EXHIBIT 99.4
[FORM OF SENIOR CONVERTIBLE NOTE]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS NOTE NOR
THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE (TOGETHER "THE SECURITIES")
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO BRAVO! FOODS
INTERNATIONAL CORP., THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF. THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
BRAVO! FOODS INTERNATIONAL CORP.
SENIOR CONVERTIBLE NOTE
Issuance Date: July 27, 2006 Original Principal Amount: U.S. $___________
FOR VALUE RECEIVED, Bravo! Foods International Corp., a Delaware
corporation (the "Company"), hereby promises to pay to the order of [INSERT
NAME OF HOLDER] or registered assigns ("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), on any Installment Date with respect to
the Installment Amount due on such Installment Date (each, as defined herein),
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), any Installment Date or, the Maturity Date,
acceleration, conversion, redemption or otherwise (in each case in accordance
with the terms hereof). This Senior Convertible Note (including all Senior
Convertible Notes issued in exchange, transfer or replacement hereof, this
"Note") is one of an issue of Senior Convertible Notes issued pursuant to the
Securities Purchase Agreement on the Issuance Date (collectively, the "Notes"
and such other Senior Convertible Notes, the "Other Notes"). Certain
capitalized terms used herein are defined in Section 28.
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Notwithstanding anything set forth in this Note to the contrary, only
after the Company Escrow Release Date shall the Holder have any rights
hereunder to any payments of Principal amounts, in excess of the funds in the
Escrow Account, including without limitation, the right of conversion as set
forth herein and the Company shall have no obligation to make any payments of
Installment Amounts hereunder. Without limitation and solely for purposes of
clarification, the foregoing shall not effect the obligation of the Company to
pay Interest as of the Accrual Date and the Company shall make all payments of
Interest hereunder as and when due, including, to the extent required pursuant
to Section 2, prior to the Company Escrow Release Date.
(1) PAYMENTS OF PRINCIPAL. On each Installment Date, the Company shall
pay to the Holder an amount equal to the Installment Amount due on such
Installment Date in accordance with Section 8. On the Maturity Date, the
Company shall pay to the Holder an amount in cash representing all outstanding
Principal, accrued and unpaid Interest and accrued and unpaid Late Charges on
such Principal and Interest. The "Maturity Date" shall be January 27, 2010, 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 in Section 4(a)) 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 and (ii)
through the date that is ten (10) Business Days after the consummation of a
Change of Control in the event that a Change of Control is publicly announced
or a Change of Control Notice (as defined in Section 5(b)) is delivered prior
to the Maturity Date. Other than as specifically permitted by this Note, the
Company may not prepay any portion of the outstanding Principal, accrued and
unpaid interest or accrued and unpaid Late Charges on Principal and Interest,
if any.
(2) INTEREST; INTEREST RATE. Interest on this Note shall commence
accruing on the earlier of (a) the 90th day after the Issuance Date and (b) the
Company Escrow Release Date (such date, the "Accrual Date") and shall be
computed on the basis of a 360-day year comprised of twelve (12) thirty (30)
day months and shall be payable in arrears for each Calendar Quarter on the
first (1st) day of the succeeding Calendar Quarter during the period beginning
on the Issuance Date and ending on, and including, the Maturity Date (each, an
"Interest Date") with the first (1st) Interest Date being the first (1st) day
of the Calendar Quarter succeeding the Accrual Date (regardless of whether or
not the Company Escrow Release Date has occurred). Interest shall be payable on
each Interest Date, to the record holder of this Note on the applicable
Interest Date, and to the extent that any Principal amount of this Note is
converted prior to such Interest Date, accrued and unpaid Interest with respect
to such converted Principal amount and accrued and unpaid Late Charges with
respect to such Principal and Interest shall be paid on the Conversion Date (as
defined below) to the record holder of this Note on the applicable Conversion
Date, in cash. From and after the occurrence and during the continuance of an
Event of Default, the Interest Rate shall be increased to fourteen percent
(14.0%). In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as
of the date of such cure; provided that the Interest as calculated and unpaid
at such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of such Event of
Default.
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(3) CONVERSION OF NOTES. This Note shall be convertible into shares of
the Company's common stock, par value $0.001 per share (the "Common Stock"), on
the terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at
any time or times on or after the Company Escrow Release Date (as defined
in the Securities Purchase Agreement), 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 3(c), at the Conversion Rate (as defined
below). 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 are
payable with respect to the issuance and delivery of Common Stock upon
conversion of any Conversion Amount.
(b) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the
Conversion Price (the "Conversion Rate").
(i) "Conversion Amount" means the portion of the Principal 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) or other date of determination, $0.70, subject to
adjustment as provided herein.
(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount
into shares of Common Stock on any date (the date of such
conversion, the "Conversion Date"), the Holder shall (A) transmit
by facsimile (or otherwise deliver), for receipt on or prior to
5:00 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
3(c)(iii), surrender this Note to a common carrier for delivery to
the Company as soon as practicable on or following such date (or an
indemnification undertaking with respect to this Note in the case
of its loss, theft or destruction). On or before the first (1st)
Business Day following the date of receipt of a Conversion Notice,
the Company shall transmit by facsimile a confirmation of receipt
of such Conversion Notice to the Holder and the Company's transfer
agent (the "Transfer Agent"). On or before the third (3rd) Business
Day following the date of receipt of a Conversion Notice (the
"Share Delivery Date"), the Company shall (1) (x) provided that the
Transfer Agent is participating in the Depository Trust Company
("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
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entitled and (2) pay to the Holder in cash an amount equal to the
accrued and unpaid Interest on the Conversion Amount up to and
including the Conversion Date. If this Note is physically
surrendered for conversion as required by Section 3(c)(iii) and the
outstanding Principal of this Note 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 five (5)
Business Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Note shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date. In the event of a
partial conversion of this Note pursuant hereto, the principal
amount converted shall be deducted from the Installment Amounts
relating to the Installment Dates as set forth in the Conversion
Notice.
(ii) Company's Failure to Timely Convert. If within three (3)
Trading Days after the Company's receipt of the facsimile copy of a
Conversion Notice the Company shall fail 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 (subject to conversion limitations as per
Section 3(c)(iv), Section 3(d) and any others herein (the
"Conversion Limitations")) 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 (A) 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 (B) 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 (1)
such number of shares of Common Stock, times (2) 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 Note in
accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Company unless (A) the
full Conversion Amount represented by this Note 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 Note upon physical surrender of this
Note. The Holder and the Company shall maintain records showing the
Principal, Interest and Late Charges 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 Note upon conversion.
(iv) Pro Rata Conversion; Disputes. In the event that the
Company receives a Conversion Notice from more than one holder of
Notes for the same Conversion Date and the Company can convert
some, but not all, of such portions of the Notes submitted for
conversion, the Company, subject to Section 3(d), shall convert
from each holder of Notes electing to have Notes converted on such
date a pro rata amount of such holder's portion
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of its Notes submitted for conversion based on the principal amount
of Notes submitted for conversion on such date by such holder
relative to the aggregate principal amount of all Notes submitted
for conversion on such date. In the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in
connection with a conversion of this Note, the Company shall issue
to the Holder the number of shares of Common Stock not in dispute
and resolve such dispute in accordance with Section 23.
(d) Limitations on Conversions.
(i) Beneficial Ownership. The Company shall not effect any
conversion of this Note, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to Section
3(a), to the extent that after giving effect to such conversion,
the Holder (together with the Holder's affiliates) would
beneficially own in excess of 9.99% (the "Maximum Percentage") of
the number of shares of Common Stock outstanding immediately after
giving effect to such conversion. For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned
by the Holder and its affiliates shall include the number of shares
of Common Stock issuable upon conversion of this Note with respect
to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock which would be
issuable upon (A) conversion of the remaining, nonconverted portion
of this Note beneficially owned by the Holder or any of its
affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company
(including, without limitation, any Other Notes or warrants)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any
of its affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 3(d)(i), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"). For purposes of
this Section 3(d)(i), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in the most recent
of (x) the Company's most recent Form 10-K, Form 10-KSB, Form 10-Q,
Form 10-QSB or Form 8-K, as the case may be, or (y) a more recent
public announcement by the Company or other more recent notice by
the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. For any reason at any time,
upon the written or oral request of the Holder, the Company shall
within one (1) Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In
any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of
securities of the Company, including this Note, by the Holder or
its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By written notice
to the Company, the Holder may increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified
in such notice; provided that (i) any such increase will not be
effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease
will apply only to the Holder and not to any other holder of Notes.
(ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of
this Note if the issuance of such shares of Common Stock would
exceed the aggregate number of shares of Common Stock which the
Company may issue upon conversion or exercise, as applicable, of
the Notes and
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Warrants without breaching the Company's obligations under the
rules or regulations of any applicable Eligible Market (the
"Exchange Cap"), except that such limitation shall not apply in the
event that the Company (A) obtains the approval of its stockholders
in accordance with the applicable rules of the relevant Eligible
Market for issuances of Common Stock in excess of such amount or
(B) obtains a written opinion from outside counsel to the Company
that such approval is not required, which opinion shall be
reasonably satisfactory to the Required Holders. Until such
approval or written opinion is obtained, no purchaser of the Notes
pursuant to the Securities Purchase Agreement (the "Purchasers")
shall be issued in the aggregate, upon conversion or exercise or
otherwise, as applicable, of Notes or Warrants, shares of Common
Stock in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the principal
amount of Notes issued to the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date and the denominator of which
is the aggregate principal amount of all Notes issued to the
Purchasers pursuant to the Securities Purchase Agreement on the
Closing Date (with respect to each Purchaser, the "Exchange Cap
Allocation"). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser's Notes, the transferee
shall be allocated a pro rata portion of such Purchaser's Exchange
Cap Allocation, and the restrictions of the prior sentence shall
apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the event
that any holder of Notes shall convert all of such holder's Notes
into a number of shares of Common Stock which, in the aggregate, is
less than such holder's Exchange Cap Allocation, then the
difference between such holder's Exchange Cap Allocation and the
number of shares of Common Stock actually issued to such holder
shall be allocated to the respective Exchange Cap Allocations of
the remaining holders of Notes on a pro rata basis in proportion to
the aggregate principal amount of the Notes then held by each such
holder.
