THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THINKPATH INC. THAT
SUCH REGISTRATION IS NOT REQUIRED.
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST
NOT TRADE THE SECURITY IN THE PROVINCE OF ONTARIO, CANADA BEFORE THE DATE THAT
IS FOUR MONTHS AND A DAY AFTER THE LATER OF (I) JUNE 30, 2006 AND (II) THE DATE
THE ISSUER BECAME A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY OF CANADA.
SECURED TERM NOTE
FOR VALUE RECEIVED, THINKPATH INC., an Ontario corporation (the "PARENT"),
and the other companies listed on Exhibit A attached hereto (such other
companies together with the Parent, each a "COMPANY" and collectively, the
"COMPANIES"), jointly and severally, promises to pay to LAURUS MASTER FUND,
LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT, Ugland House, South
Church Street, George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the
"HOLDER") or its registered assigns or successors in interest, the sum of One
Million Four Hundred Thousand Dollars ($1,400,000), together with any accrued
and unpaid interest hereon, on June 30, 2009 (the "MATURITY DATE") if not sooner
indefeasibly paid in full. The original principal amount of this Secured
Non-Convertible Term Note subject to amortizing payments pursuant to Section 1.2
hereof is hereinafter referred to as the "AMORTIZING PRINCIPAL AMOUNT" and the
remaining original principal amount of this Secured Non-Convertible Term Note is
hereinafter referred to as the "NON-AMORTIZING PRINCIPAL AMOUNT." The Amortizing
Principal Amount and the Non-Amortizing Principal Amount are collectively
referred to herein as the "PRINCIPAL AMOUNT".
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Security Agreement dated as of the date
hereof by and between the Companies and the Holder (as amended, modified and/or
supplemented from time to time, the "SECURITY AGREEMENT").
The Principal Amount of this Secured Non-Convertible Term Note that is
contained in the Restricted Account (as defined in the Restricted Account
Agreement referred to in the Purchase Agreement) on the date of the issuance of
this Secured Non-Convertible Term Note is $________________.
The following terms shall apply to this Secured Non-Convertible Term Note
(this "NOTE"):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest payable on
the outstanding Principal Amount of this Note shall accrue at a rate per annum
equal to the "prime rate" published in The Wall Street Journal from time to time
(the "PRIME RATE"), plus two percent (2.0%) (the "CONTRACT RATE"). The Contract
Rate shall be increased or decreased as the case may be for each increase or
decrease in the Prime Rate in an amount equal to such increase or decrease in
the Prime Rate; each change to be effective as of the day of the change in the
Prime Rate. The Contract Rate shall not at any time be less than eight percent
(8.0%). Interest shall be calculated on the basis of a 360 day year. Interest on
the Amortizing Principal Amount shall be payable monthly, in arrears, commencing
on July 3, 2006, on the first business day of each consecutive calendar month
thereafter through and including the Maturity Date, and on the Maturity Date,
whether by acceleration or otherwise. Accrued interest on the Non-Amortizing
Principal Amount shall be payable only on the Maturity Date or, in the event of
the redemption of all or any portion of the Non-Amortizing Principal Amount,
accrued interest on the amount so redeemed shall be paid on the date of
redemption or conversion, as the case may be.
1.2 Contract Rate Payments. The Contract Rate shall be calculated on the
last business day of each calendar month hereafter (other than for increases or
decreases in the Prime Rate which shall be calculated and become effective in
accordance with the terms of Section 1.1) until the Maturity Date (each, a
"DETERMINATION DATE").
