution and delivery of this Note or the Subscription
Agreement shall be false or misleading in any material
respect at the time made; or
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or
obligation of the Company under this Note and such failure
shall continue uncured for a period of thirty (30) days
after notice from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing
its inability to pay its debts as they mature; (3) make an
assignment for the benefit of creditors or commence
proceedings for its dissolution; or (4) apply for or consent
to the appointment of a trustee, liquidator or receiver for
it or for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or
business without its consent and shall not be discharged
within thirty (30) days after such appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
Company and shall not be dismissed within thirty (30) days
thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process except mechanics and materialmen's liens
incurred in the ordinary course of business in excess of Two
Hundred Thousand Dollars ($200,000) in the aggregate shall
be entered or filed against the Company or any of its
properties or other assets and shall remain unsatisfied,
unvacated, unbonded or unstayed for a period of thirty (30)
days (unless such order provides for delayed payment) or in
any event later than five (5) days prior to the date of any
proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company and, if instituted
against
9
EXHIBIT 99.2 (CONTINUED)
the Company, shall not be dismissed, stayed or bonded within
sixty (60) days after such institution or the Company shall
by any action or answer approve of, consent to, or acquiesce
in any such proceedings or admit the material allegations
of, or default in answering a petition filed in any such
proceeding; or
(i) The Company shall have its common stock delisted from an
exchange or The Nasdaq Stock Market.
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the
holders of a majority of all Notes then outstanding (which waiver
shall not be deemed to be a waiver of any subsequent default) at the
option of the holders of a majority of all Notes outstanding and in
their discretion, the Holder may consider this Note immediately due
and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately, and without
expiration of any period of grace, enforce any and all of the
Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, this Note shall be redeemed
by the Company at a redemption price per Note equal to (i) the lesser
of (a) 122.5% of the Outstanding Principal Amount due hereunder or
(b) the maximum redemption premium which may be permitted under the
laws of Delaware (including any provision of law relating to usury)
and (ii) accrued and unpaid interest.
14. If at any time on or after the date hereof and prior to the first
anniversary of the Closing Date, trading in the shares on the Common
Stock is suspended on the principal market or exchange for such
shares (including The Nasdaq Stock Market), for a period of five (5)
consecutive trading days, other than as a result of the suspension or
trading in securities in general, or if such Shares are delisted,
then, at the Holder's option, the Company shall redeem the Note at a
redemption date designated by Holder, and for the redemption price
provided in Paragraph 13.
15. Notwithstanding anything to the contrary contained herein, each
Conversion Notice shall contain a representation that, after giving
effect to the Shares to be issued pursuant to such conversion notice,
the total number of Shares deemed beneficially owned by the Holder,
together with all Shares deemed beneficially owned by the Holder's
"affiliates" as defined in Rule 144 of the Act, will not exceed 4.9%
of the total issued and outstanding Shares.
16. The Holder may, subject to compliance with the Subscription Agreement
and the provisions of Regulation S, without notice, transfer, assign,
mortgage or encumber this Note, any interest herein or any part
hereof integral multiples of $50,000 or the entire outstanding
balance to an "accredited investor" as defined in the 1933 Act (other
than to a U.S. Person or on behalf of a U.S. Person) that will be
acquiring the Note or interest herein for its account for the purpose
of investment and not with a view to, or
10
EXHIBIT 99.2 (CONTINUED)
for sale in connection with any distribution hereof and, each
assignee, transferee and mortgagee (which may include any affiliate
of the Holder) shall have the right to transfer or assign its
interest subject to the same limitations. Each such assignee,
transferee and mortgagee shall have all of the rights of the Holder
under this Note. The Company may condition registrations of transfers
on the receipt of a certificate from the assignee, transferee or
mortgagee in a form acceptable to the Company that contains
representations and warranties similar to those of the Holder
contained in Section 3 of the Subscription Agreement, and IRS Form
W-8 or an equivalent certification under penalty of perjury in
compliance with Section 871(h)(4)(B) of the Internal Revenue Code of
1986.
17. For so long as any amount payable under this Note remains unpaid, the
Company shall furnish to the Holder, upon request by the Holder, the
following information:
(a) No later than one hundred five (105) days following the end
of each fiscal year, beginning with the fiscal year ending
December 28, 1996, consolidated balance sheets, statements
of operations and statements of cash flow and shareholders'
equity of the Company and its subsidiaries, if any, prepared
in accordance with generally accepted accounting principles,
and audited by a firm of independent public accountants. The
Company may satisfy this requirement by delivering its
report on Form 10-K for each such year.
(b) Within fifty-one (51) days after the end of each quarter
(except the fourth quarter) of each fiscal year,
consolidated balance sheets, statements of operations and
statements of cash flow and shareholders' equity of the
Company and its subsidiaries. The Company may satisfy this
requirement by delivering its report on Form 10-Q for each
such quarter.
18. The Company covenants and agrees that until all amounts due under
this Note have been paid in full, by conversion or otherwise, unless
the Holder waives compliance in writing, the Company shall:
(a) Give prompt written notice to the Holder of any Event of
Default or of any other matter which has resulted in, or
could reasonably be expected to result in, a materially
adverse change in its financial condition or operations.
(b) Give prompt notice to the Holder of any claim, action or
proceeding which, in the event of any unfavorable outcome,
would or could reasonably be expected to have a Material
Adverse Effect (as defined in the Subscription Agreement) on
the financial condition of the Company.