(4) RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. Each of the following events shall constitute
an "Event of Default": (i) the failure of the applicable Registration
Statement required to be filed pursuant to the Registration Rights
Agreement to be declared effective by the SEC on or prior to the date
that is sixty (60) days after the applicable Effectiveness Deadline (as
defined in the Registration Rights Agreement), or, while the applicable
Registration Statement is required to be maintained effective pursuant to
the terms of the Registration Rights Agreement, the effectiveness of the
applicable Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to
any holder of the Notes for sale of all of such holder's Registrable
Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such
lapse or unavailability continues for a period of ten (10) consecutive
days or for more than an aggregate of thirty (30) days in any 365-day
period (other than days during an Allowable Grace Period (as defined in
the Registration Rights Agreement));
(ii) the suspension from trading or failure of the Common
Stock to be listed on an Eligible Market for a period of five (5)
consecutive Trading Days or for more than an aggregate of ten (10)
Trading Days in any 365-day period;
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(iii) the Company's (A) failure to cure a Conversion Failure
by delivery of, subject to the Conversion Limitations set forth in
Section 3(d), the required number of shares of Common Stock within
ten (10) Business Days after the applicable Conversion Date or (B)
notice, written or oral, to any holder of the Notes, including by
way of public announcement of the Company or through any of its
agents, at any time, of its intention not to comply with a request
for conversion of any Notes into shares of Common Stock that is
tendered in accordance with the provisions of the Notes, other than
pursuant to Section 3(d);
(iv) after the Company Escrow Release Date at any time
following the tenth (10th) consecutive Business Day that the
Holder's Authorized Share Allocation (defined below) is less than
the number of shares of Common Stock that the Holder would be
entitled to receive upon a conversion of the full Conversion Amount
of this Note (without regard to any limitations on conversion set
forth in Section 3(d) or otherwise);
(v) the Company's failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due
under this Note (including, without limitation, the Company's
failure to pay any redemption payments or amounts hereunder) or any
other Transaction Document (as defined in the Securities Purchase
Agreement), except, in the case of a failure to pay Interest and
Late Charges when and as due, in which case only if such failure
continues for a period of at least five (5) Business Days;
(vi) the occurrence of any default under, redemption of or
acceleration prior to maturity of any Indebtedness of the Company
or any of its Subsidiaries (as defined in Section 3(a) of the
Securities Purchase Agreement) which, individually or in the
aggregate, exceeds $500,000, other than with respect to any Other
Notes;
(vii) the Company or any of its Material Subsidiaries,
pursuant to or within the meaning of Title 11, U.S. Code, or any
similar Federal, foreign or state law for the relief of debtors
(collectively, "Bankruptcy Law"), (A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case, (C) consents to the appointment of a receiver,
trustee, assignee, liquidator or similar official (a "Custodian"),
(D) makes a general assignment for the benefit of its creditors or
(E) admits in writing that it is generally unable to pay its debts
as they become due;
(viii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (A) is for relief against the
Company or any of its Material Subsidiaries in an involuntary case,
(B) appoints a Custodian of the Company or any of its Material
Subsidiaries or (C) orders the liquidation of the Company or any of
its Material Subsidiaries;
(ix) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against the Company
or any of its Subsidiaries and any such judgment is, or such
judgments are, not, within sixty (60) days after the entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged
within sixty (60) days after the expiration of such stay; provided,
however, that any judgment which is covered by insurance or an
indemnity from a credit worthy party shall not be included in
calculating the $500,000 amount set forth above so long as the
Company provides the Holder a written
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statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the
effect that such judgment is covered by insurance or an indemnity
and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;
(x) the Company breaches any representation, warranty,
covenant or other term or condition of any Transaction Document,
except, in the case of a breach of a covenant or other term or
condition of any Transaction Document which is curable, only if
such breach continues for a period of at least ten (10) consecutive
Business Days;
(xi) any breach or failure in any respect to comply with
either of Sections 8 or 14 of this Note; or
(xii) any Event of Default (as defined in the Other Notes)
occurs with respect to any Other Notes.
(b) Redemption Right. Upon the occurrence of an Event of Default
with respect to this Note or any Other Note, the Company shall within one
(1) Business Day deliver written notice thereof via facsimile and
overnight courier (an "Event of Default Notice") to the Holder. At any
time after the earlier of the Holder's receipt of an Event of Default
Notice and the Holder becoming aware of an Event of Default, the Holder
may require the Company to redeem all or any portion of this Note by
delivering written notice thereof (the "Event of Default Redemption
Notice") to the Company, which Event of Default Redemption Notice shall
indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to
this Section 4(b) shall be redeemed by the Company at a price equal to
the greater of (i) the product of (A) the Conversion Amount to be
redeemed together with accrued and unpaid Interest with respect to such
Conversion Amount to be redeemed and accrued and unpaid Late Charges, if
any, with respect to such Conversion Amount and Interest and (B) the
Redemption Premium and (ii) the product of (A) the Conversion Rate with
respect to such Conversion Amount together with accrued and unpaid
Interest with respect to such Conversion Amount to be redeemed and
accrued and unpaid Late Charges, if any, with respect to such Conversion
Amount and Interest in effect at such time as the Holder delivers an
Event of Default Redemption Notice and (B) the greater of (1) the Closing
Sale Price of the Common Stock on the date immediately preceding such
Event of Default, (2) the Closing Sale Price of the Common Stock on the
date immediately after such Event of Default and (3) the Closing Sale
Price of the Common Stock on the date the Holder delivers the Event of
Default Redemption Notice (the "Event of Default Redemption Price").
Redemptions required by this Section 4(b) shall be made in accordance
with the provisions of Section 12. To the extent redemptions required by
this Section 4(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. In the event of
a partial redemption of this Note pursuant hereto, the principal amount
redeemed shall be deducted from the Installment Amounts relating to the
applicable Installment Dates as set forth in the Event of Default
Redemption Notice. The parties hereto agree that in the event of the
Company's redemption of any portion of the Note under this Section 4(b),
the Holder's damages would be uncertain and difficult to estimate because
of the parties' inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any Redemption Premium due
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under this Section 4(b) is intended by the parties to be, and shall be
deemed, a reasonable estimate of the Holder's actual loss of its
investment opportunity and not as a penalty.
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
(a) Assumption. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in
writing all of the obligations of the Company under this Note and the
other Transaction Documents in accordance with the provisions of this
Section 5(a) pursuant to written agreements in form and substance
reasonably satisfactory to the Required Holders and approved by the
Required Holders prior to such Fundamental Transaction, including
agreements to deliver to each holder of Notes in exchange for such Notes
a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to the Notes, including,
without limitation, having a principal amount and interest rate equal to
the principal amounts and the interest rates of the Notes then
outstanding held by such holder, having similar conversion rights and
having similar ranking to the Notes, and satisfactory to the Required
Holders and (ii) the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market (a "Public Successor Entity"). Upon the
occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of
such Fundamental Transaction, the provisions of this Note referring to
the "Company" shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note with the same effect as if
such Successor Entity had been named as the Company herein. Upon
consummation of the Fundamental Transaction, the Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation
of the Fundamental Transaction, in lieu of the shares of the Company's
Common Stock (or other securities, cash, assets or other property)
issuable upon the conversion or redemption of the Notes prior to such
Fundamental Transaction, such shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent
Entity), as adjusted in accordance with the provisions of this Note. The
provisions of this Section shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard
to any limitations on the conversion or redemption of this Note.
(b) Redemption Right. No sooner than fifteen (15) days nor later
than ten (10) days prior to the consummation of a Change of Control, but
not prior to the public announcement of such Change of Control, the
Company shall deliver written notice thereof via facsimile and overnight
courier to the Holder (a "Change of Control Notice"). At any time during
the period beginning after the Holder's receipt of a Change of Control
Notice and ending twenty (20) Trading Days after the date of the
consummation of such Change of Control, the Holder may require the
Company to redeem all or any portion of this Note by delivering written
notice thereof ("Change of Control Redemption Notice") to the Company,
which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to redeem. The portion of this Note subject
to redemption pursuant to this Section 5 shall be redeemed by the Company
in cash at a price equal to the greater of (i) the sum of (x) the product
of the Change of Control Redemption Premium and the Conversion Amount
being redeemed and (y) the amount of any accrued but unpaid Interest on
such Conversion Amount being redeemed
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and accrued and unpaid Late Charges, if any, with respect to such
Conversion Amount and Interest through the date of such redemption
payment and (ii) the sum of (x) the product of (A) the Conversion Amount
being redeemed multiplied by (B) the quotient determined by dividing (1)
the aggregate cash consideration and the aggregate cash value of any
non-cash consideration per share of Common Stock to be paid to the
holders of the Common Stock upon consummation of the Change of Control
(any such non-cash consideration consisting of marketable securities to
be valued at the higher of the Closing Sale Price of such securities as
of the Trading Day immediately prior to, the Closing Sale Price as of the
Trading Day immediately following the public announcement of such
proposed Change of Control and the Closing Sale Price of the Common Stock
immediately prior to the public announcement of such proposed Change of
Control) by (2) the Conversion Price plus (y) the amount of any accrued
but unpaid Interest on such Conversion Amount being redeemed and accrued
and unpaid Late Charges, if any, with respect to such Conversion Amount
and Interest through the date of such redemption payment, (the "Change of
Control Redemption Price"). Redemptions required by this Section 5 shall
be made in accordance with the provisions of Section 12 and shall have
priority to payments to stockholders in connection with a Change of
Control. To the extent redemptions required by this Section 5(b) are
deemed or determined by a court of competent jurisdiction to be
prepayments of the Note by the Company, such redemptions shall be deemed
to be voluntary prepayments. Notwithstanding anything to the contrary in
this Section 5, but subject to Section 3(d), until the Change of Control
Redemption Price (together with any interest thereon) is paid in full,
the Conversion Amount submitted for redemption under this Section 5(c)
(together with any interest thereon) may be converted, in whole or in
part, by the Holder into Common Stock pursuant to Section 3. In the event
of a partial redemption of this Note pursuant hereto, the principal
amount redeemed shall be deducted from the Installment Amounts relating
to the applicable Installment Dates as set forth in the Change of Control
Redemption Notice. The parties hereto agree that in the event of the
Company's redemption of any portion of the Note under this Section 5(b),
the Holder's damages would be uncertain and difficult to estimate because
of the parties' inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any Change of Control Redemption
Premium due under this Section 5(b) is intended by the parties to be, and
shall be deemed, a reasonable estimate of the Holder's actual loss of its
investment opportunity and not as a penalty.