1.3 Principal Payments. Amortizing payments of the aggregate Principal
Amount outstanding under this Note at any time and not contained in the
Restricted Account (as defined in the Restricted Account Agreement) shall be
made, jointly and severally, by the Companies on October __, 2006 and on the
first business day of each succeeding month thereafter through and including the
Maturity Date (each, an "AMORTIZATION DATE"). Commencing on the first
Amortization Date, the Companies shall, jointly and severally, make monthly
payments to the Holder on each Amortization Date, each such payment in the
amount of $________ (the "MONTHLY PRINCIPAL AMOUNT"), together with any accrued
and unpaid interest on such portion of the Amortizing Principal Amount plus any
and all other unpaid amounts which are then owing under this Note, the Purchase
Agreement and/or any other Related Agreement (collectively, the "MONTHLY
AMOUNT"); provided that, following a release of an amount of funds from the
Restricted Account (as defined in the Restricted Account Agreement) for the
purposes set forth in the Restricted Account Side Letter (each, a "RELEASE
AMOUNT"), each Monthly Principal Amount due on any Repayment Date following any
such release shall be increased by an amount equal to (x) such Release Amount
divided by (y) the sum of (I) the number of Amortization Dates remaining until
the Maturity Date plus (II) one (1). Any outstanding Principal Amount together
with any accrued and unpaid interest and any and all other unpaid amounts which
are then owing by the Companies to the Holder under this Note, the Purchase
Agreement and/or any other Related Agreement shall be due and payable on the
Maturity Date.
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1.4 Taxes.
(a) Any and all payments by any Company hereunder, including any amounts
received on a conversion or redemption of the Loan and any amounts on account of
interest or deemed interest, shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding
taxes imposed on net income or franchise taxes of Holder by the jurisdiction in
which such person is organized or has its principal office (all such
non-excluded taxes, levies, imposts, deductions, charges withholdings and
liabilities, collectively or individually, "TAXES"). If any Company shall be
required to deduct any Taxes from or in respect of any sum payable hereunder to
Holder, (i) the sum payable shall be increased by the amount (an "additional
amount") necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 1.4(a))
Holder shall receive an amount equal to the sum it would have received had no
such deductions been made, (ii) such Company shall make such deductions and
(iii) such Company shall pay the full amount deducted to the relevant
governmental authority in accordance with applicable law.
(b) In addition, the Companies jointly and severally agree to pay to the
relevant governmental authority in accordance with applicable law any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies that arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this Loan
("OTHER TAXES"). The Companies shall deliver to Holder official receipts, if
any, in respect of any Taxes or Other Taxes payable hereunder promptly after
payment of such Taxes or Other Taxes or other evidence of payment reasonably
acceptable to Holder.
(c) The obligations of the Companies under this Section 1.4 shall survive
the termination of this Agreement and the payment of the Loan and all other
amounts payable hereunder.
ARTICLE II
REDEMPTION
2.1 Optional Redemption of Amortizing Principal Amount. The Companies may
prepay outstanding Amortizing Principal Amount, in whole or in part, (the
"OPTIONAL AMORTIZING REDEMPTION") by paying, on a joint and several basis, to
the Holder a sum of money equal to one hundred thirty percent (130%) of the
Amortizing Principal Amount to be redeemed together with accrued but unpaid
interest thereon and any and all other sums due, accrued or payable to the
Holder arising under this Note, the Purchase Agreement or any other Related
Agreement (the "Amortizing REDEMPTION AMOUNT") outstanding on the Amortizing
Redemption Payment Date (as defined below). The Companies shall deliver to the
Holder a written notice of redemption (the "NOTICE OF AMORTIZING REDEMPTION")
specifying the date for such Optional Amortizing Redemption (the "AMORTIZING
REDEMPTION PAYMENT DATE"), which date shall be ten (10) business days after the
date of the Notice of Amortizing Redemption (the "REDEMPTION Period"). On the
Amortizing Redemption Payment Date, the Amortizing Redemption Amount must be
paid in good funds to the Holder. In the event the Companies fail to pay the
Amortizing Redemption Amount on the Amortizing Redemption Payment Date as set
forth herein, then such Notice of Amortizing Redemption will be null and void.