(c) At all times reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting
the conversion of this Note such number of its duly
authorized Shares as shall from time to time be sufficient
to effect the conversion of the outstanding principal
balance of this Note into Shares. If the
11
EXHIBIT 99.2 (CONTINUED)
Company does not have a sufficient number of Shares
available to satisfy the Company's obligations to the Holder
upon receipt of a Conversion Notice or is otherwise unable
to issue such Shares in accordance with the terms of this
Note (a "Conversion Default"), from and after the fifth
(5th) day following a Conversion Default (which for all
purposes shall be deemed to have occurred upon the Company's
receipt of the applicable conversion notice), the Holder
shall have the right to demand from the Company immediate
redemption of this Note in cash at a redemption price equal
to 122.5% of the Outstanding Principal Amount, plus accrued
but unpaid interest on the Note; provided, however, that no
Redemption Notice may be delivered by the Holder subsequent
to the Holder's receipt of notice from the Company (sent by
overnight or 2-day courier with a copy sent by facsimile) of
availability of sufficient Shares to permit conversion (a
"Post-Default Conversion") of the Note; provided further
that such right shall be reinstated if the Company shall
thereafter fail to perfect such Post-Default Conversion by
delivery of Common Stock certificates in accordance with the
applicable provision of Paragraph 4 hereof and payment of
all accrued and unpaid interest in cash with respect thereto
within five business days of delivery of the notice of
Post-Default Conversion. In addition to the foregoing, upon
a Conversion Default, the rate of interest on the Note
shall, to the maximum extent of the law, be increased by two
percent (2%) (i.e., from 6% to 8% commencing on the first
day of the thirty (30) day period (or part thereof)
following a Conversion Default; an additional two percent
(2%) commencing on the first day of each of the second and
third such thirty (30) day periods (or part thereof); an
additional one percent (1%) on the first day of each
consecutive thirty (30) day period (or part thereof)
thereafter until such securities have been duly converted or
redeemed as herein provided. Any such interest which is not
paid when due shall, to the maximum extent permitted by law,
accrue interest until paid at the rate from time to time
applicable to interest on the Note as to which the
Conversion Default has occurred.
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or
mutilation of this Note and
(i) in the case of loss, theft or destruction, upon
provision of indemnity reasonably satisfactory to it and/or
its transfer agent, or
(ii) in the case of mutilation, upon surrender and
cancellation of this Note,
the Company at its expense will execute and deliver a new
Note, dated the date of the lost, stolen, destroyed or
mutilated Note.
19. The Holder of this Note, by acceptance hereof, agrees that this Note
is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Note or the Shares issuable upon
exercise thereof except under circumstances which will not result in
a violation of the 1933 Act or any applicable state securities' laws.
12
EXHIBIT 99.2 (CONTINUED)
20. In case any provision of this Note is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining
provisions of this Note will not in any way be affected or impaired
thereby.
21. This Note, the Warrant, the Subscription Agreement and the
Registration Rights Agreement (as defined in the Subscription
Agreement) between the Company and the Holder constitute the full and
entire understanding and agreement between the Company and the Holder
with respect to the subject hereof. Neither this Note nor any term
hereof may be amended, waived, discharged or terminated other than by
a written instrument signed by the Company and the Holder.
22. This Note shall be governed by and construed in accordance with the
laws of the state of California.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
PINNACLE MICRO, INC.
DATED: __________________________ BY: ______________________________
Name:
Title:
1~
DATED: __________________________ BY: ______________________________
Name:
Title:
Buyer certifies under penalty of perjury that Buyer is neither a
citizen nor a resident of the United States and that Buyer's full name
and address are as set out below:
4~
13
EXHIBIT 99.2 (CONTINUED)
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
RE: A CONVERTIBLE NOTE OF PINNACLE MICRO, INC.
IN THE PRINCIPAL AMOUNT OUTSTANDING OF $ __________________.
The undersigned hereby irrevocably elects to convert $ __________________ of the
outstanding principal amount of the above referenced Note No._________ (the
"Note") into shares of common stock of PINNACLE MICRO, INC. (the "Company")
according to the conditions hereof, as of the date written below. The
undersigned represents and warrants that (i) all of the requirements of
Regulation S promulgated under the Securities Act of 1933, as amended (the
"Securities Act") applicable to the undersigned have been complied with by the
undersigned, (ii) the undersigned is not a "U.S. Person" as defined in
Regulation S and the Note is not being converted on behalf of any "U.S. Person,"
(iii) the undersigned has not engaged in any transaction or series of
transactions that is a part of or a plan or scheme to evade the registration
requirements of the Securities Act, (iv) on the date of the conversion the
undersigned was located outside the United States and (iv) the undersigned has
complied with the terms and conditions of the Note and the Subscription
Agreement (as defined in the Note) pertaining to conversion of the Note.
Further, the undersigned represents and warrants that after giving effect to the
conversion hereby requested, the undersigned will not beneficially own, together
with its affiliates, more than 4.9% of the Company's issued and outstanding
common stock.
----------------------------------
Date of Conversion*
----------------------------------
Applicable Conversion Price
----------------------------------
Signature
----------------------------------
Name
Address:
----------------------------------
----------------------------------
* The original Note and this Notice of Conversion must be received by the
Company by the fifth business day following the Date of Conversion (as defined
in the Note).