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
(a) 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 (excluding, however, any grants,
issuances or sales of any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property in connection with
any Excluded Security) 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 Note (without taking into account any limitations or
restrictions on the convertibility of this Note) 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.
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(b) Other Corporate Events. In addition to and not in substitution
for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which all or substantially all of the
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 Note, 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 Note) 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 Note 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
Required Holders. 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 Note.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) Adjustment of Conversion Price upon Issuance of Common Stock.
If and whenever during the Full Adjustment Period, the Company issues or
sells, or in accordance with this Section 7(a) is deemed to have issued
or sold, any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have been issued
or sold by the Company in connection with any Excluded Security) for a
consideration per share (the "New Issuance Price") less than a price (the
"Applicable Price") equal to the Conversion Price in effect immediately
prior to such issue or sale (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 New Issuance Price. If
and whenever after the Full Adjustment Period, the Company issues or
sells, or in accordance with this Section 7(a) is deemed to have issued
or sold, any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the
Company, but excluding shares of Common Stock deemed to have been issued
or sold by the Company in connection with any Excluded Security) in a
Dilutive Issuance, then immediately after such Dilutive Issuance, the
Conversion Price then in effect shall be reduced to an amount equal 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
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purposes of determining the adjusted Conversion Price under this Section
7(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 7(a)(i), 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 7(a)(ii), 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 7(a), 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
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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 7(a)(iii), if the terms of any
Option or Convertible Security that was outstanding as of the
Subscription 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 a consideration of $.01. 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 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 Sale
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 Required Holders. 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 Required Holders. 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 on or after the Subscription
Date subdivides (by
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any stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company at any
time on or after the Subscription Date combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be proportionately
increased.
(c) Other Events. If any event occurs of the type contemplated by
the provisions of this Section 7 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 Note; provided that no such adjustment will increase
the Conversion Price as otherwise determined pursuant to this Section 7.
(8) COMPANY INSTALLMENT CONVERSION OR REDEMPTION.
(a) General. On each applicable Installment Date, provided there
has been no Equity Conditions Failure, the Company shall pay to the
Holder of this Note the Installment Amount due on such date by converting
such Installment Amount, in accordance with this Section 8 (a "Company
Conversion"); provided, however, that the Company may, at its option
following notice to the Holder, pay the Installment Amount by redeeming
such Installment Amount (a "Company Redemption") or by any combination of
a Company Conversion and a Company Redemption so long as all of the
outstanding applicable Installment Amount shall be converted and/or
redeemed by the Company on the applicable Installment Date, subject to
the provisions of this Section 8; provided, further however, that the
Company shall not be entitled to pay any portion of the Installment
Amount in shares of Common Stock pursuant to a Company Conversion and
shall be required to pay such Installment Amount in cash pursuant to a
Company Redemption if the Weighted Average Price of the Common Stock on
any Trading Day during either the Initial Company Conversion Measuring
Period or the five (5) Trading Days prior to the date the Company
delivers the Company Installment Notice is less than $0.40.
Notwithstanding the foregoing, the Company may not effect a Company
Conversion of any Installment Amount under this Section in excess of the
Holder Pro Rata Amount of the applicable Installment Volume Limitation.
On or prior to the date which is the twelfth (12th) Trading Day prior to
each Installment Date (each, an "Installment Notice Due Date"), the
Company shall deliver written notice (each, a "Company Installment
Notice" and the date all of the holders receive such notice is referred
to as the "Company Installment Notice Date"), to each holder of Notes
which Company Installment Notice shall (i) either (A) confirm that the
applicable Installment Amount of such holder's Note shall be converted in
whole pursuant to a Company Conversion (such amount to be converted, the
"Company Conversion Amount") or (B) (1) state that the Company elects to
redeem, or is required to redeem in accordance with the provisions of the
Notes, in whole or in part, the applicable Installment Amount pursuant to
a Company Redemption and (2) specify the portion which the Company elects
or is required to redeem pursuant to a Company Redemption (such amount to
be redeemed, the "Company Redemption Amount") and the portion, if any,
that the Company elects to convert pursuant to a Company Conversion (such
amount also a "Company Conversion Amount") which amounts
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when added together, must equal the applicable Installment Amount and
(ii) if the Installment Amount is to be paid, in whole or in part,
pursuant to a Company Conversion, certify that the Equity Conditions have
been satisfied as of the date of the Company Installment Notice. Each
Company Installment Notice shall be irrevocable. If the Company does not
timely deliver a Company Installment Notice in accordance with this
Section 8, then the Company shall be deemed to have delivered an
irrevocable Company Installment Notice confirming a Company Conversion
and shall be deemed to have certified that the Equity Conditions in
connection with any such conversion have been satisfied. Except as
expressly provided in this Section 8(a), the Company shall convert and/or
redeem the applicable Installment Amount of this Note pursuant to this
Section 8 and the corresponding Installment Amounts of the Other Notes
pursuant to the corresponding provisions of the Other Notes in the same
ratio of the Installment Amount being converted and/or redeemed
hereunder. The Company Conversion Amount (whether set forth in the
Company Installment Notice or by operation of this Section 8) shall be
converted in accordance with Section 8(b) and the Company Redemption
Amount shall be redeemed in accordance with Section 8(c).
(b) Mechanics of Company Conversion. (i) If the Company delivers a
Company Installment Notice and confirms, or is deemed to have confirmed,
in whole or in part, a Company Conversion in accordance with Section
8(a), then on the Trading Day prior to the Installment Date the Company
shall, or shall direct the Transfer Agent to, deliver to the Holder's
account with DTC a number of shares of Common Stock equal to the quotient
of (A) such Company Conversion Amount divided by (B) the Initial Company
Conversion Price (the "Pre-Installment Conversion Shares"). On the
Trading Day immediately after the end of the Company Conversion Measuring
Period (the "Installment Settlement Date"), the Company shall, or shall
direct the Transfer Agent to, deliver to the Holder's account with DTC a
number of additional shares of Common Stock, if any, equal to the
Installment Balance Conversion Shares. If an Event of Default occurs
during any applicable Company Conversion Measuring Period and the Holder
elects an Event of Default Redemption in accordance with Section 4(b),
then, at the Holder's option, either (1) the Holder, upon receipt of the
Event of Default Redemption Price (which Redemption Price includes
redemption of any portion of a Company Conversion Amount represented by
Pre-Installment Conversion Shares that the Holder shall return to the
Company), shall return any Pre-Installment Conversion Shares delivered in
connection with the applicable Installment Date, which the Holder has not
otherwise sold, transferred or disposed of, to the Company or (2) the
Conversion Amount used to calculate the Event of Default Redemption Price
shall be reduced by the product of (x) the Company Conversion Amount
applicable to such Installment Date multiplied by (y) the Conversion
Share Ratio.
(ii) If there is an Equity Conditions Failure or the
Installment Volume Limitation is exceeded, then at the option of
the Holder designated in writing to the Company, the Holder may
require the Company to do either one or both of the following: (A)
the Company shall redeem all or any part designated by the Holder
of the unconverted Company Conversion Amount (such designated
amount is referred to as the "First Redemption Amount") on such
Installment Date or Installment Settlement Date, as applicable, and
the Company shall pay to the Holder on such Installment Date, by
wire transfer of immediately available funds, an amount in cash
equal to 125% of such First Redemption Amount, and/or (B) the
Company Conversion shall be null and void with respect to all or
any part designated by the Holder of the unconverted Company
Conversion Amount and the Holder shall be entitled to all the
rights of a
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holder of this Note with respect to such amount of the Company
Conversion Amount; provided, however, that the Conversion Price for
such unconverted Company Conversion Amount shall thereafter be
adjusted to equal the lesser of (1) the Company Conversion Price as
in effect on the date on which the Holder voided the Company
Conversion and (2) the Company Conversion Price as in effect on the
date on which the Holder delivers a Conversion Notice relating
thereto. In the event of an Equity Conditions Failure following the
Installment Date, at the Holder's option, either (x) the Holder
shall, upon receipt of a First Redemption Amount (which amount
includes redemption of any portion of a Company Conversion Amount
represented by Pre-Installment Conversion Shares that the Holder
shall return to the Company), return any Pre-Installment Conversion
Shares delivered in connection with the applicable Installment
Date, which the Holder has not otherwise sold, transferred or
disposed of, to the Company or (y) any related First Redemption
Amount shall be reduced by the product of (I) the Company
Conversion Amount applicable to such Installment Date multiplied by
(II) the Conversion Share Ratio. If the Company fails to redeem any
First Redemption Amount on or before the applicable Installment
Date or Installment Settlement Date, as applicable, by payment of
such amount on the applicable Installment Date or Installment
Settlement Date, as applicable, then the Holder shall have the
rights set forth in Section 12(a) as if the Company failed to pay
the applicable Company Redemption Price and all other rights under
this Note (including, without limitation, such failure constituting
an Event of Default described in Section 4(a)(xi)). Notwithstanding
anything to the contrary in this Section 8(b), but subject to 3(d),
until the Company delivers Common Stock representing the Company
Conversion Amount to the Holder, the Company Conversion Amount may
be converted by the Holder into Common Stock pursuant to Section 3.