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2.2 Optional Redemption of Non-Amortizing Principal Amount. The Companies
will have the option of repaying the outstanding Non-Amortizing Principal Amount
("OPTIONAL NON-AMORTIZING REDEMPTION"), in whole or in part, by paying, on a
joint and several basis, the Holder a sum of money equal to one hundred twenty
percent (120%) of the Non-Amortizing Principal Amount to be redeemed, together
with accrued but unpaid interest thereon (the "NON-AMORTIZING REDEMPTION
AMOUNT") on the Non-Amortizing Redemption Date (as defined below). The Borrower
shall deliver to the Holder a written notice of redemption (the "NOTICE OF
NON-AMORTIZING REDEMPTION") specifying the date for such Optional Non-Amortizing
Redemption (the "NON-AMORTIZING REDEMPTION DATE"), which date shall be not less
than ten (10) business days after the date of the Notice of Non-Amortizing
Redemption (the "NON-AMORTIZING REDEMPTION PERIOD"). On the Non-Amortizing
Redemption Date, the Non-Amortizing Redemption Amount shall be paid (i) in good
funds to the Holder, (ii) by furnishing the Holder written direction to notify
the bank holding the Restricted Account to release from the Restricted Account
and deliver to the Holder a sum of money equal to the Non-Amortizing Redemption
Amount, or (iii) if the amount on deposit in the Restricted Account is less than
the Non-Amortizing Redemption Amount, by furnishing the Holder written direction
to notify the bank holding the Restricted Account to release all amounts on
deposit in the Restricted Account to the Holder and delivering to the Holder
good funds in an amount equal to the balance of the Non-Amortizing Redemption
Amount.
ARTICLE III
EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS
3.1 Events of Default. The occurrence of an Event of Default under the
Security Agreement shall constitute an event of default ("EVENT OF DEFAULT")
hereunder.
3.2 Default Interest. Following the occurrence and during the continuance
of an Event of Default, the Companies shall, jointly and severally, pay
additional interest on the outstanding principal balance of this Note in an
amount equal to two percent (2%) per month, and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest at such additional
interest rate from the date of such Event of Default until the date such Event
of Default is cured or waived.
3.3 Default Payment. Following the occurrence and during the continuance
of an Event of Default, the Holder, at its option, may elect, in addition to all
rights and remedies of the Holder under the Security Agreement and the other
Ancillary Agreements and all obligations and liabilities of each Company under
the Security Agreement and the other Ancillary Agreements, to require the
Companies, jointly and severally, to make a Default Payment ("DEFAULT PAYMENT").
The Default Payment shall be 130% of the outstanding principal amount of the
Note, plus accrued but unpaid interest, all other fees then remaining unpaid,
and all other amounts payable hereunder. The Default Payment shall be applied
first to any fees due and payable to the Holder pursuant to the Notes, the
Security Agreement and/or the Ancillary Agreements, then to accrued and unpaid
interest due on the Notes and then to the outstanding principal balance of the
Notes. The Default Payment shall be due and payable immediately on the date that
the Holder has exercised its rights pursuant to this Section 3.3.
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ARTICLE IV
MISCELLANEOUS
4.1 Issuance of New Note. Upon any partial redemption of this Note, a new
Note containing the same date and provisions of this Note shall, at the request
of the Holder, be issued by the Company to the Holder for the principal balance
of this Note and interest which shall not have been converted or paid. Subject
to the provisions of Article III of this Note, the Company shall not pay any
costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.
4.2 Cumulative Remedies. The remedies under this Note shall be cumulative.
4.3 Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.4 Notices. Any notice herein required or permitted to be given shall be
in writing and shall be deemed effectively given (a) upon personal delivery to
the party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
respective Company at the address provided for such Company in the Security
Agreement executed in connection herewith, and to the Holder at the address
provided in the Security Agreement for the Holder, with a copy to John E.
Tucker, Esq., 825 Third Avenue, 14th Floor, New York, New York 10022, facsimile
number (212) 541-4434, or at such other address as the respective Company or the
Holder may designate by ten days advance written notice to the other parties
hereto.
4.5 Amendment Provision. The term "Note" and all references thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as such successor instrument may be
amended or supplemented.
4.6 Assignability. This Note shall be binding upon each Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Security Agreement. No Company may assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.
5
4.7 Cost of Collection. In case of any Event of Default under this Note,
the Companies shall, jointly and severally, pay the Holder the Holder's
reasonable costs of collection, including reasonable attorneys' fees.