In the event that the Holder elects to convert the Company
Conversion Amount prior to the applicable Installment Date as set
forth in the immediately preceding sentence, the Company Conversion
Amount so converted shall be deducted from the Installment Amounts
relating to the applicable Installment Dates as set forth in the
applicable Conversion Notice.
(c) Mechanics of Company Redemption. If the Company elects a
Company Redemption in accordance with Section 8(a), then the Company
Redemption Amount which is to be paid to the Holder on the applicable
Installment Date shall be redeemed by the Company and the Company shall
pay to the Holder on such Installment Date, by wire transfer of
immediately available funds, an amount in cash (the "Company Installment
Redemption Price") equal to 100% of the Company Redemption Amount. If the
Company fails to redeem the Company Redemption Amount on the applicable
Installment Date by payment of the Company Installment Redemption Price
on such date, then at the option of the Holder designated in writing to
the Company (any such designation, a "Conversion Notice" for purposes of
this Note), the Holder may require the Company to convert all or any part
of the Company Redemption Amount at the Company Conversion Price.
Conversions required by this Section 8(c) shall be made in accordance
with the provisions of Section 3(c). Notwithstanding anything to the
contrary in this Section 8(c), but subject to Section 3(d), until the
Company Installment Redemption Price (together with any interest thereon)
is paid in full, the Company Redemption Amount (together with any
interest thereon) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 3. In the event the Holder elects
to convert all or any portion of the Company Redemption Amount prior to
the applicable Installment Date as set forth in the immediately preceding
sentence, the Company Redemption Amount so converted shall be deducted
from the Installment Amounts relating to the applicable Installment Dates
as set forth in the applicable Conversion Notice.
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(d) Deferred Installment Amount. Notwithstanding any provision of
this Section 8 to the contrary, the Holder may, at its option and in its
sole discretion, deliver a notice to the Company at least two (2) days
prior to any Installment Notice Due Date electing to have the payment of
all or any portion of an Installment Amount payable on the next
Installment Date deferred to the Maturity Date. Any amount deferred to
the Maturity Date pursuant to this Section 8(d) shall continue to accrue
Interest through the Maturity Date and shall be paid on such date in
cash.
(9) OPTIONAL REDEMPTIONS AT THE COMPANY'S ELECTION.
(a) General. At any time after the Stockholder Approval Date, so
long as there has been no Equity Conditions Failure, the Company shall
have the right to redeem all or any portion of the Conversion Amount then
remaining under this Note (the "Optional Redemption Amount") as
designated in the Optional Redemption Notice, as of the Optional
Redemption Date (as defined below) (an "Optional Redemption"). The
portion of this Note subject to redemption pursuant to this Section 9(a)
shall be redeemed by the Company in cash at a price equal to the sum of
(i) the Conversion Amount being redeemed, (ii) the amount of any accrued
but unpaid Interest on such Conversion Amount being redeemed and accrued
and unpaid Late Charges, if any, with respect to such Conversion Amount
and Interest through the Optional Redemption Date plus (iii) the
applicable Make-Whole Amount (the "Optional Redemption Price"). The
Company may exercise its right to require redemption under this Section 9
by delivering a written notice thereof by facsimile and overnight courier
to all, but not less than all, of the holders of Notes (the "Optional
Redemption Notice" and the date all of the holders received such notice
is referred to as the "Optional Redemption Notice Date"). Each Optional
Redemption Notice shall be irrevocable. Upon the consummation of an
Optional Redemption, the number of shares of Common Stock issuable upon
exercise of the Series B Warrants shall increase by such number of shares
of Common Stock issuable upon conversion of the Notes being redeemed by
the Company pursuant to such Optional Redemption at such time, as set
forth in Section 9 of each of the Notes. The Optional Redemption Notice
shall state (1) the date on which the Optional Redemption shall occur
(the "Optional Redemption Date") which date shall be not less than five
(5) Business Days following the Optional Redemption Notice Date, (2) the
aggregate Conversion Amount of the Notes which the Company has elected to
be subject to Optional Redemption from all of the holders of the Notes
pursuant to this Section 9(a) (and analogous provisions under the Other
Notes) on the Optional Redemption Date and (3) the number of shares of
Common Stock into which the Series B Warrants shall become exercisable on
the Optional Redemption Date and the Exercise Price thereof. The Company
may not effect more than three (3) Optional Redemptions. Notwithstanding
anything to the contrary in this Section 9, until the Optional Redemption
Price is paid, in full, the Optional Redemption Amount may be converted,
in whole or in part, by the Holders into shares of Common Stock pursuant
to Section 3. All Conversion Amounts converted by the Holder after the
Optional Redemption Notice Date shall reduce the Optional Redemption
Amount of this Note required to be redeemed on the Optional Redemption
Date. Redemptions made pursuant to this Section 9 shall be made in
accordance with Section 12.
(b) Pro Rata Redemption Requirement. If the Company elects to cause
an Optional Redemption pursuant to Section 9(a), then it must
simultaneously take the same action in the same proportion with respect
to the Other Notes. If the Company elects to
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cause an Optional Redemption pursuant to Section 9(a) (or similar
provisions under the Other Notes) with respect to less than all of the
Conversion Amounts of the Notes then outstanding, then the Company shall
require redemption of a Conversion Amount from each of the holders of the
Notes equal to the product of (i) the aggregate Conversion Amount of
Notes which the Company has elected to cause to be redeemed pursuant to
Section 9(a), multiplied by (ii) the fraction, the numerator of which is
the sum of the aggregate Original Principal Amount of the Notes purchased
by such holder of outstanding Notes and the denominator of which is the
sum of the aggregate Original Principal Amount of the Notes purchased by
all holders holding outstanding Notes (such fraction with respect to each
holder is referred to as its "Redemption Allocation Percentage", and such
amount with respect to each holder is referred to as its "Pro Rata
Redemption Amount"); provided, however that in the event that any
holder's Pro Rata Redemption Amount exceeds the outstanding Principal
amount of such holder's Note, then such excess Pro Rata Redemption Amount
shall be allocated amongst the remaining holders of Notes in accordance
with the foregoing formula. In the event that the initial holder of any
Notes shall sell or otherwise transfer any of such holder's Notes, the
transferee shall be allocated a pro rata portion of such holder's
Redemption Allocation Percentage and Pro Rata Redemption Amount.
(10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, 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 of this Note, and will at all times in good faith carry out all of
the provisions of this Note and take all action as may be required to protect
the rights of the Holder of this Note.
(11) RESERVATION OF AUTHORIZED SHARES.
(a) Reservation. Commencing on the Issuance Date and until the
Stockholder Approval Date, the Company shall reserve in respect of the
Notes and Warrants all of its authorized and unissued Common Stock
(excluding options exercisable for up to 500,000 shares of Common Stock,
in the aggregate, issued pursuant to an Approved Stock Plan), which
amount shall be sufficient to convert or exercise no less than 100% of
the Notes at the initial Conversion Price and the Warrants at the initial
Exercise Price. Immediately on and after the Stockholder Approval Date,
the Company shall reserve out of its authorized and unissued a number of
shares of Common Stock for each of the Notes equal to 130% of the
Conversion Rate with respect to the Conversion Amount of each such Note
as of the Issuance Date and, for so long thereafter as any of the Notes
are outstanding, the Company shall take all action necessary to reserve
and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 130% of
the number of shares of Common Stock as shall from time to time be
necessary to effect the conversion of all of the Notes then outstanding;
provided that at no time shall the number of shares of Common Stock so
reserved be less than the number of shares required to be reserved by the
previous sentence (without regard to any limitations on conversions)
(such applicable amount, the "Required Reserve Amount"). The initial
number of shares of Common Stock reserved for conversions of the Notes
and each increase in the number of shares so reserved shall be allocated
pro rata among the holders of the Notes based on the principal amount of
the Notes held by each holder at the Closing (as defined in the
Securities Purchase Agreement) or increase in the number of reserved
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shares, as the case may be (the "Authorized Share Allocation"). In the
event that a holder shall sell or otherwise transfer any of such holder's
Notes, each transferee shall be allocated a pro rata portion of such
holder's Authorized Share Allocation. Any shares of Common Stock reserved
and allocated to any Person which ceases to hold any Notes shall be
allocated to the remaining holders of Notes, pro rata based on the
principal amount of the Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time while any of the
Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its
obligation to reserve for issuance upon conversion of the Notes at least
a number of shares of Common Stock equal to the Required Reserve Amount
(an "Authorized Share Failure"), then the Company shall immediately take
all action necessary to increase the Company's authorized shares of
Common Stock to an amount sufficient to allow the Company to reserve the
Required Reserve Amount for the Notes then outstanding. Without limiting
the generality of the foregoing sentence, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no
event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its stockholders for
the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable best
efforts to solicit its stockholders' approval of such increase in
authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.
(12) HOLDER'S REDEMPTIONS.
(a) Mechanics. The Company shall deliver the applicable Event of
Default Redemption Price to the Holder within five (5) Business Days
after the Company's receipt of the Holder's Event of Default Redemption
Notice. If the Holder has submitted a Change of Control Redemption Notice
in accordance with Section 5(b), the Company shall deliver the applicable
Change of Control Redemption Price to the Holder concurrently with the
consummation of such Change of Control if such notice is received prior
to the consummation of such Change of Control and within five (5)
Business Days after the Company's receipt of such notice otherwise. The
Company shall deliver the applicable Company Installment Redemption Price
to the Holder on the applicable Installment Date and the applicable
Optional Redemption Price on the applicable Optional Redemption Date. In
the event of a redemption of less than all of the Conversion Amount of
this Note, the Company shall promptly cause to be issued and delivered to
the Holder a new Note (in accordance with Section 18(d)) representing the
outstanding Principal which has not been redeemed. In the event that the
Company does not pay the applicable Redemption Price to the Holder within
the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price in full, the Holder shall have the
option, in lieu of redemption, to require the Company to promptly return
to the Holder all or any portion of this Note representing the Conversion
Amount that was submitted for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been
paid. Upon the Company's receipt of such notice, (x) the applicable
Redemption Notice shall be null and void with respect to such Conversion
Amount, (y) the Company shall immediately return this Note, or issue a
new Note (in accordance with Section 18(d)) to the Holder representing
such Conversion Amount to be redeemed (which amount shall include accrued
and unpaid Interest with respect to such Principal amount and accrued and
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unpaid Late Charges with respect to such Principal amount and Interest)
and (z) the Conversion Price of this Note or such new Notes shall be
adjusted to the lesser of (A) the Conversion Price as in effect on the
date on which the applicable Redemption Notice is voided and (B) the
lowest Closing Bid Price of the Common Stock during the period beginning
on and including the date on which the applicable Redemption Notice is
delivered to the Company and ending on and including the date on which
the applicable Redemption Notice is voided. The Holder's delivery of a
notice voiding a Redemption Notice and exercise of its rights following
such notice shall not affect the Company's obligations to make any
payments of Late Charges which have accrued prior to the date of such
notice with respect to the Conversion Amount subject to such notice.
(b) Redemption by Other Holders. Upon the Company's receipt of
notice from any of the holders of the Other Notes requesting redemption
or repayment (without regard to whether the Company disputes the request
for redemption or repayment) as a result of an event or occurrence
substantially similar to the events or occurrences described in Section
4(b) or Section 5(b) (each, an "Other Redemption Notice"), the Company
shall immediately, but no later than one (1) Business Day of its receipt
thereof, forward to the Holder by facsimile a copy of such notice. If the
Company receives a Redemption Notice and one or more Other Redemption
Notices, during the seven (7) Business Day period beginning on and
including the date which is three (3) Business Days prior to the
Company's receipt of the Holder's Redemption Notice and ending on and
including the date which is three (3) Business Days after the Company's
receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such
Redemption Notice and such Other Redemption Notices received during such
seven (7) Business Day period, then the Company shall redeem a pro rata
amount from each holder of the Notes (including the Holder) based on the
principal amount of the Notes submitted for redemption pursuant to such
Redemption Notice and such Other Redemption Notices received by the
Company during such seven Business Day period.
(13) VOTING RIGHTS. The Holder shall have no voting rights as the holder
of this Note, except as required by law, including, but not limited to, the
General Corporation Law of the State of Delaware, and as expressly provided in
this Note.
(14) COVENANTS.
(a) Rank. All payments due under this Note (a) shall rank pari
passu with all Other Notes and (b) shall be senior to all other
Indebtedness of the Company and its Subsidiaries other than Permitted
Senior Indebtedness.
(b) Incurrence of Indebtedness. So long as this Note is
outstanding, the Company shall not, and the Company shall not permit any
of its Subsidiaries to, directly or indirectly, incur or guarantee,
assume or suffer to exist any Indebtedness, other than (i) the
Indebtedness evidenced by this Note and the Other Notes and (ii) other
Permitted Indebtedness.
(c) Existence of Liens. So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, allow or suffer to exist any
mortgage, lien, pledge, charge, security interest or other
-21-
encumbrance upon or in any property or assets (including accounts and
contract rights) owned by the Company or any of its Subsidiaries
(collectively, "Liens") other than Permitted Liens.
(d) Restricted Payments. The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly,
redeem, defease, repurchase, repay or make any payments in respect of, by
the payment of cash or cash equivalents (in whole or in part, whether by
way of open market purchases, tender offers, private transactions or
otherwise), all or any portion of any Permitted Indebtedness, whether by
way of payment in respect of principal of (or premium, if any) or
interest on, such Indebtedness if at the time such payment is due or is
otherwise made or, after giving effect to such payment, an event
constituting, or that with the passage of time and without being cured
would constitute, an Event of Default has occurred and is continuing.
(e) Restriction on Redemption and Cash Dividends. Until all of the
Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms, the Company shall not, directly or indirectly, redeem,
repurchase or declare or pay any cash dividend or distribution on its
capital stock without the prior express written consent of the Required
Holders other than the Permitted Stock Buyback (as defined in the
Securities Purchase Agreement).
(15) RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, shares or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "Distribution"), at any time after the issuance of this
Note, then, the Holder shall, at its option and in its sole discretion, be
entitled to receive (a) such dividends paid and distributions made to the
holders of Common Stock to the same extent as if the Holder had converted this
Note into Common Stock (without regard to any limitations on conversion herein
or elsewhere) and had held such shares of Common Stock on the record date for
such dividends and distributions or (b) an adjustment to the Conversion Price
in effect immediately prior to the close of business on the record date fixed
for the determination of holders of Common Stock entitled to receive the
Distribution such that the Conversion Price shall be reduced, effective as of
the close of business on such record date, to a price determined by multiplying
such Conversion Price by a fraction of which (i) the numerator shall be the
Closing Bid Price of the Common Stock on the trading day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company's Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the Common
Stock on the trading day immediately preceding such record date. Any payments
required pursuant to clause (a) of the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.
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(16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote
at a meeting duly called for such purpose or the written consent without a
meeting of the Required Holders shall be required for any change or amendment
to this Note or the Other Notes; provided that no such action may (i) reduce
the rate of, or extend the time for payment of Interest on, any Note; (ii)
reduce the Principal Amount of, or extend the Maturity Date of, any Note, or
(iii) reduce any Installment Amount of, or extend any Installment Date of, any
Note without the written consent of the Holder of such Note. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the Notes then outstanding.
(17) TRANSFER. This Note and any shares of Common Stock issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of
Section 2(f) of the Securities Purchase Agreement.
(18) REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance
with Section 18(d)), registered as the Holder may request, representing
the outstanding Principal being transferred by the Holder and, if less
then the entire outstanding Principal is being transferred, a new Note
(in accordance with Section 18(d)) to the Holder representing the
outstanding Principal not being transferred. The Holder and any assignee,
by acceptance of this Note, acknowledge and agree that, by reason of the
provisions of Section 3(c)(iii) following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note
may be less than the Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, 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 Note, the Company shall execute and deliver to
the Holder a new Note (in accordance with Section 18(d)) representing the
outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in accordance with
Section 18(d) and in principal amounts of at least $100,000) representing
in the aggregate the outstanding Principal of this Note, and each such
new Note will represent such portion of such outstanding Principal as is
designated by the Holder at the time of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to
issue a new Note pursuant to the terms of this Note, such new Note (i)
shall be of like tenor with this Note, (ii) shall represent, as indicated
on the face of such new Note, the Principal remaining outstanding (or in
the case of a new Note being issued pursuant to Section 18(a) or Section
18(c), the Principal designated by the Holder which, when added to the
principal represented by the other new Notes issued in connection with
such issuance, does not exceed the Principal
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remaining outstanding under this Note immediately prior to such issuance
of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this
Note, (iv) shall have the same rights and conditions as this Note, and
(v) shall represent accrued and unpaid Interest and Late Charges, if any,
on the Principal and Interest of this Note, from the Issuance Date.
(19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and
in addition to all other remedies available under this Note and any of the
other Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by
the Company to comply with the terms of this Note. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder and
shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
(20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise
takes action to collect amounts due under this Note or to enforce the
provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors'
rights and involving a claim under this Note, then the Company shall pay the
costs incurred by the Holder for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, but not limited to, attorneys' fees and disbursements.
(21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.
(22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder 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.
(23) DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate or any Redemption Price,
the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within one (1) Business Day of receipt, or deemed receipt, of the
Conversion Notice or Redemption Notice or other event giving
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rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation within one
(1) Business Day of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within one Business Day submit
via facsimile (a) the disputed determination of the Closing Bid Price, the
Closing Sale Price or the Weighted Average Price to an independent, reputable
investment bank selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Conversion Rate or any Redemption Price
to the Company's independent, outside accountant. The Company, at the Company's
expense, shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than five (5) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
(24) NOTICES; PAYMENTS.
(a) Notices. Whenever notice is required to be given under this
Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 10(f) of the Securities Purchase Agreement. The
Company shall provide the Holder with prompt written notice of all
actions taken pursuant to this Note, including in reasonable detail a
description of such action and the reason therefore. Without limiting the
generality of the foregoing, the Company will give written notice to the
Holder (i) immediately upon any adjustment of the Conversion Price,
setting forth in reasonable detail, and certifying, the calculation of
such adjustment and (ii) at least twenty (20) days prior to the date on
which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to
any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information
shall be made known to the public prior to or in conjunction with such
notice being provided to the Holder.