4.8 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN ANY COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND,
PERTAINING TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER
ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY AGREEMENTS;
PROVIDED, THAT EACH COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF
NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS
NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM BRINGING SUIT
OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
HOLDER. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH
COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE
SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
THE EARLIER OF THE COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID
(c) EACH COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH COMPANY
HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN THE HOLDER, AND/OR ANY COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS NOTE, THE SECURITY AGREEMENT, ANY
OTHER ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
6
4.9 Severability. In the event that any provision of this Note is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of this
Note.
4.10 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum rate
permitted by such law, any payments in excess of such maximum rate shall be
credited against amounts owed by the Companies to the Holder and thus refunded
to the Companies.
4.11 Security Interest and Guarantee. The Holder has been granted a
security interest (i) in certain assets of the Companies as more fully described
in the Security Agreement and (ii) pursuant to the Stock Pledge Agreement dated
as of the date hereof. The obligations of the Companies under this Note are
guaranteed by certain Subsidiaries of the Companies pursuant to the Subsidiary
Guaranty dated as of the date hereof.
4.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
4.13 Judgment Currency.
(a) If for the purpose of obtaining or enforcing judgment against
any Company in any court in any jurisdiction it becomes necessary to
convert into any other currency (such other currency being hereinafter in
this Section 4.13 referred to as the "Judgment Currency") an amount due in
US dollars under this Note, the conversion shall be made at the Exchange
Rate prevailing on the business day immediately preceding:
(i) the date actual payment of the amount due, in the case of
any proceeding in the courts of New York or in the courts of any
other jurisdiction that will give effect to such conversion being
made on such date: or
(ii) the date on which the foreign court determines, in the
case of any proceeding in the courts of any other jurisdiction (the
date as of which such conversion is made pursuant to this Section
4.13 being hereinafter referred to as the "Judgment Conversion
Date")
(b) If in the case of any proceeding in the court of any
jurisdiction referred to in Section 4.13(a) above, there is a change in
the Exchange Rate prevailing between the Judgment Conversion Date and the
date of actual payment of the amount due, the applicable party shall pay
such adjusted amount as may be necessary to ensure that the amount paid in
the Judgment Currency, when converted at the Exchange Rate prevailing on
the date of payment, will produce the amount of US dollars which could
have been purchased with the amount of Judgment Currency stipulated in the
judgment or judicial order at the Exchange Rate prevailing on the Judgment
Conversion Date.
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(c) Any amount due from the Company under this provision shall be
due as a separate debt and shall not be affected by judgment being
obtained for any other amounts due under or in respect of this Note.
4.14 Registered Obligation. This Note is intended to be a registered
obligation within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)
and the Companies (or their agent) shall register the Note (and thereafter shall
maintain such registration) as to both principal and any stated interest.
Notwithstanding any document, instrument or agreement relating to this Note to
the contrary, transfer of this Note (or the right to any payments of principal
or stated interest thereunder) may only be effected by (i) surrender of this
Note and either the reissuance by the Companies of this Note to the new holder
or the issuance by the Companies of a new instrument to the new holder, or (ii)
transfer through a book entry system maintained by the Companies (or their
agent), within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).
[Balance of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Secured Convertible Term
Note to be signed in its name effective as of this ___ day of June 2006.
THINKPATH INC., AN ONTARIO CORPORATION
By:
--------------------------------------
Name:
Title:
WITNESS:
- ----------------------------------
THINKPATH INC., AN OHIO CORPORATION
By:
--------------------------------------
Name:
Title:
WITNESS:
- ----------------------------------
THINKPATH OF MICHIGAN INC., A
MICHIGAN CORPORATION
By:
--------------------------------------
Name:
Title:
WITNESS:
- ----------------------------------
9
THINKPATH TECHNICAL SERVICES INC.,
AN OHIO CORPORATION
By:
--------------------------------------
Name:
Title:
WITNESS:
- ----------------------------------
10
EXHIBIT A
OTHER COMPANIES
Thinkpath Inc. (Ohio)
Thinkpath of Michigan Inc. (Michigan)
Thinkpath Technical Services Inc. (Ohio)