(b) Payments. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, such payment shall be made
in lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such
Person at such address as previously provided to the Company in writing
(which address, in the case of each of the Purchasers, shall initially be
as set forth on the Schedule of Buyers attached to the Securities
Purchase Agreement); provided that the Holder may elect to receive a
payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request
and the Holder's wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is
not a Business Day, the same shall instead be due on the next succeeding
day which is a Business Day and, in the case of any Interest Date which
is not the date on which this Note is paid in full, the extension of the
due date thereof shall not be taken into account for purposes of
determining the amount of Interest due on such date. Any amount of
Principal or other amounts due under the Transaction Documents, other
than Interest, which is not paid when due shall result in a late charge
being incurred and payable by the Company in an amount equal to interest
on such amount at the rate of eighteen percent (18%) per annum from the
date such amount was due until the same is paid in full ("Late Charge").
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(c) Taxes.
(i) Any and all payments made by the Company hereunder,
including any amounts received on a conversion or redemption of the
Note and any amounts on account of interest or deemed interest,
must be made by it without any Tax Deduction, unless a Tax
Deduction is required by law. If the Company is aware that it must
make a Tax Deduction (or that there is a change in the rate or the
basis of a Tax Deduction), it must notify the Holder promptly.
(ii) If a Tax Deduction is required by law to be made by the
Company, subject to Section 24(a) above, the amount of the payment
due from the Company will be increased to an amount which (after
making the Tax Deduction) leaves an amount equal to the payment
which would have been due if no Tax Deduction had been required. If
the Company is required to make a Tax Deduction, it must make the
minimum Tax Deduction allowed by law and must make any payment
required in connection with that Tax Deduction within the time
allowed by law.
As soon as practicable after making a Tax Deduction or a payment
required in connection with a Tax Deduction, the Company must
deliver to the Holder any official receipt or form, if any,
provided by or required by the taxing authority to whom the Tax
Deduction was paid.
(iii) In addition, the Company agrees to pay 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 in connection
with the execution, delivery, registration or performance of, or
otherwise with respect to, this Note ("Other Taxes"). As soon as
practicable after making a payment of Other Taxes, the Company must
deliver to the Holder any official receipt or form, if any,
provided by or required by the taxing authority to whom the Tax
Deduction was paid.
(iv) The obligations of the Company under this Section 24(c)
shall survive the termination of this Note and the payment of the
Note and all other amounts payable hereunder.
(25) CANCELLATION. After either (a) all Principal, accrued Interest and
other amounts at any time owed on this Note have been paid in full or (b) the
Buyer Escrow Release Date (as defined in the Securities Purchase Agreement),
this Note shall automatically be deemed canceled, shall be surrendered to the
Company for cancellation and shall not be reissued.
(26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.
(27) GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the
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State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. The Company
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. 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.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company's obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
(28) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
(a) "Approved Stock Plan" means any employee benefit plan which has
been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer or
director for services provided to the Company.
(b) "Bloomberg" means Bloomberg Financial Markets.
(c) "Business Day" means any day other than Saturday, Sunday or any
other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
(d) "Calendar Quarter" means each of: (i) the three-month period
beginning on and including January 1 and ending on and including March
31; (ii) the three-month period the period beginning on and including
April 1 and ending on and including June 30; (iii) the three-month period
the period beginning on and including July 1 and ending on and including
September 30; and (vi) the three-month period the period beginning on and
including October 1 and ending on and including December 31.
(e) "Change of Control" means any Fundamental Transaction other
than (i) any reorganization, recapitalization or reclassification of the
Common Stock in which holders of the Company's voting power immediately
prior to such reorganization,
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recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities
and, directly or indirectly, the voting power of the surviving entity or
entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such
entity or entities, or (ii) pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of
the Company.
(f) "Change of Control Consideration" means, for any Change of
Control, an amount, if any, equal to the sum of the aggregate cash
consideration and the aggregate cash value of any marketable securities
per share of Common Stock to be paid to the holders of the Common Stock
upon consummation of such Change of Control, with any such marketable
securities to be valued at the Closing Sale Price of such securities as
of the Trading Day following the public announcement of such proposed
Change of Control.
(g) "Change of Control Redemption Premium" means (i) for Change of
Control Notice delivered or required to be delivered in connection with a
Change of Control prior to the thirtieth (30th) month following of the
Issuance Date, 120% and (ii) for any Change of Control Notice delivered
or required to be delivered in connection with a Change of Control
following the thirtieth (30th) month following the Issuance Date, 112.5%.
(h) "Closing Bid Price" and "Closing Sale Price" means, for any
security as of any date, the last closing bid price and last closing
trade price, respectively, for such security on the Principal Market, as
reported by Bloomberg, or, if the Principal Market begins to operate on
an extended hours basis and does not designate the closing bid price or
the closing trade price, as the case may be, then the last bid price or
last trade price, respectively, of such security prior to 4:00:00 p.m.,
New York Time, as reported by Bloomberg, or, if the Principal Market is
not the principal securities exchange or trading market for such
security, the last closing bid price or last trade price, respectively,
of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade
price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg,
or, if no closing bid price or last trade price, respectively, is
reported for such security by Bloomberg, the average of the bid prices,
or the ask prices, respectively, of any market makers for such security
as reported in the "pink sheets" by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing
Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale
Price, as the case may be, of such security on such date shall be the
fair market value as mutually determined by the Company and the Holder.
If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved pursuant to
Section 23. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
(i) "Closing Date" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company
initially issued Notes pursuant to the terms of the Securities Purchase
Agreement.
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(j) "Common Stock Deemed Outstanding" means, at any given time, the
number of shares of Common Stock outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to
Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but
excluding any Common Stock owned or held by or for the account of the
Company or issuable upon conversion or exercise, as applicable, of the
Notes and the Warrants.
(k) "Company Conversion Price" means, the lower of (i) the
applicable Conversion Price and (ii) that price which shall be computed
as 90% of the arithmetic average of the Weighted Average Price of the
Common Stock on each of the twenty (20) consecutive Trading Days
immediately following the applicable Installment Date (each such period,
a "Company Conversion Measuring Period"). All such determinations to be
appropriately adjusted for any stock split, stock dividend, stock
combination or other similar transaction that proportionately decreases
or increases the Common Stock the applicable such Company Conversion
Measuring Period.
(l) "Consolidated EBITDA" means, with respect to any Person and its
Subsidiaries for any applicable Fiscal Quarters, the Consolidated Net
Income of such Person and its Subsidiaries as set forth in the financial
statements of the Company contained in the Form 10-Q or Form 10-K of the
Company for the applicable Fiscal Quarter, plus without duplication, the
sum of the following amounts of the Company and its Subsidiaries for such
period to the extent deducted in determining Consolidated Net Income of
such Persons for such period: (i) Consolidated Net Interest Expense, (ii)
income tax expense, (iii) depreciation expense and (iv) amortization
expense.
(m) "Consolidated Net Income" means, for any applicable period, the
net income (loss) of the Company and its Subsidiaries for such period,
determined on a consolidated basis and in accordance with GAAP, but
excluding from the determination of Consolidated Net Income (without
duplication) (a) any extraordinary or non recurring gains or losses or
gains or losses from Dispositions, (b) restructuring charges, (c) any tax
refunds, net operating losses or other net tax benefits, (d) effects of
discontinued operations and (e) interest income (including interest
paid-in-kind).
(n) "Consolidated Net Interest Expense" means, for any applicable
period, gross interest expense of the Company and its Subsidiaries for
such period determined on a consolidated basis and in accordance with
GAAP, less (i) the sum of (A) interest income for such period and (B)
gains for such period on Hedging Agreements (to the extent not included
in interest income above and to the extent not deducted in the
calculation of gross interest expense), plus (ii) the sum of (A) losses
for such period on Hedging Agreements (to the extent not included in
gross interest expense) and (B) the upfront costs or fees for such period
associated with Hedging Agreements (to the extent not included in gross
interest expense), in each case, determined on a consolidated basis and
in accordance with GAAP.
(o) "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect
to any Indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the
obligee of
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such liability that such liability will be paid or discharged, or that
any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against
loss with respect thereto.
(p) "Conversion Share Ratio" means, as to any applicable date of
determination, the quotient of (i) the number of Pre-Installment
Conversion Shares delivered in connection with such Installment Date
divided by (ii) the number of Post-Installment Conversion Shares relating
to such Installment Date.
(q) "Convertible Securities" means any stock or securities (other
than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(r) "Effective Date" has the meaning ascribed to such term in the
Registration Rights Agreement.
(s) "Eligible Market" means the Principal Market, The New York
Stock Exchange, Inc., the Nasdaq National Market or The Nasdaq Capital
Market.
(t) "Equity Conditions" means that each of the following conditions
is satisfied: (i) on each day during the period beginning six (6) month
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 Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the
resale of all remaining Registrable Securities in accordance with the
terms of the Registration Rights Agreement and there shall not have been
any Grace Periods (as defined in the Registration Rights Agreement) or
(y) all shares of Common Stock issuable upon conversion of the Notes and
exercise of the Warrants 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 or any other Eligible Market and shall not have been
suspended from trading on such exchange or market (other than suspensions
of not more than two (2) days and occurring prior to the applicable date
of determination due to business announcements by the Company) 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 one (1) year period ending
on and including the date immediately preceding the applicable date of
determination, the Company shall have delivered shares of Common Stock
upon conversion of the Notes and upon exercise of the Warrants to the
holders on a timely basis as set forth in Section 3(c)(ii) hereof (and
analogous provisions under the Other Notes) and Section 1(a) of the
Warrants; (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 3(d) hereof and the rules or regulations of the
Principal Market; (v) the Company shall not have failed to timely make
any payments within five (5) Business Days of when such payment is due
pursuant to any Transaction Document; (vi) during the Equity Conditions
Measuring Period, there shall not have occurred either (A) the public
announcement of a pending, proposed or intended Fundamental Transaction
which has not been abandoned, terminated or consummated, or (B) an Event
of
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Default or (C) an event that with the passage of time or giving of notice
would constitute an Event of Default; (vii) the Company shall have no
knowledge of any fact that would cause (x) the Registration Statements
required pursuant to the Registration Rights Agreement not to be
effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Registration Rights
Agreement or (y) any shares of Common Stock issuable upon conversion of
the Notes and shares of Common Stock issuable upon exercise of the
Warrants not to be eligible for sale without restriction pursuant to Rule
144(k) and any applicable state securities laws; and (viii) the Company
otherwise shall have been in compliance with and shall not have breached
any provision, covenant, representation or warranty of any Transaction
Document.
(u) "Equity Conditions Failure" means that (i) on any day during
the period commencing ten (10) Trading Days prior to the applicable
Company Installment Notice Date through the applicable Installment Date
or (ii) on any day during the period commencing ten (10) Trading Days
prior to the applicable Optional Redemption Notice Date through the
applicable Optional Redemption Date, the Equity Conditions have not been
satisfied (or waived in writing by the Holder).
(v) "Excluded Securities" means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan (including any
Approved Stock Plan hereinafter established); (ii) upon conversion of the
Notes or the exercise of the Warrants; (iii) pursuant to a bona fide firm
commitment underwritten public offering with a nationally recognized
underwriter which generates gross proceeds to the Company in excess of
$25,000,000 (other than an "at-the-market offering" as defined in Rule
415(a)(4) under the 1933 Act and "equity lines"); (iv) in connection with
any strategic acquisition or transaction by the Company, whether through
an acquisition of stock or a merger of any business, assets or
technologies the primary purpose of which is not to raise equity capital;
(v) in connection with a Subsequent Placement (as defined in the
Securities Purchase Agreement) of Common Stock with the then current
stockholders of the Company that is consummated prior to the earlier of
(A) the Stockholder Approval Date and (B) the thirtieth (30th) day after
the Stockholder Meeting Deadline, which Subsequent Placement of Common
Stock (A) does not exceed $6,000,000 in the aggregate, (B) is at an
issuance price per share of Common Stock not less than $0.50 and (C) has
been effected in accordance with Section 4(o) of the Securities Purchase
Agreement, (vi) upon exercise of the warrants issued by the Company on
November 28, 2005 in accordance with the securities purchase agreement
dated November 23, 2005, pursuant to which such warrants were issued and
(vii) upon conversion of any Options or Convertible Securities which are
outstanding on the day immediately preceding the Subscription Date,
provided that the terms of such Options or Convertible Securities are not
amended, modified or changed on or after the Subscription Date.
(w) "Fiscal Quarter" means each of the fiscal quarters adopted by
the Company for financial reporting purposes that correspond to the
Company's fiscal year that ends on December 31, or such other fiscal
quarter adopted by the Company for financial reporting purposes in
accordance with GAAP.
(x) "Full Adjustment Period" means, initially, the period
commencing on the Subscription Date and ending on and including the
twelve (12) month
-31-
anniversary of the Effective Date; provided, however, that if, during the
three (3) month period commencing on the date the Form SB-2 (SEC file
number 333-130535) filed by the Company on December 21, 2005 is declared
effective by the United States Securities and Exchange Commission, the
Weighted Average Price of the Common Stock on each of any ten (10)
Trading Days during any twenty (20) consecutive Trading Day period is
less than $0.50 (as adjusted for stock splits, stock dividends, reverse
stock splits, recapitalizations, reclassifications and similar events)
(the "Extension Event") then, the Full Adjustment Period shall continue
through the twenty-four month anniversary of the Effective Date.
(y) "Fundamental Transaction" means that the Company shall,
directly or indirectly, in one or more related transactions, (i)
consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person or Persons, or (ii) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (iii) allow
another Person to make a purchase, tender or exchange offer that is
accepted by the holders of more than 50% of the outstanding shares of
Voting Stock (not including any shares of Voting Stock held by the Person
or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or
(iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other
Person acquires more than the 50% of the outstanding shares of Voting
Stock (not including any shares of Voting Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the
other Persons making or party to, such stock purchase agreement or other
business combination), or (v) reorganize, recapitalize or reclassify its
Common Stock or (vi) any "person" or "group" (as these terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall
become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% of the aggregate Voting
Stock of the Company.
(z) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(aa) "Holder Pro Rata Amount" means a fraction (i) the numerator of
which is the Original Principal Amount of this Note and (ii) the
denominator of which is the aggregate Original Principal Amount of all
Notes issued to the initial purchasers pursuant to the Securities
Purchase Agreement on the Closing Date.
(bb) "Indebtedness" of any Person means, without duplication (i)
all indebtedness for borrowed money, (ii) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services, including (without limitation) "capital leases" in accordance
with GAAP (other than trade payables entered into in the ordinary course
of business), (iii) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (iv)
all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with
respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank
under such agreement in the event of default are
-32-
limited to repossession or sale of such property), (vi) all monetary
obligations under any leasing or similar arrangement which, in connection
with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in
clauses (i) through (vi) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, lien, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts
and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the
payment of such indebtedness, and (viii) all Contingent Obligations in
respect of indebtedness or obligations of others of the kinds referred to
in clauses (i) through (vii) above.
(cc) "Initial Company Conversion Price" means, as of any date of
determination, that price which shall be the lower of (i) the applicable
Conversion Price and (ii) that price computed as 90% of the arithmetic
average of the five (5) lowest Weighted Average Prices of the Common
Stock during the ten (10) consecutive Trading Day period ending on the
second (2nd) Trading Day immediately prior to the Installment Date (such
period, the "Initial Company Conversion Measuring Period"). All such
determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination or other similar transaction that
proportionately decreases or increases the Common Stock during such
Initial Company Conversion Measuring Period.
(dd) "Installment Amount" means with respect to any Installment
Date, the lesser of (A) the product of (i) $882,352.94, multiplied by
(ii) Holder Pro Rata Amount and (B) the Principal amount under this Note
as of such Installment Date, as any such Installment Amount may be
reduced pursuant to the terms of this Note, whether upon conversion,
redemption or otherwise, together with, in each case the sum of any
accrued and unpaid Interest with respect to such Principal amount and
accrued and unpaid Late Charges, if any, with respect to such Principal
amount and Interest. In the event the Holder shall sell or otherwise
transfer any portion of this Note, the transferee shall be allocated a
pro rata portion of the each unpaid Installment Amount hereunder;
provided, however, that in the event that the Company reports for either
the Fiscal Quarter ended December 31, 2006 or the Fiscal Quarter ended
March 31, 2007 (1) Revenues in excess of $20,000,000 and (2) a
Consolidated EBITDA of not less than $0 (the foregoing, the "Financial
Test"), then (x) for each Installment Date other than the final
Installment Date, the applicable Installment Amount in clause (A) above
shall be the product of 820,000.00 and the Holder Pro Rata Amount and (y)
for the final Installment Date, the applicable Installment Amount in
clause (A) above shall be the product of $2,700,000.00 and the Holder Pro
Rata Amount.
(ee) "Installment Balance Conversion Shares" means, for any
Installment Date, a number of shares of Common Stock equal to (i) the
Post-Installment Conversion Shares for such date minus (ii) the amount of
any Pre-Installment Conversion Shares delivered on such date; provided
that in the event that the amount of Pre-Installment Conversion Shares
exceeds the Post-Installment Conversion Shares for such date (such
excess, the "Installment Conversion Shares Excess"), the outstanding
Principal under this Note shall be reduced by the product of (x) the
Installment Conversion Share Excess and (y) the Company Conversion Price
and the Installment Balance Conversion Shares shall equal zero (0).
-33-
(ff) "Installment Date" means each of the following dates: (i) May
31, 2007; provided, however, that if the Financial Test is satisfied the
first Installment Date shall be the date set forth in clause (ii) hereof,
(ii) July 31, 2007, (iii) September 30, 2007, (iv) November 30, 2007, (v)
January 31, 2008, (vi) March 31, 2008, (vii) May 31, 2008, (viii) July
31, 2008, (ix) September 30, 2008, (x) November 30, 2008, (xi) January
31, 2009, (xii) March 31, 2009, (xiii) May 31, 2009, (xiv) July 31, 2009,
(xv) September 30, 2009, (xvi) November 30, 2009 and (xvii) January 31,
2010.
(gg) "Installment Volume Limitation" means 20% of the aggregate
dollar trading volume (as reported on Bloomberg) of the Common Stock on
the Principal Market for the twenty-five (25) Trading Days with the
lowest dollar trading volume over the thirty (30) consecutive Trading Day
period prior to the applicable Installment Notice Date.
(hh) "Interest Rate" means, initially nine percent (9.0%) per
annum, subject to adjustment at the beginning of each Calendar Quarter
beginning with the Calendar Quarter ended March 31, 2007 in the event
that the Interest Rate Conditions are satisfied as prior to the end of
such applicable Calendar Quarter, then the Interest Rate shall be
adjusted to equal, as of the first (1st) Business Day of such Calendar
Quarter and each successive Calendar Quarter, the applicable LIBOR;
provided, however, that in no event shall the Interest Rate hereunder be
less than five and one-half percent (5.5%).
(ii) "Interest Rate Conditions" means that (i) the Company has
reported cumulative Consolidated EBITDA for three (3) consecutive Fiscal
Quarters in excess of $9,000,000 with at least $3,000,000 in Consolidated
EBITDA reported for the most recent of such Fiscal Quarters, (ii)
following public disclosure of the Consolidated EBITDA amounts referred
to in clause (i) hereof, the Weighted Average Price of the Common Stock
during any five (5) consecutive Trading Days is greater than the
Conversion Price in effect on the Issuance Date and (iii) as of and from
the date of the public disclosure referred to in clause (ii) hereof, the
Equity Conditions are satisfied (or waived in writing by the Holder).
(jj) "LIBOR" means, (i) the six-month London Interbank Offered Rate
for deposits in U.S. dollars, as shown on such date in The Wall Street
Journal (Eastern Edition) under the caption "Money Rates - London
Interbank Offered Rates (LIBOR)"; or (ii) if The Wall Street Journal does
not publish such rate, the offered one-month rate for deposits in U.S.
dollars which appears on the Reuters Screen LIBO Page as of 10:00 a.m.,
New York time, each day, provided that if at least two rates appear on
the Reuters Screen LIBO Page on any day, the "LIBOR" for such day shall
be the arithmetic mean of such rates.
(kk) "Make-Whole Amount" means, as to any Conversion Amount being
redeemed pursuant to Section 9, an amount equal to the difference between
(i) an amount of Interest that, but for the applicable conversion, would
have been paid to the Holder on such Conversion Amount from the Issuance
Date through the third (3rd) anniversary of the Issuance Date and (ii)
the amount of Interest already paid to the Holder through the Optional
Redemption Date.
-34-
(ll) "Material Subsidiary" means any Subsidiary (as defined in the
Securities Purchase Agreement) that is a "significant subsidiary" within
the meaning of Regulation S-X adopted by the SEC.
(mm) "Options" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
(nn) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or,
if there is more than one such Person or Parent Entity, the Person or
Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.
(oo) "Permitted Indebtedness" means (i) Permitted Senior
Indebtedness and (ii) Indebtedness evidenced by this Note and the Other
Notes; (iii) other unsecured Indebtedness incurred by the Company and /or
any of its Subsidiaries that is made expressly subordinate in right of
payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Required Holders and approved by the
Required Holders in writing, and which Indebtedness does not provide at
any time for (A) the payment, prepayment, repayment, repurchase or
defeasance, directly or indirectly, of any principal or premium, if any,
thereon until ninety-one (91) days after the Maturity Date or later and
(B) total interest and fees at a rate in excess of the initial Interest
Rate per annum.
(pp) "Permitted Liens" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with
GAAP, (ii) any statutory Lien arising in the ordinary course of business
by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as
materialmen's liens, mechanics' liens and other similar liens, arising in
the ordinary course of business with respect to a liability that is not
yet due or delinquent or that are being contested in good faith by
appropriate proceedings, (iv) Liens (A) upon or in any equipment (as
defined in the Security Agreement) acquired or held by the Company or any
of its Subsidiaries to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition
or lease of such equipment, or (B) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment, (v) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described
in clauses (i) and (iv) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the Indebtedness being
extended, renewed or refinanced does not increase, (vi) Liens securing
Permitted Senior Indebtedness; (vii) leases or subleases and licenses and
sublicenses granted to others in the ordinary course of the Company's
business, not interfering in any material respect with the business of
the Company and its Subsidiaries taken as a whole, (viii) Liens in favor
of customs and revenue authorities arising as a matter of law to secure
payments of custom duties in connection with the importation of goods,
and (ix) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section
4(a)(ix).
-35-
(qq) "Permitted Senior Indebtedness" means (i) the principal of
(and premium, if any), interest on, and all fees and other amounts
(including, without limitation, any reasonable out-of-pocket costs,
enforcement expenses (including reasonable out-of-pocket legal fees and
disbursements), collateral protection expenses and other reimbursement or
indemnity obligations relating thereto) payable by Company and/or its
Subsidiaries under or in connection with any credit facility to be
entered into by the Company and/or its Subsidiaries with one or more
financial institutions (and on terms and conditions) at any time
following the Effective Date relating to the shares of Common Stock
underlying this Note, in form and substance reasonably satisfactory to
the Required Holders, (ii) Indebtedness under capitalized lease
obligations in an aggregate amount for all such leases of less than or
equal to $250,000 incurred in any twelve (12) month period and (iii)
Indebtedness set forth on Schedule A hereto; provided, however, that the
aggregate outstanding amount of such Indebtedness permitted hereunder
(taking into account the maximum amounts which may be advanced under the
loan documents evidencing such Permitted Senior Indebtedness) does not at
any time exceed $12,000,000.
(rr) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or
agency thereof.
(ss) "Post-Installment Conversion Shares" means, for any
Installment Date, that number of shares of Common Stock equal to the
applicable Company Conversion Amount for such Installment Date divided by
the Company Conversion Price (without taking into account the delivery of
any Pre-Installment Conversion Shares).
(tt) "Principal Market" means the OTC Bulletin Board.
(uu) "Redemption Premium" means (i) in the case of the Events of
Default described in Section 4(a)(i) - (vi) and (ix) - (xii), 125% or
(ii) in the case of the Events of Default described in Section 4(a)(vii)
- (viii), 100%.
(vv) "Registration Rights Agreement" means that certain
registration rights agreement dated as of the Subscription Date by and
among the Company and the initial holders of the Notes relating to, among
other things, the registration of the resale of the Common Stock issuable
upon conversion of the Notes and exercise of the Warrants.
(ww) "Required Holders" means the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding.
(xx) "Revenues" means the amount set forth in the line item
entitled "Total Revenue" in the Company's publicly available financial
statements, as prepared in accordance with GAAP.
(yy) "SEC" means the United States Securities and Exchange
Commission.
(zz) "Securities Purchase Agreement" means that certain securities
purchase agreement dated as of the Subscription Date by and among the
Company and the initial holders of the Notes pursuant to which the
Company issued the Notes and Warrants.
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(aaa) "Series B Warrants" has the meaning ascribed to such term in
the Securities Purchase Agreement, and shall include all successors
thereto.
(bbb) "Stockholder Approval Date" has the meaning ascribed to such
term in the Securities Purchase Agreement.
(ccc) "Stockholder Meeting Deadline" has the meaning ascribed to
such term in the Securities Purchase Agreement.
(ddd) "Subscription Date" means July 26, 2006.
(eee) "Successor Entity" means the Person, which may be the
Company, formed by, resulting from or surviving any Fundamental
Transaction or the Person with which such Fundamental Transaction shall
have been made, provided that if such Person is not a publicly traded
entity whose common stock or equivalent equity security is quoted or
listed for trading on an Eligible Market, Successor Entity shall mean
such Person's Parent Entity.
(fff) "Tax" means any tax, levy, impost, duty or other charge or
withholding of a similar nature (including any related penalty or
interest).
(ggg) "Tax Deduction" means a deduction or withholding for or on
account of Tax from a payment under the Notes.
(hhh) "Trading Day" means any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal
securities exchange or securities market on which the Common Stock is
then traded; provided that "Trading Day" shall not include any day on
which the Common Stock is scheduled to trade on such exchange or market
for less than 4.5 hours or any day that the Common Stock is suspended
from trading during the final hour of trading on such exchange or market
(or if such exchange or market does not designate in advance the closing
time of trading on such exchange or market, then during the hour ending
at 4:00:00 p.m., New York Time).
(iii) "Voting Stock" of a Person means capital stock of such Person
of the class or classes pursuant to which the holders thereof have the
general voting power to elect, or the general power to appoint, at least
a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
(jjj) "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.
(kkk) "Weighted Average Price" means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York
Time (or such other time as the Principal Market publicly announces is
the official open of trading), and ending at 4:00:00 p.m., New York Time
(or such other time as the Principal Market publicly announces is the
official close of trading) as
-37-
reported by Bloomberg through its "Volume at Price" functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of
such security in the over-the-counter market on the electronic bulletin
board for such security during the period beginning at 9:30:01 a.m., New
York Time (or such other time as such market publicly announces is the
official open of trading), and ending at 4:00:00 p.m., New York Time (or
such other time as such market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted
average price is reported for such security by Bloomberg for such hours,
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 (formerly the National Quotation Bureau,
Inc.). If the Weighted Average Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Weighted Average
Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the
Holder are unable to agree upon the fair market value of such security,
then such dispute shall be resolved pursuant to Section 23. All such
determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the
applicable calculation period.
(29) DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries, the Company
shall within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K
or otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries,
the Company so shall indicate to such Holder contemporaneously with delivery of
such notice, and in the absence of any such indication, the Holder shall be
allowed to presume that all matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
as of the Issuance Date set out above.
BRAVO! FOODS INTERNATIONAL CORP.
By:____________________________________
Name:
Title:
EXHIBIT I
BRAVO! FOODS INTERNATIONAL CORP.
CONVERSION NOTICE
Reference is made to the Senior Convertible Note (the "Note") issued to the
undersigned by Bravo! Foods International Corp. (the "Company"). In accordance
with and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock par value $0.001 per share (the "Common Stock") of the
Company, as of the date specified below.
Date of Conversion: _____________________________________________________
Aggregate Conversion Amount to be converted: ____________________________
Please confirm the following information:
Conversion Price: _______________________________________________________
Number of shares of Common Stock to be issued: __________________________
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to: _______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Facsimile Number: _______________________________________________________
Authorization: __________________________________________________________
By: _______________________________________________________________
Title: ______________________________________________________
Dated: ________________________________________________________________________
Account Number: _________________________________________________________
(if electronic book entry transfer)
Transaction Code Number: ________________________________________________
(if electronic book entry transfer)
Installment Amounts to be reduced and amount of reduction: __________________
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
American Stock Transfer & Trust Company to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
July 27, 2006 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Company.
BRAVO! FOODS INTERNATIONAL CORP.
By:__________________________________
Name:
Title: