EXHIBIT 10.4
[FORM OF SENIOR SECURED CONVERTIBLE NOTE]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE 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, IN A GENERALLY ACCEPTABLE FORM, 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.
ADVANCED CANNABIS SOLUTIONS, INC.
SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: January [ ], 2014 Original Principal Amount:
U.S. $[ ]
FOR VALUE RECEIVED, Advanced Cannabis Solutions, Inc., a Colorado
corporation (the "Company"), hereby promises to pay to [FULL CIRCLE CAPITAL
CORPORATION] [OTHER BUYERS] or registered assigns (the "Holder") in cash and/or
in shares of Common Stock (as defined below) the amount set out above as the
Original Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion, amortization or otherwise, the "Principal") when due,
whether upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("Interest") on any outstanding Principal at the applicable Interest Rate from
the date set out above as the Issuance Date (the "Issuance Date") until the same
becomes due and payable, whether upon an Interest Date (as defined below), the
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof). This Senior Secured Convertible Note
(including all Senior Secured Convertible Notes issued in exchange, transfer or
replacement hereof, this "Note") is one of an issue of Senior Secured
Convertible Notes issued pursuant to the Securities Purchase Agreement
(collectively, the "Other Notes"). Certain capitalized terms used herein are
defined in Section 30.
(1) PAYMENTS OF PRINCIPAL; PREPAYMENT. 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 (as
defined in Section 24(b)) on such Principal and Interest. The "Maturity Date"
shall be [ ], 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 4(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.
(a) The Company acknowledges and agrees that this Note was issued at an
original issue discount. Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 360-day year and actual
number of days elapsed and shall be payable in arrears on the first (1st)
Business Day of each calendar month following the Issuance Date through the
Maturity Date (each, an "Interest Date") on the Principal amount of this Note
that is then outstanding with the first (1st) Interest Date being March 3, 2014.
Interest shall be payable on each Interest Date to the record holder of this
Note in cash by wire transfer of immediately available funds pursuant to wire
instructions provided by the Holder in writing to the Company. Prior to the
payment of Interest on an Interest Date, Interest on this Note shall accrue at
the Interest Rate and be payable by way of inclusion of the Interest in the
Conversion Amount (as defined in Section 3(b)(i)) on each Conversion Date (as
defined in Section 3(c)(i)) in accordance with Section 3(b)(i). In the event of
an Interest Increase Event that is subsequently cured, the adjustments in the
Interest Rate 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 Interest Increase Event shall continue to apply to the
extent relating to the days after the occurrence of such Interest Increase Event
through and including the date of cure of such Interest Increase Event.
(3) CONVERSION OF NOTES. At any time or times after the Issuance Date, this
Note shall be convertible into shares of the Company's common stock, no par
value (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 Issuance Date, the Holder shall be entitled to
convert any portion of the outstanding and unpaid Conversion Amount (as defined
below) into fully paid and nonassessable shares of Common Stock in accordance
with Section 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
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similar taxes that may be 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 sum of (A) the portion of the
Principal to be converted, amortized, redeemed or otherwise with respect to
which this determination is being made, (B) accrued and unpaid Interest
with respect to such Principal and (C) accrued and unpaid Late Charges, if
any, with respect to such Principal and Interest.
(ii) "Conversion Price" means, as of any Conversion Date or other date
of determination, $5.00 per share, 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 (a "Conversion Date"), the Holder shall (A)
transmit by facsimile or electronic mail (or otherwise deliver), for
receipt on or prior to 11:59 p.m., New York time, on such date, a copy of
an executed notice of conversion in the form attached hereto as Exhibit I
(the "Conversion Notice") to the Company and (B) if required by Section
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 or electronic mail 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) Trading Day following the
date of receipt of a Conversion Notice (the "Share Delivery Date"), the
Company shall (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 At Custodian system or (y)
if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the address as specified
in the Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to which
the Holder shall be entitled. 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 three (3) 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
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as the record holder or holders of such shares of Common Stock on the
Conversion Date, irrespective of the date such Conversion Shares are
credited to the Holder's account with DTC or the date of delivery of the
certificates evidencing such Conversion Shares, as the case may be.
(ii) Company's Failure to Timely Convert. If the Company shall fail on
or prior to the Share Delivery Date to issue and deliver a certificate to
the Holder, if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, or credit the Holder's balance
account with DTC, if the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program, for the number of shares of Common
Stock to which the Holder is entitled upon the Holder's conversion of any
Conversion Amount (a "Conversion Failure"), then (i) the Company shall pay
damages to the Holder for each Trading Day of such Conversion Failure in an
amount equal to 1.5% of the product of (a) the sum of the number of shares
of Common Stock not issued to the Holder on or prior to the Share Delivery
Date and to which the Holder is entitled, and (b) the Closing Sale Price of
the Common Stock on the Share Delivery Date and (ii) the Holder, upon
written notice to the Company, may void its Conversion Notice with respect
to, and retain or have returned, as the case may be, any portion of this
Note that has not been converted pursuant to such Conversion Notice;
provided that the voiding of a Conversion Notice shall not affect the
Company's obligations to make any payments which have accrued prior to the
date of such notice pursuant to this Section 3(c)(ii) or otherwise. In
addition to the foregoing, if the Company shall fail on or prior to the
Share Delivery Date to issue and deliver a certificate to the Holder, if
the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, or credit the Holder's balance account with
DTC, if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program for the number of shares of Common Stock to
which the Holder is entitled upon the Holder's conversion of any Conversion
Amount or on any date of the Company's obligation to deliver shares of
Common Stock as contemplated pursuant to clause (y) below 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) Trading Days after the Holder's request and in the
Holder's discretion, either (x) 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
issue and deliver such certificate or credit the Holder's balance account
with DTC for the shares of Common Stock to which the Holder is entitled
upon the Holder's conversion of the applicable Conversion Amount shall
terminate, or (y) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common Stock or
credit the Holder's balance account with DTC for such shares of Common
Stock and pay cash to the Holder in an amount equal to the excess (if any)
of the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the Closing Bid Price on the Conversion Date.
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(iii) Registration; Book-Entry. The Company shall maintain a register
(the "Register") for the recordation of the names and addresses of the
holders of each Note and the principal amount of the Notes (and stated
interest thereon) held by such holders (the "Registered Notes"). The
entries in the Register shall be conclusive and binding for all purposes
absent manifest error. The Company and the holders of the Notes shall treat
each Person whose name is recorded in the Register as the owner of a Note
for all purposes, including, without limitation, the right to receive
payments of Principal and Interest, if any, hereunder, notwithstanding
notice to the contrary. A Registered Note may be assigned or sold in whole
or in part only by registration of such assignment or sale on the Register.
Upon its receipt of a request to assign or sell all or part of any
Registered Note by a Holder, the Company shall record the information
contained therein in the Register and issue one or more new Registered
Notes in the same aggregate principal amount as the principal amount of the
surrendered Registered Note to the designated assignee or transferee
pursuant to Section 18. Notwithstanding anything to the contrary in this
Section 3(c)(iii), a Holder may assign any Note or any portion thereof to
an Affiliate of such Holder or a Related Fund of such Holder without
delivering a request to assign or sell such Note to the Company and the
recordation of such assignment or sale in the Register (a "Related Party
Assignment"); provided, that (x) the Company may continue to deal solely
with such assigning or selling Holder unless and until such Holder has
delivered a request to assign or sell such Note or portion thereof to the
Company for recordation in the Register; (y) the failure of such assigning
or selling Holder to deliver a request to assign or sell such Note or
portion thereof to the Company shall not affect the legality, validity, or
binding effect of such assignment or sale and (z) such assigning or selling
Holder shall, acting solely for this purpose as a non-fiduciary agent of
the Company, maintain a register (the "Related Party Register") comparable
to the Register on behalf of the Company, and any such assignment or sale
shall be effective upon recordation of such assignment or sale in the
Related Party Register. 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, if any, 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 this Note and one or more holder of Other
Notes for the same Conversion Date and the Company can convert some, but
not all, of such portions of this Note and the Other Notes submitted for
conversion, the Company, subject to Section 3(d), shall convert from the
Holder and each holder of Other Notes electing to have this Note or the
Other Notes converted on such date a pro rata amount of such holder's
portion of the Note and its Other Notes submitted for conversion based on
the Principal amount of this Note and the Other Notes submitted for
conversion on such date by such holder relative to the aggregate principal
amount of this Note and all Other Notes submitted for conversion on such
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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. The Company shall not effect the
conversion of any portion of this Note, and the Holder shall not have the
right to convert any portion of this Note, to the extent that after giving
effect to such conversion, the Holder together with the other Attribution
Parties collectively would beneficially own in excess of 4.99% (the
"Maximum Percentage") of the shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned
by the Holder and the other Attribution Parties shall include the number of
shares of Common Stock held by the Holder and all other Attribution Parties
plus 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 shares of Common Stock which would be issuable upon
(i) conversion of the remaining, nonconverted portion of this Note
beneficially owned by the Holder or any of the other Attribution Parties
and (ii) exercise or conversion of the unexercised or nonconverted portion
of any other securities of the Company (including, without limitation, any
convertible notes or convertible preferred stock or warrants, including the
Other Notes and the Warrants) beneficially owned by the Holder or any other
Attribution Party subject to a limitation on conversion or exercise
analogous to the limitation contained in this Section 3(d). For purposes of
this Section 3(d), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act. For purposes of determining the
number of outstanding shares of Common Stock the Holder may acquire upon
the conversion of the Note without exceeding the Maximum Percentage, the
Holder may rely on the number of outstanding shares of Common Stock as
reflected in (i) the Company's most recent Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public
filing with the SEC, as the case may be, (ii) a more recent public
announcement by the Company or (iii) any other written notice by the
Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding (the "Reported Outstanding Share Number"). If the Company
receives a Conversion Notice from a Holder at a time when the actual number
of outstanding shares of Common Stock is less than the Reported Outstanding
Share Number, the Company shall notify the Holder in writing of the number
of shares of Common Stock then outstanding and, to the extent that such
Conversion Notice would otherwise cause the Holder's beneficial ownership,
as determined pursuant to this Section 3(d), to exceed the Maximum
Percentage, the Holder must notify the Company of a reduced number of
shares of Common Stock to be purchased pursuant to such Conversion Notice.
For any reason at any time, upon the written or oral request of the Holder,
the Company shall within one (1) Trading 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 and any other Attribution Party
since the date as of which the Reported Outstanding Share Number was
reported. In the event that the issuance of shares of Common Stock to the
Holder upon conversion of this Note results in the Holder and the other
Attribution Parties being deemed to beneficially own, in the aggregate,
more than the Maximum Percentage of the number of outstanding shares of
Common Stock (as determined under Section 13(d) of the Exchange Act), the
number of shares so issued by which the Holder's and the other Attribution
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Parties' aggregate beneficial ownership exceeds the Maximum Percentage (the
"Excess Shares") shall be deemed null and void and shall be cancelled ab
initio, and the Holder shall not have the power to vote or to transfer the
Excess Shares. Upon delivery of a written notice to the Company, the Holder
may from time to time increase (with such increase not effective until the
sixty-first (61st) day after delivery of such notice) or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% as
specified in such notice; provided that (i) any such increase in the
Maximum Percentage 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 the other Attribution Parties
and not to any other holder of Notes that is not an Attribution Party of
the Holder. For purposes of clarity, the shares of Common Stock issuable
pursuant to the terms of this Note in excess of the Maximum Percentage
shall not be deemed to be beneficially owned by the Holder for any purpose
including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the Exchange
Act. The provisions of this paragraph shall be construed and implemented in
a manner otherwise than in strict conformity with the terms of this Section
3(d) to the extent necessary to correct this paragraph (or any portion of
this paragraph) which may be defective or inconsistent with the intended
beneficial ownership limitation contained in this Section 3(d) or to make
changes or supplements necessary or desirable to properly give effect to
such limitation. The limitation contained in this paragraph may not be
waived and shall apply to a successor holder of this Note.
(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 filed within
the applicable time period specified in the Registration Rights Agreement
or 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 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);
(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;
(iii) the Company's (A) failure to cure a Conversion Failure by
delivery of 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 the Holder or any holder of the Other Notes, including by way
of public announcement or through any of its agents, at any time, of its
intention not to comply with a request for conversion of this Note or any
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Other Notes into shares of Common Stock that is tendered in accordance with
the provisions of this Note or the Other Notes, other than pursuant to
Section 3(d) (and analogous provisions under the Other Notes);
(iv) at any time following the tenth (10th) consecutive Business Day
that the Holder's Authorized Share Allocation is less than the sum of 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) and exercise in full of the Holder's Warrants (without regard
to any limitations on exercise set forth in the Warrants);
(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 or the Other Notes or any other Transaction Document (as defined
in the Securities Purchase Agreement) or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated hereby and thereby to which the Holder is a
party, except, in the case of a failure to pay Interest and/or Late Charges
when and as due, in which case only if such failure continues for a period
of at least an aggregate of five (5) Business Days;
(vi) 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) other than
with respect to this Note or any Other Notes;
(vii) the Company or any of its 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 Subsidiaries in an involuntary case, (B) appoints
a Custodian of the Company or any of its Subsidiaries or (C) orders the
liquidation of the Company or any of its 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 which 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
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provides the Holder a written 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) other than as specifically set forth in another clause of this
Section 4(a), the Company or any of its Subsidiaries 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 an aggregate of ten (10)
Business Days;
(xi) any breach or failure in any respect to comply with either
Section 15 of this Note;
(xii) the Company or any Subsidiary shall fail to perform or comply
with any covenant or agreement contained in the Security Agreement (as
defined in the Securities Purchase Agreement) to which it is a party or any
Mortgage (as defined in the Securities Purchase Agreement) to which it is a
party;
(xiii) any material provision of any Security Document (as determined
by the Collateral Agent (as defined in the Securities Purchase Agreement))
shall at any time for any reason (other than pursuant to the express terms
thereof) cease to be valid and binding on or enforceable against the
Company or any Subsidiary intended to be a party thereto, or the validity
or enforceability thereof shall be contested by any party thereto, or a
proceeding shall be commenced by the Company or any Subsidiary or any
governmental authority having jurisdiction over any of them, seeking to
establish the invalidity or unenforceability thereof, or the Company or any
Subsidiary shall deny in writing that it has any liability or obligation
purported to be created under any Security Document;
(xiv) any Security Document or any other security document, after
delivery thereof pursuant hereto, shall for any reason fail or cease to
create a valid and perfected and, except to the extent permitted by the
terms hereof or thereof, first priority Lien (as defined in Section 15(c))
in favor of the Collateral Agent for the benefit of the holders of the
Notes on any Collateral (as defined in the Security Documents) purported to
be covered thereby;
(xv) any material damage to, or loss, theft or destruction of, any
Collateral or a material amount of property of the Company, whether or not
insured, or any strike, lockout, labor dispute, embargo, condemnation, act
of God or public enemy, or other casualty which causes, for more than
fifteen (15) consecutive days, the cessation or substantial curtailment of
revenue producing activities at any facility of the Company or any
Subsidiary, if any such event or circumstance could reasonably be expected
to have a Material Adverse Effect (as defined in the Securities Purchase
Agreement);
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(xvi) any Event of Default (as defined in the Other Notes) occurs with
respect to any Other Notes; or
(xvii) the consummation of a Change of Control.
(b) Redemption Right. Upon the occurrence of an Event of Default with
respect to this Note or any Other Note other than an Event of default
described in Section 4(a)(xviii), the Company shall within one (1) Business
Day deliver written notice thereof via facsimile or electronic mail, and
overnight courier (an "Event of Default Notice") to the Holder. 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 or electronic mail, and overnight courier to
the Holder (a "Change of Control Notice"). At any time (A) after the
earlier of the Holder's receipt of an Event of Default Notice and the
Holder becoming aware of an Event of Default or (B) during the period
beginning on the earlier to occur of (i) any oral or written agreement by
the Company or any of its Subsidiaries, upon consummation of which the
transaction contemplated thereby would reasonably be expected to result in
a Change of Control, (ii) the Holder becoming aware of a Change of Control
and (iii) 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 (an "Event of
Default Redemption") 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 require the Company 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 in cash by wire transfer of
immediately available funds at a price equal to (i) the greater of (x) (A)
with respect to any Event of Default described in Section 4(a)(i) through
Section 4(a)(xvii), 125% of the Conversion Amount being redeemed and (B)
with respect to the Event of Default described in Section 4(a)(xviii), the
sum of (I) the Conversion Amount being redeemed and (II) the Make-Whole
Amount and (y) the product of (A) the Conversion Amount being redeemed and
(B) the quotient determined by dividing (I) the greatest Closing Sale Price
of the Common Stock during the period beginning on the date immediately
preceding such Event of Default and ending on the date the Holder delivers
the Event of Default Redemption Notice, by (II) the lowest Conversion Price
in effect during such period (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. 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 Event of Default redemption
premium due 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. Notwithstanding anything to
the contrary herein, until the Event of Default Redemption Price has been
paid, the Conversion Amount related thereto may be converted, in whole or
in part, by the Holder into shares of Common Stock pursuant to Section
3(c)(i).
10
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION. 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 pursuant to written agreements in form and substance
satisfactory to the Required Holders and approved by the Required Holders
prior to such Fundamental Transaction, including agreements, if so
requested by the Holder, 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 and security 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 capital stock is
quoted on or listed for trading on an Eligible Market. Any security
issuable or potentially issuable to the Holder pursuant to the terms of
this Note on the consummation of a Fundamental Transaction shall be
registered and freely tradable by the Holder without any restriction or
limitation or the requirement to be subject to any holding period pursuant
to any applicable securities laws. No later than (i) thirty (30) days prior
to the occurrence or consummation of any Fundamental Transaction or (ii) if
later, the first Trading Day following the date the Company first becomes
aware of the occurrence or potential occurrence of a Fundamental
Transaction, the Company shall deliver written notice thereof via facsimile
or electronic mail, and overnight courier to the Holder. Upon the
occurrence or consummation of any Fundamental Transaction, and it shall be
a required condition to the occurrence or consummation of any Fundamental
Transaction that, the Company and the Successor Entity or Successor
Entities, jointly and severally, shall succeed to, and the Company shall
cause any Successor Entity or Successor Entities to jointly and severally
succeed to, and be added to the term "Company" under this Note (so that
from and after the date of such Fundamental Transaction, each and every
provision of this Note referring to the "Company" shall refer instead to
each of the Company and the Successor Entity or Successor Entities, jointly
and severally), and the Company and the Successor Entity or Successor
Entities, jointly and severally, may exercise every right and power of the
Company prior thereto and shall assume all of the obligations of the
Company prior thereto under this Note with the same effect as if the
Company and such Successor Entity or Successor Entities, jointly and
severally, had been named as the Company in this Note, and, solely at the
request of the Holder, if the Successor Entity and/or Successor Entities is
a publicly traded corporation whose common capital stock is quoted on or
listed for trading on an Eligible Market, shall deliver (in addition to and
without limiting any right under this Note) to the Holder in exchange for
this Note a security of the Successor Entity and/or Successor Entities
evidenced by a written instrument substantially similar in form and
substance to this Note and convertible for a corresponding number of shares
of capital stock of the Successor Entity and/or Successor Entities (the
11
"Successor Capital Stock") equivalent (as set forth below) to the shares of
Common Stock acquirable and receivable upon conversion of this Note
(without regard to any limitations on the conversion of this Note) prior to
such Fundamental Transaction (such corresponding number of shares of
Successor Capital Stock to be delivered to the Holder shall equal the
quotient of (i) the aggregate dollar value of all consideration (including
cash consideration and any consideration other than cash ("Non-Cash
Consideration"), in such Fundamental Transaction, as such values are set
forth in any definitive agreement for the Fundamental Transaction that has
been executed at the time of the first public announcement of the
Fundamental Transaction or, if no such value is determinable from such
definitive agreement, as determined in accordance with Section 23 with the
term "Non-Cash Consideration" being substituted for the term "Conversion
Price") that the Holder would have been entitled to receive upon the
happening of such Fundamental Transaction or the record, eligibility or
other determination date for the event resulting in such Fundamental
Transaction, had this Note been converted immediately prior to such
Fundamental Transaction or the record, eligibility or other determination
date for the event resulting in such Fundamental Transaction (without
regard to any limitations on the conversion of this Note) divided by (ii)
the per share Closing Sale Price of such corresponding capital stock on the
Trading Day immediately prior to the consummation or occurrence of the
Fundamental Transaction), and, such security shall be satisfactory to the
Holder, and with an identical conversion price to the Conversion Price
hereunder (such adjustments to the conversion price being for the purpose
of protecting after the consummation or occurrence of such Fundamental
Transaction the economic value of this Note that was in effect immediately
prior to the consummation or occurrence of such Fundamental Transaction, as
elected by the Holder solely at its option). Upon occurrence or
consummation of the Fundamental Transaction, and it shall be a required
condition to the occurrence or consummation of such Fundamental Transaction
that, the Company and the Successor Entity or Successor Entities shall
deliver to the Holder confirmation that there shall be issued upon
conversion of this Note at any time after the occurrence or consummation of
the Fundamental Transaction, as elected by the Holder solely at its option,
shares of Common Stock, Successor Capital Stock or, in lieu of the shares
of Common Stock or Successor Capital Stock (or other securities, cash,
assets or other property purchasable upon the conversion of this Note prior
to such Fundamental Transaction), such shares of stock, securities, cash,
assets or any other property whatsoever (including warrants or other
purchase or subscription rights), which for purposes of clarification may
continue to be shares of Common Stock, if any, that the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction
or the record, eligibility or other determination date for the event
resulting in such Fundamental Transaction, had this Note been converted
immediately prior to such Fundamental Transaction or the record,
eligibility or other determination date for the event resulting in such
Fundamental Transaction (without regard to any limitations on the
conversion of this Note), as adjusted in accordance with the provisions of
this Note. The provisions of this Section 5 shall apply similarly and
equally to successive Fundamental Transactions.
(6) DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS
AND OTHER CORPORATE EVENTS.
(a) Distribution of Assets. If the Company shall declare or make any
dividend or other distributions of its assets (or rights to acquire its
assets) to any or all holders of shares of Common Stock, by way of return
of capital or otherwise (including without limitation, any distribution of
cash, stock or other securities, property or options by way of a dividend,
spin off, reclassification, corporate rearrangement, scheme of arrangement
or other similar transaction) (the "Distributions"), then the Holder will
be entitled to such Distributions as 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 prior to the date on which a
record is taken for such Distribution or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined
for such Distributions (provided, however, that to the extent that the
Holder's right to participate in any such Distribution would result in the
Holder and the other Attribution Parties exceeding the Maximum Percentage,
then the Holder shall not be entitled to participate in such Distribution
12
to such extent (and shall not be entitled to beneficial ownership of such
shares of Common Stock as a result of such Distribution (and beneficial
ownership) to such extent) and the portion of such Distribution shall be
held in abeyance for the Holder until such time or times as its right
thereto would not result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, at which time or times the Holder shall
be granted such rights (and any rights under this Section 6(a) on such
initial rights or on any subsequent such rights to be held similarly in
abeyance) to the same extent as if there had been no such limitation).
(b) Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of
any class of Common Stock (the "Purchase Rights"), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the
Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any
limitations or restrictions on the convertibility of this Note) immediately
prior to 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 shares of Common Stock are to be determined
for the grant, issue or sale of such Purchase Rights (provided, however,
that to the extent that the Holder's right to participate in any such
Purchase Right would result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, then the Holder shall not be entitled to
participate in such Purchase Right to such extent (and shall not be
entitled to beneficial ownership of such shares of Common Stock as a result
of such Purchase Right (and beneficial ownership) to such extent) and such
Purchase Right to such extent shall be held in abeyance for the Holder
until such time or times as its right thereto would not result in the
Holder and the other Attribution Parties exceeding the Maximum Percentage,
at which time or times the Holder shall be granted such right (and any
Purchase Right granted, issued or sold on such initial Purchase Right or on
any subsequent Purchase Right to be held similarly in abeyance) to the same
extent as if there had been no such limitation).
(c) Other Corporate Events. In addition to and not in substitution for
any other rights hereunder, prior to the occurrence or consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock
are entitled to receive securities, cash, assets or other property with
respect to or in exchange for shares of Common Stock (a "Corporate Event"),
the Company shall make appropriate provision to insure that, and any
applicable Successor Entity or Successor Entities shall ensure that, and it
shall be a required condition to the occurrence or consummation of such
Corporate Event that, the Holder will thereafter have the right to receive
upon conversion of this Note at any time after the occurrence or
consummation of the Corporate Event, shares of Common Stock or Successor
Capital Stock or, if so elected by the Holder, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property)
purchasable upon the conversion of this Note prior to such Corporate Event
(but not in lieu of such items still issuable under Sections 6(a) and 6(b),
which shall continue to be receivable on the Common Stock or on the such
shares of stock, securities, cash, assets or any other property otherwise
receivable with respect to or in exchange for shares of Common Stock), such
shares of stock, securities, cash, assets or any other property whatsoever
13
(including warrants or other purchase or subscription rights and any shares
of Common Stock) which the Holder would have been entitled to receive upon
the occurrence or consummation of such Corporate Event or the record,
eligibility or other determination date for the event resulting in such
Corporate Event, had this Note been converted immediately prior to such
Corporate Event or the record, eligibility or other determination date for
the event resulting in such Corporate Event (without regard to any
limitations on conversion of this Note). Provision made pursuant to the
preceding sentence shall be in a form and substance reasonably satisfactory
to the Required Holders. The provisions of this Section 6 shall apply
similarly and equally to successive Corporate Events.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If
and whenever on or after the Subscription Date, 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 Securities) 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 or deemed issuance 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. For
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 any 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 Options or upon conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of any 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 the 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 less
any consideration paid or payable by the Company with respect to such
one share of Common Stock upon the granting or sale of such Option,
upon exercise of such Option and upon conversion exercise or exchange
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 shares of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such shares of Common Stock upon conversion or exchange or
exercise of such Convertible Securities.
14
(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 the
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 the conversion or exchange or exercise thereof" 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 less any consideration paid or payable by the Company with
respect to such one share of Common Stock upon the issuance or sale of
the Convertible Security and upon 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 shares 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 has been or is 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 shares of Common Stock increases or decreases at any
time, the Conversion Price in effect at the time of such increase or
decrease 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 increased or decreased purchase price, additional
consideration or increased or decreased 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
increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the
shares of Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of
such increase or decrease. No adjustment pursuant to this Section 7(a)
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 (x) the
Options will be deemed to have been issued for the Option Value of
such Options and (y) the other securities issued or sold in such
integrated transaction shall be deemed to have been issued or sold for
the difference of (I) the aggregate consideration received by the
15
Company less any consideration paid or payable by the Company pursuant
to the terms of such other securities of the Company, less (II) the
Option Value. If any shares of Common Stock, Options or Convertible
Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration other than cash received therefor will be
deemed to be the net amount received by the Company therefor. If any
shares of Common Stock, Options or Convertible Securities are issued
or sold for a consideration other than cash, the amount of such
consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of publicly
traded securities, in which case the amount of consideration received
by the Company will be the Closing Sale Price of such publicly traded
securities on the date of receipt of such securities. If any shares of
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 shares of Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash
or publicly traded 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 final and
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
shares of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in shares of Common
Stock, Options or in Convertible Securities or (B) to subscribe for or
purchase shares of Common Stock, Options or Convertible Securities,
then such record date will be deemed to be the date of the issue or
sale of the shares of 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 Commn
Stock. If the Company at any time on or after the Subscription Date subdivides
(by 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
16
such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 7.
(d) Voluntary Adjustment by Company. The Company may at any time during the
term of this Note reduce the then current Conversion Price to any amount and for
any period of time deemed appropriate by the Board of Directors of the Company.
(8) OPTIONAL REDEMPTION AT THE COMPANY'S ELECTION. The Company shall at any
time after the thirty-six (36) month anniversary of the Issuance Date have the
right, so long as there has been no Equity Conditions Failure during the period
beginning on the first day of the applicable Equity Conditions Measuring Period
prior to the applicable Company Optional Redemption Notice Date (as defined
below) through the Company Optional Redemption Date (as defined below), to
redeem all, but not less than all, of the Conversion Amount under this Note and
the Other Notes (the "Company Optional Redemption Amount") as designated in the
Company Optional Redemption Notice on the Company Optional Redemption Date (each
as defined below) (a "Company Optional Redemption"), provided, that the
aggregate Conversion Amount under this Note and the Other Notes being redeemed
pursuant to this Section 8 (and analogous provisions under the Other Notes)
shall be at least $500,000, or such lesser amount that is then outstanding under
this Note and the Other Notes. This Note and the Other Notes subject to
redemption pursuant to this Section 8 shall be redeemed by the Company on the
Company Optional Redemption Date at the Company Optional Redemption Price in
cash by wire transfer of immediately available funds pursuant to wire
instructions provided by the Holder in writing to the Company. The Company may
exercise its right to require redemption under this Section 8 by delivering a
written notice thereof at least forty-five (45) days prior to the Company
Optional Redemption Date by facsimile or electronic mail, and overnight courier
to the Holder and all, but not less than all, of the holders of the Other Notes
(the "Company Optional Redemption Notice" and the date all of the holders of the
Notes received such notice is referred to as the "Company Optional Redemption
Notice Date"). The Company Optional Redemption Notice shall be irrevocable. The
Company Optional Redemption Notice shall (i) state the date on which the Company
Optional Redemption shall occur (the "Company Optional Redemption Date"), which
date shall not be less than forty-five (45) days nor more than sixty (60) days
following the Company Optional Redemption Notice Date, (ii) state the aggregate
Conversion Amount of the Notes which the Company has elected to be subject to
Company Optional Redemption from the Holder and all of the holders of the Other
Notes pursuant to this Section 8 (and analogous provisions under the Other
Notes) on the Company Optional Redemption Date and (iii) certify that there has
been no Equity Conditions Failure during the period beginning on the first day
of the applicable Equity Conditions Measuring Period prior to the applicable
Company Optional Redemption Date through the applicable Company Optional
Redemption Notice Date. If the Company confirmed that there was no such Equity
Conditions Failure but an Equity Conditions Failure occurs between the
applicable Company Optional Redemption Notice Date and any time through the
applicable Company Optional Redemption Date (the "Company Optional Redemption
Interim Period"), the Company shall provide the Holder a subsequent notice to
that effect. If there is an Equity Conditions Failure (which is not waived in
writing by the Holder) during such Company Optional Redemption Interim Period,
then the Company Optional Redemption shall be null and void with respect to all
or any part designated by the Holder of the unconverted Company Optional
Redemption Amount and the Holder shall be entitled to all the rights of a holder
of this Note with respect to such amount of the Company Optional Redemption
Amount. Notwithstanding anything to the contrary in this Section 8, until the
17
Company Optional Redemption Price is paid, in full, the Company Optional
Redemption Amount may be converted, in whole or in part, by the Holder into
Common Stock pursuant to Section 3(c)(i). Company Optional Redemptions made
pursuant to this Section 8 shall be made in accordance with Section 12. To the
extent redemptions required by this Section 8 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. All Conversion
Amounts converted by the Holder after the Company Optional Redemption Notice
Date shall reduce the Company Optional Redemption Amount of this Note required
to be redeemed on the Company Optional Redemption Date, unless the Holder
otherwise indicates in the applicable Conversion Notice. The parties hereto
agree that in the event of the Company's redemption of any portion of the Note
under this Section 8, 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 under this
Section 8 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. If the Company elects to cause a Company Optional Redemption pursuant
to Section 8, then it must simultaneously take the same action in the same
proportion with respect to the Other Notes.
(9) OFFER TO REPURCHASE. If, at any time while this Note is outstanding,
the Company or any Subsidiary effects an Asset Sale, the Company shall deliver a
written notice thereof within two (2) Business Days prior to the occurrence of
such Asset Sale by confirmed facsimile or electronic mail, and overnight courier
to all, but not less than all, of the holders of the Notes (the "Offer to
Repurchase Notice") and offer to repurchase a portion of this Note in cash equal
to the Holder Repurchase Amount at the Offer to Repurchase Price (an "Offer to
Repurchase"). At any time after the receipt by the Holder of an Offer to
Repurchase Notice, the Holder may require the Company or its Subsidiary, as
applicable, to redeem at the Offer to Repurchase Price, up to a Conversion
Amount of this Note equal to the Holder Repurchase Amount by delivering written
notice thereof (the "Acceptance Notice") to the Company, which Acceptance Notice
shall indicate the Conversion Amount of the Note the Holder is electing to
redeem and the date chosen by the Holder on which the Offer to Repurchase shall
occur (the "Offer to Repurchase Date"). Each Offer to Repurchase Notice shall
(i) describe the Asset Sale, including, without limitation a certification by
the Company's or such Subsidiary's, as the case may be, Chief Financial Officer
demonstrating the calculation of the aggregate Available Proceeds received by
the Company or such Subsidiary in connection with such Asset Sale and (ii) state
the Offer to Repurchase Price to be paid to the Holder on such date. The Company
shall publicly disclose (as part of an Annual Report on Form 10-K, a Quarterly
Report on Form 10-Q or on a Current Report on Form 8-K or otherwise), that (i)
an Asset Sale has occurred and that, pursuant to the terms of the Notes, the
Holder may require the Company or such Subsidiary, as applicable, to redeem at
the Offer to Repurchase Price the applicable portion of the Notes with any
Available Proceeds received therefrom and (ii) the amount of Available Proceeds
received from such Asset Sale. In the event that the Company or such Subsidiary
shall subsequently determine after the Offer to Repurchase Date that the actual
Available Proceeds received exceeded the amount set forth in the applicable
Offer to Repurchase Notice, the Company or such Subsidiary, as applicable, shall
promptly make an additional Offer to Repurchase of the Notes in an amount equal
to such excess, and the Company or such Subsidiary, as applicable, shall
concurrently therewith (i) deliver to each holder of Notes a certificate of the
Chief Financial Officer demonstrating the derivation of such excess and (ii)
publicly disclose (as part of a Current Report on Form 8-K, or otherwise) the
making of such additional Offer to Repurchase, including, without limitation,
18
the additional amount that may be repurchased. If the Holder or one or more
holders of Other Notes does not elect to require the Company or its Subsidiary,
as applicable, to redeem its Note with its full Holder Repurchase Amount, the
Company or the applicable Subsidiary shall promptly make additional Offers to
Repurchase for this Note and the Other Notes that previously elected to require
the Company or applicable Subsidiary to redeem its Note or Other Note for its
full Holder Repurchase Amount. Such additional Offers to Repurchase shall be
repeated pursuant to the terms of this Section 9 until all Available Proceeds
have been used to redeem this Note and the Other Notes or the Holder and all
holders of Other Notes have failed to elect to have their Notes redeemed for
their maximum amount hereunder. On the Offer to Repurchase Date the Company
shall deliver or shall cause to be delivered to the Holder the Offer to
Repurchase Price in cash by wire transfer of immediately available funds
pursuant to wire instructions provided by the Holder in writing to the Company.
Offers to Repurchase made pursuant to this Section 9 shall be made in accordance
with Section 12. To the extent redemptions required by this Section 9 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.
All Conversion Amounts converted by the Holder after the Offer to Repurchase
Notice Date shall reduce the Holder Repurchase Amount of this Note required to
be redeemed on the Offer to Repurchase Date, unless the Holder otherwise
indicates in the applicable Conversion Notice. The parties hereto agree that in
the event of the Company's redemption of any portion of the Note under this
Section 9, 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.
(10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles 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. The Company shall initially reserve out of its authorized
and unissued shares of Common Stock a number of shares of Common Stock for each
of this Note and the Other Notes equal to 130% of the Conversion Rate with
respect to the Conversion Amount of each such Note as of the Issuance Date. So
long as any of this Note and the Other 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
this Note and the Other Notes, the number of shares of Common Stock specified
above in this Section 11(a) 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 pursuant hereto (in each case, without regard
to any limitations on conversions) (the "Required Reserve Amount"). The initial
number of shares of Common Stock reserved for conversions of this Note and the
Other Notes and each increase in the number of shares so reserved shall be
19
allocated pro rata among the Holder and the holders of the Other Notes based on
the principal amount of this Note and the Other Notes held by each holder at the
Closing (as defined in the Securities Purchase Agreement) or increase in the
number of reserved shares, as the case may be (the "Authorized Share
Allocation"). In the event that a holder shall sell or otherwise transfer this
Note or any of such holder's Other 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 Holder and the remaining holders of Other Notes, pro
rata based on the principal amount of this Note and the Other 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 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 either (x) obtain the written consent of the its shareholders for the
approval of an increase in the number of authorized shares of Common Stock and
provide each shareholder with an information statement with respect thereto or
(y) hold a meeting of its shareholders 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 shareholder with a proxy statement and shall use
its best efforts to solicit its shareholders' approval of such increase in
authorized shares of Common Stock and to cause its Board of Directors to
recommend to the shareholders that they approve such proposal.
(12) 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, provided that if the
Holder has submitted an Event of Default Redemption Notice with respect to the
Event of Default described in Section 4(a)(xviii), the Company shall deliver the
applicable Event of Default Redemption Price to the Holder (i) concurrently with
the consummation of such Change of Control if such notice is received prior to
the consummation of such Change of Control and (ii) within five (5) Business
Days after the Company's receipt of such notice otherwise (the "Event of Default
Redemption Date"). The Company shall deliver the applicable Offer to Repurchase
Price on the applicable Offer to Repurchase Date. The Company shall deliver the
applicable Company Optional Redemption Price on the applicable Company Optional
Redemption Date. The Company shall pay the applicable Redemption Price to the
Holder in cash by wire transfer of immediately available funds on the applicable
due 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
20
Holder a new Note (in accordance with Section 18(d)) representing the
outstanding Principal which has not been redeemed and any accrued Interest on
such Principal which shall be calculated as if no Redemption Notice has been
delivered. 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 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 for redemption or repayment as a result of
an event or occurrence substantially similar to the events or occurrences
described in Section 4(b), Section 8 or Section 9 or pursuant to equivalent
provisions set forth in the Other Notes (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 or electronic mail 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 the Holder and each holder of the Other
Notes based on the principal amount of this Note and the Other Notes submitted
for redemption pursuant to such Redemption Notice and such Other Redemption
Notices received by the Company during such seven (7) Business Day period.
(c) Insufficient Assets. If upon a Redemption Date, the assets of the
Company are insufficient to pay the applicable Redemption Price, the Company
shall (i) take all appropriate action reasonably within its means to maximize
the assets available for paying the applicable Redemption Price, (ii) redeem out
of all such assets available therefor on the applicable Redemption Date the
maximum possible Conversion Amount that it can redeem on such date, pro rata
among the holders of this Note and the Other Notes to be redeemed in proportion
to the aggregate principal amount of this Note and the Other Notes outstanding
on the applicable Redemption Date and (iii) following the applicable Redemption
21
Date, at any time and from time to time when additional assets of the Company
become available to redeem the remaining principal amount of this Note and the
Other Notes, the Company shall use such assets, at the end of the then current
fiscal quarter, to redeem the balance of such principal amount of this Note and
the Other Notes, or such portion thereof for which assets are then available, on
the basis set forth above at the applicable Redemption Price, and such assets
will not be used prior to the end of such fiscal quarter for any other purpose.
Interest on the principal amount of this Note and the Other Notes that have not
been redeemed shall continue to accrue until such time as the Company redeems
this Note and the Other Notes. The Company shall pay to the Holder the
applicable Redemption Price without regard to the legal availability of funds
unless expressly prohibited by applicable law or unless the payment of the
applicable Redemption Price could reasonably be expected to result in personal
liability to the directors of the Company.
(13) VOTING RIGHTS. The Holder shall have no voting rights as the holder of
this Note, except as required by law and as expressly provided in this Note.
(14) SECURITY. This Note and the Other Notes are secured to the extent and
in the manner set forth in the Security Documents.
(15) 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.
(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, except that the Company and any of its Subsidiaries other than [ ]
may incur or guarantee, assume or suffer to exist (x) Indebtedness evidenced by
this Note and the Other Notes and (y) trade payables incurred in the ordinary
course of business consistent with past practice.
(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 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. 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, 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 Indebtedness (other than this Note and the
Other Notes), 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
22
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 this Note and all
of the Other Notes have been converted, redeemed or otherwise satisfied in
accordance with their terms, the Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, redeem or repurchase
its Equity Interest, or permit any Subsidiary to redeem or repurchase its Equity
Interests (except on a pro rata basis among all holders thereof) or declare or
pay any cash dividend or distribution on any Equity Interest of the Company or
of its Subsidiaries without in each case the prior express written consent of
the Required Holders.
(f) Change in Nature of Business. So long as this Note is outstanding, the
Company shall not make, or permit any of its Subsidiaries to make, any change in
the nature of its business as described in the Company's most recent Annual
Report filed on Form 10-K with the SEC. The Company shall not modify its
corporate structure or purpose.
(g) Intellectual Property. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries, directly or
indirectly, to encumber or allow any Liens on, any of its copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of the Company and its Subsidiaries
connected with and symbolized thereby, know-how, operating manuals, trade secret
rights, rights to unpatented inventions, and any claims for damage by way of any
past, present, or future infringement of any of the foregoing, other than
Permitted Liens.
(h) Preservation of Existence, Etc. So long as this Note is outstanding,
the Company shall maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, its existence, rights and privileges, and become or
remain, and cause each of its Subsidiaries to become or remain, duly qualified
and in good standing in each jurisdiction in which the character of the
properties owned or leased by it or in which the transaction of its business
makes such qualification necessary.
(i) Maintenance of Properties, Etc. So long as this Note is outstanding,
the Company shall maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, all of its properties which are necessary or useful in
the proper conduct of its business in good working order and condition, ordinary
wear and tear excepted, and comply, and cause each of its Subsidiaries to
comply, at all times with the provisions of all leases to which it is a party as
lessee or under which it occupies property, so as to prevent any loss or
forfeiture thereof or thereunder.
23
(j) Maintenance of Insurance. So long as this Note is outstanding, the
Company shall maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or associations
(including, without limitation, comprehensive general liability, hazard, rent
and business interruption insurance) with respect to its properties (including
all real properties leased or owned by it) and business, in such amounts and
covering such risks as is required by any governmental authority having
jurisdiction with respect thereto or as is carried generally in accordance with
sound business practice by companies in similar businesses similarly situated.
(k) Transactions with Affiliates. So long as this Note is outstanding, the
Company shall not, nor shall it permit any of its Subsidiaries to, enter into,
renew, extend or be a party to, any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease, transfer
or exchange of property or assets of any kind or the rendering of services of
any kind) with any Affiliate, except in the ordinary course of business in a
manner and to an extent consistent with past practice and necessary or desirable
for the prudent operation of its business, for fair consideration and on terms
no less favorable to it or its Subsidiaries than would be obtainable in a
comparable arm's length transaction with a Person that is not an Affiliate
thereof.
(l) Material Sale of Assets. So long as this Note is outstanding, the
Company shall not, nor shall it permit any of its Subsidiaries to make any
Dispositon of its business, property or assets, whether now owned or hereafter
acquired (or agree to do any of the foregoing) if (i) such Disposition alone or
in the aggregate exceed $[ ] per fiscal year or (ii) such Disposition, whether
in one transaction or a series of related transactions, exceed $[ ], provided,
however, the Company and its Subsidiaries may (A) sell inventory in the ordinary
course of business, (B) license, on a non-exclusive basis, patents, trademarks,
copyrights, and other intellectual property rights in the ordinary course of
business, (C) lease or sublease assets in the ordinary course of business, (D)
dispose of obsolete or worn-out equipment in the ordinary course of business,
and (E) sell or otherwise dispose of other property or assets for cash in an
aggregate amount not less than the fair market value of such property or assets,
provided that the net cash proceeds of such Dispositions in the case of clauses
(D) and (E) above, do not exceed $[ ] in the aggregate in any fiscal year of the
Company; provided, further, that any transaction described in clauses (A)
through (E) above that constitutes a Disposition of any real estate assets of
the Company or any of its Subsidiaries securing the Notes pursuant to the
Security Documents shall be deemed an "Asset Sale" hereunder and any proceeds,
net of any bona fide fees incurred with respect thereto, generated therefrom
shall be deemed "Available Proceeds" hereunder and be subject to the Company's
requirement to effect an Offer to Repurchase pursuant to Section 9.
(m) Management and Consulting Fees. So long as this Note is outstanding,
the Company shall not, nor shall it permit any of its Subsidiaries to, pay any
management, consulting, monitoring or advisory fees or any other fees or
expenses (including the reimbursement thereof by the Company or any of its
Subsidiaries) pursuant to any management, consulting, monitoring, advisory or
other services agreement to any of the directors, officers, management,
shareholders or other equityholders of the Company or any of its Subsidiaries or
other Affiliates, or to any other Subsidiaries or Affiliates of the Company. In
addition, the Company shall not, in the aggregate for any given calendar year,
pay the five (5) most highly compensated employees of the Company for such year,
compensation for services rendered to the Company that exceeds [ ]% of the
aggregate
24
compensation paid in the immediately preceding calendar year to the five (5)
most highly compensated employees of the Company in such preceding calendar year
for services rendered to the Company.
(n) Leverage Ratio. So long as this Note is outstanding, the Company shall
not permit the Leverage Ratio of the Company and its Subsidiaries for any period
of twelve (12) consecutive fiscal months of the Company and its Subsidiaries for
which the last month ends on the last day of any fiscal quarter of the Company
and its Subsidiaries to be greater than [ ] to [ ].
(o) Interest Coverage Ratio. So long as the Note is outstanding, the
Company shall not permit the Interest Coverage Ratio of [ ] for any period of
twelve (12) consecutive fiscal months of the Company and its Subsidiaries for
which the last month ends on the last day of any fiscal quarter of the Company
and its Subsidiaries to be less than 1.50 to 1.00.
(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 or waiver
of any provision to this Note or any of the Other. Any change, amendment or
waiver by the Company and the Required Holders shall be binding on the Holder
and all holders of the Other Notes; provided that any such change, amendment or
waiver with respect to the Interest, Principal amount or Maturity Date that
complies with the foregoing but that disproportionately, materially and
adversely affects the rights and obligations of any holder relative to the
comparable rights and obligations of the other holders shall require the prior
written consent of such holder.
(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 than 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
25
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 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
26
limited to, attorneys' fees and disbursements.
(21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the initial purchasers of the Notes pursuant to
the Securities Purchase Agreement (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, the Conversion Price or
any Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile or electronic mail within one (1) Business
Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice
or other event giving 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 or electronic mail (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
Holder and approved by the Company, such approval not to be unreasonably
withheld or delayed, or (b) the disputed arithmetic calculation of the
Conversion Rate, Conversion Price or any Redemption Price to an independent,
outside accountant, selected by the Holder and approved by the Company, such
approval not to be unreasonably withheld or delayed. 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 9(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 shall
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
27
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. Except as otherwise provided in this Note, 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. Any amount of Principal or
other amounts due under the Transaction Documents 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 fifteen percent (15.0%)
per annum from the date such amount was due until the same is paid in full
("Late Charge").
(25) CANCELLATION. After all Principal, accrued Interest and other amounts
at any time owed on this Note have been paid in full, 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; JURISDICTION; JURY TRIAL. 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 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. The Company hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address it set forth
on the signature page hereto and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. 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
28
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) SEVERABILITY. If any provision of this Note is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Note
so long as this Note as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof
and the prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as
possible to that of the prohibited, invalid or unenforceable provision(s).
(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.
(30) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
"control" of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
(b) "Allowable Grace Period" shall have the meaning ascribed to such term
in the Registration Rights Agreement.
29
(c) "Asset Sale" means any Disposition of any real estate assets
of the Company or any of its Subsidiaries securing this Note and the Other Notes
pursuant to the Security Documents.
(d) "Attribution Parties" means, collectively, the following Persons and
entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder's investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company's Common
Stock would or could be aggregated with the Holder's and the other Attribution
Parties for purposes of Section 13(d) of the Exchange Act. For clarity, the
purpose of the foregoing is to subject collectively the Holder and all other
Attribution Parties to the Maximum Percentage.
(e) "Available Proceeds" means, with respect to any Asset Sale, one hundred
percent (100%) of the cash proceeds generated by any Asset Sale net of any bona
fide fees incurred with respect thereto.
(f) "Bloomberg" means Bloomberg Financial Markets.
(g) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(h) "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, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, are, in all material respect, the
holders of the voting power of the surviving entity (or entities with the
authority or voting power to elect the members of the board of directors (or
their equivalent if other than a corporation) of such entity or entities) after
such reorganization, recapitalization or reclassification or (ii) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.
(i) "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
30
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 OTC Link or "pink sheets"
by OTC Markets Group Inc. (formerly Pink OTC Markets 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, reclassification or similar transaction during the
applicable calculation period.
(j) "Company Optional Redemption Price" means the sum of (i)(x) during the
period after to the thirty-six (36) month anniversary of the Issuance Date but
prior to the sixty (60) month anniversary of the Issuance Date, inclusive, 103%
of the Conversion Amount being redeemed and (y) thereafter, 100% of the
Conversion Amount being redeemed and (ii) accrued and unpaid Interest, if any,
with respect to the amount set forth in clause (i), and (iii) accrued and unpaid
Late Charges, if any, with respect to the amounts set forth in clauses (i) and
(ii).
(k) "Consolidated Cash Interest Expense" means, with respect to any Person
for any period, (a) gross interest expense of such Person and its Subsidiaries
for such period determined on a consolidated basis and in accordance with GAAP
(including, without limitation, interest expense paid to Affiliates of such
Person), less (b) the sum of, in each case to the extent included in clause (a)
above, (i) the amortized amount of debt discount and debt issuance costs, (ii)
charges relating to write-ups or write-downs in the book or carrying value of
existing Consolidated Funded Indebtedness, (c) interest payable in evidences of
Indebtedness or by addition to the principal of the related Indebtedness and (d)
other non-cash interest.
(l) "Consolidated EBITDA" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Subsidiaries for such period,
plus (i) without duplication, the sum of the following amounts of such Person
and its Subsidiaries for such period and to the extent deducted in determining
Consolidated Net Income of such Person for such period: (A) Consolidated Net
Interest Expense, (B) income tax expense, (C) depreciation expense, and (D)
amortization expense.
(m) "Consolidated Funded Indebtedness" means, with respect to any Person at
any date, all Indebtedness of such Person, determined on a consolidated basis in
accordance with GAAP, which by its terms matures more than one year after the
date of calculation, and any such Indebtedness maturing within one year from
such date which is renewable or extendable at the option of such Person to a
date more than one year from such date.
(n) "Consolidated Net Income" means, with respect to any Person, for any
period, the consolidated net income (or loss) of such Person and its
Subsidiaries for such period; provided, however, that the following shall be
excluded: (a) the net income of any other Person in which such Person or
31
one of its Subsidiaries has a joint interest with a third-party (which interest
does not cause the net income of such other Person to be consolidated into the
net income of such Person), except to the extent of the amount of dividends or
distributions paid to such Person or Subsidiary, (b) the net income of any
Subsidiary of such Person that is, on the last day of such period, subject to
any restriction or limitation on the payment of dividends or the making of other
distributions, to the extent of such restriction or limitation, and (c) the net
income of any other Person arising prior to such other Person becoming a
Subsidiary of such Person or merging or consolidating into such Person or its
Subsidiaries.
(o) "Consolidated Net Interest Expense" means, with respect to any Person
for any period, (a) gross interest expense of such Person and its Subsidiaries
for such period determined on a consolidated basis and in accordance with GAAP
(including, without limitation, interest expense paid to Affiliates of such
Person), less (b) the sum of (i) interest income for such period and (ii) 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 (c) the sum of (i) losses for such period on Hedging Agreements
(to the extent not included in gross interest expense) and (ii) 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.
(p) "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 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.
(q) "Conversion Shares" means shares of Common Stock issuable by the
Company pursuant to the terms of any of this Note and the Other Notes,
including, without limitation, the shares of Common Stock issuable by the
Company upon conversion of the Notes pursuant to Section 3 (and analogous
provisions under the Other Notes).
(r) "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Stock.
(s) "Disposition" means any transaction, or series of related transactions,
pursuant to which any Person or any of its Subsidiaries sells, assigns,
transfers, leases, licenses (as licensor) or otherwise disposes of any property
or assets (whether now owned or hereafter acquired) to any other Person, in each
case, whether or not the consideration therefor consists of cash, securities or
other assets owned by the acquiring Person.
(t) "Eligible Market" means the Principal Market, The New York Stock
Exchange, The NASDAQ Global Market, The NASDAQ Capital Market, The NASDAQ Global
Select Market or the NYSE MKT.
32
(u) "Equity Conditions" means each of the following conditions: (i) on each
day during the Equity Conditions Measuring Period, either (x) all Registration
Statements filed and required to be filed pursuant to the Registration Rights
Agreement shall be effective and available for the resale of all remaining
Registrable Securities, including the shares of Common Stock issuable upon
conversion of the Conversion Amount that is subject to the applicable Company
Optional Redemption requiring the satisfaction of the Equity Conditions, in
accordance with the terms of the Registration Rights Agreement and there shall
not have been any Allowable Grace Periods or (y) all Conversion Shares issuable
pursuant to the terms of this Note and the Other Notes and exercise of the
Warrants, including the shares of Common Stock issuable upon conversion of the
Conversion Amount that is subject to the applicable Company Optional Redemption
requiring the satisfaction of the Equity Conditions, shall be eligible for sale
without restriction pursuant to Rule 144 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, commenced 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) on each day during the Equity Conditions Measuring Period, the
Company shall have delivered Conversion Shares pursuant to the terms of this
Note and the Other Notes and Warrant Shares upon exercise of the Warrants to the
holders on a timely basis as set forth in Section 3(c) hereof (and analogous
provisions under the Other Notes) and Section 1(a) of the Warrants; (iv) the
shares of Common Stock issuable upon conversion of the Conversion Amount that is
subject to the applicable Company Optional Redemption requiring the satisfaction
of the Equity Conditions may be issued in full without violating Section 3(d)
hereof and the rules or regulations of the Principal Market or any other
applicable Eligible Market, (v) on each day during the Equity Conditions
Measuring Period, 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) on each day 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, (B) an Event of 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, including the shares of Common Stock issuable upon
conversion of the Conversion Amount that is subject to the applicable Company
Optional Redemption requiring the satisfaction of the Equity Conditions, in
accordance with the terms of the Registration Rights Agreement or (y) any shares
of Common Stock issuable pursuant to the terms of this Note and the Other Notes
and shares of Common Stock issuable upon exercise of the Warrants, including the
shares of Common Stock issuable upon conversion of the Conversion Amount that is
subject to the applicable Company Optional Redemption requiring the satisfaction
of the Equity Conditions, not to be eligible for sale without restriction
pursuant to Rule 144 and without the requirement to be in compliance with Rule
33
144(c)(1) promulgated under the Securities Act and any applicable state
securities laws; (viii) on each day during the Equity Conditions Measuring
Period, the Company otherwise shall have been in compliance with, and shall not
have breached, any provision, covenant, representation or warranty of any
Transaction Document; and (ix) no Holder shall be in possession of any material,
nonpublic information received from the Company, any Subsidiary or its
respective agent or affiliates.
(v) "Equity Conditions Failure" means that on any day during the period
commencing ten (10) Trading Days prior to the applicable date of determination
through the applicable date of determination, the Equity Conditions have not
each been satisfied (or waived in writing by the Holder).
(w) "Equity Conditions Measuring Period" means each day during the period
beginning ninety (90) days prior to the applicable date of determination and
ending on and including the applicable date of determination.
(x) "Equity Interests" means (a) all shares of capital stock (whether
denominated as common capital stock or preferred capital stock), equity
interests, beneficial, partnership or membership interests, joint venture
interests, participations or other ownership or profit interests in or
equivalents (regardless of how designated) of or in a Person (other than an
individual), whether voting or non-voting and (b) all securities convertible
into or exchangeable for any of the foregoing and all warrants, options or other
rights to purchase, subscribe for or otherwise acquire any of the foregoing,
whether or not presently convertible, exchangeable or exercisable.
(y) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(z) "Excluded Securities" means any Common Stock issued or issuable: (i)
pursuant to the terms of the Notes issued on the Issuance Date or upon the
exercise of the Warrants; provided that the terms of such Notes or Warrants are
not amended, modified or changed on or after the Subscription Date; and (ii)
upon conversion or exercise 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.
(aa) "Fundamental Transaction" means (i) that the Company shall, directly
or indirectly, including through subsidiaries, Affiliates or otherwise, in one
or more related transactions, (a) consolidate or merge with or into (whether or
not the Company is the surviving corporation) another Subject Entity, or (b)
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of the properties or assets of the Company or any of its "significant
subsidiaries" (as defined in Rule 1-02 of Regulation S-X) to one or more Subject
Entities, or (c) make, or allow one or more Subject Entities to make, or allow
the Company to be subject to or have its Common Stock be subject to or party to
one or more Subject Entities making, a purchase, tender or exchange offer that
is accepted by the holders of at least either (1) 50% of the outstanding shares
of Common Stock, (2) 50% of the outstanding shares of Common Stock calculated as
if any shares of Common Stock held by all Subject Entities making or party to,
34
or Affiliated with any Subject Entities making or party to, such purchase,
tender or exchange offer were not outstanding; or (3) such number of shares of
Common Stock such that all Subject Entities making or party to, or Affiliated
with any Subject Entity making or party to, such purchase, tender or exchange
offer, become collectively the beneficial owners (as defined in Rule 13d-3 under
the Exchange Act) of at least 50% of the outstanding shares of Common Stock, or
(d) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with one or more Subject Entities whereby such Subject
Entities, individually or in the aggregate, acquire, either (1) at least 50% of
the outstanding shares of Common Stock, (2) at least 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all
the Subject Entities making or party to, or Affiliated with any Subject Entity
making or party to, such stock purchase agreement or other business combination
were not outstanding; or (3) such number of shares of Common Stock such that the
Subject Entities become collectively the beneficial owners (as defined in Rule
13d-3 under the Exchange Act) of at least 50% of the outstanding shares of
Common Stock, or (e) reorganize, recapitalize or reclassify its Common Stock,
(ii) that the Company shall, directly or indirectly, including through
subsidiaries, Affiliates or otherwise, in one or more related transactions,
allow any Subject Entity individually or the Subject Entities in the aggregate
to be or become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, whether through acquisition, purchase,
assignment, conveyance, tender, tender offer, exchange, reduction in outstanding
shares of Common Stock, merger, consolidation, business combination,
reorganization, recapitalization, spin-off, scheme of arrangement,
reorganization, recapitalization or reclassification or otherwise in any manner
whatsoever, of either (a) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock, (b) at least 50% of the
aggregate ordinary voting power represented by issued and outstanding Common
Stock not held by all such Subject Entities as of the date of this Note
calculated as if any shares of Common Stock held by all such Subject Entities
were not outstanding, or (c) a percentage of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock or other equity
securities of the Company sufficient to allow such Subject Entities to effect a
statutory short form merger or other transaction requiring other shareholders of
the Company to surrender their shares of Common Stock without approval of the
shareholders of the Company or (iii) directly or indirectly, including through
subsidiaries, Affiliates or otherwise, in one or more related transactions, the
issuance of or the entering into any other instrument or transaction structured
in a manner to circumvent, or that circumvents, the intent of this definition in
which case this definition shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this definition to the
extent necessary to correct this definition or any portion of this definition
which may be defective or inconsistent with the intended treatment of such
instrument or transaction.
(bb) "GAAP" means United States generally accepted accounting principles,
consistently applied.
(cc) "Group" means a "group" as that term is used in Section 13(d) of the
Exchange Act and as defined in Rule 13d-5 thereunder.
(dd) "Hedging Agreement" means any interest rate, foreign currency,
commodity or equity swap, collar, cap, floor or forward rate agreement, or other
agreement or arrangement designed to protect against fluctuations in interest
rates or currency, commodity or equity values (including, without limitation,
any option with respect to any of the foregoing and any
35
combination of the foregoing agreements or arrangements), and any confirmation
executed in connection with any such agreement or arrangement.
(ee) "Holder Pro Rata Amount" means a fraction (i) the numerator of which
is the Principal amount of this Note on the Issuance Date and (ii) the
denominator of which is the sum of (i) the aggregate principal amount of this
Note issued to the Holder on the Issuance Date and (ii) the aggregate principal
amount of the Other Notes issued on the date of issuance of such Other Notes.
(ff) "Holder Repurchase Amount" means the Holder Pro Rata Amount of the
Available Proceeds relating to the applicable Asset Sale.
(gg) "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 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.
(hh) "Interest Coverage Ratio" means, with respect to any Person for any
period, the ratio of (a) Consolidated EBITDA of such Person for such period to
(b) Consolidated Cash Interest Expense of such Person for such period.
(ii) "Interest Increase Event" means any of an Event of Default, a Public
Information Failure or a Registration Failure.
(jj) "Interest Rate" means 12.0% per annum, which Interest Rate shall be
increased from the then existing Interest Rate on the occurrence of each or any
of the following events: (i) by three percent (3.0%) from and after the
occurrence and during the continuance of an Event of Default and (ii) by one
percent (1.0%) from and after the occurrence and during the continuance of a
Public Information Failure or Registration Failure, subject to adjustment as set
forth in Section 2.
36
(kk) "Leverage Ratio" means, with respect to any Person and its
Subsidiaries for any period, the ratio of (a) Consolidated Funded Indebtedness
of such Person and its Subsidiaries as of the end of such period to (b)
Consolidated EBITDA of such Person and its Subsidiaries for such period.
(ll) "Make-Whole Amount" means the amount equal to any Interest, if any,
that, but for the applicable event resulting in the reduction of the Principal
amount outstanding under this Note, would have accrued with respect to the
Principal amount being redeemed or repurchased under this Note at the Interest
Rate (assuming the Interest Rate then in effect as of the applicable related
event resulting in the reduction of the Principal amount outstanding under this
Note is the Interest Rate through the Make-Whole End Date) for the period from
the date of the applicable related event resulting in the reduction of the
Principal amount outstanding under this Note through the Make-Whole End Date.
(mm) "Make-Whole End Date" means the date that is the three (3) year
anniversary of the applicable event resulting in the reduction of the Principal
amount outstanding under this Note triggering the Company's obligation to pay a
Make-Whole Amount or, if such date occurs after the Maturity Date, the Maturity
Date.
(nn) "Offer to Repurchase Price" means the sum of (i)(x) during the period
prior to the thirty-six (36) month anniversary of the Issuance Date, inclusive,
the sum of (A) the Principal amount being redeemed and (B) the Make-Whole
Amount, (y) during the period after to the thirty-six (36) month anniversary of
the Issuance Date but prior to the sixty (60) month anniversary of the Issuance
Date, inclusive, 103% of the Principal amount being redeemed and (z) thereafter,
100% of the Principal amount being redeemed and (ii) accrued and unpaid
Interest, if any, with respect to the amount set forth in clause (i), and (iii)
accrued and unpaid Late Charges, if any, with respect to the amounts set forth
in clauses (i) and (ii).
(oo) "Options" means any rights, warrants or options to subscribe for or
purchase (i) shares of Common Stock or (ii) Convertible Securities.
(pp) "Option Value" means the value of an Option based on the Black and
Scholes Option Pricing model obtained from the "OV" function on Bloomberg
determined as of (A) the Trading Day prior to the public announcement of the
applicable Option if the issuance of such Option is publicly announced or (B)
the Trading Day immediately following the issuance of the applicable Option if
the issuance of such Option is not publicly announced, for pricing purposes and
reflecting (i) a risk-free interest rate corresponding to the U.S. treasury rate
for a period equal to the remaining term of the applicable Option as of the
applicable date of determination, (ii) an expected volatility equal to the
greater of 100% and the 100 day volatility obtained from the HVT function on
Bloomberg as of the day immediately following the public announcement of (A) the
Trading Day immediately following the public announcement of the applicable
Option if the issuance of such Option is publicly announced or (B) the Trading
Day immediately following the issuance of the applicable Option if the issuance
of such Option is not publicly announced, (iii) the underlying price per share
used in such calculation shall be the highest Weighted Average Price during the
period beginning on the day prior to the execution of definitive documentation
relating to the issuance of the applicable Option and the public announcement of
37
such issuance, (iv) a zero cost of borrow and (v) a 360 day annualization
factor.
(qq) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person, including such entity whose common
capital stock or equivalent equity security is quoted or listed on an Eligible
Market (or, if so elected by the Required Holders, any other market, exchange or
quotation system), or, if there is more than one such Person or entity, the
Person or Parent Entity designated by the Required Holders or in the absence of
such designation, such Person or entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.
(rr) "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
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 clause
(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) 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,
(vii) 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 (viii) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 4(a)(ix).
(ss) "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.
(tt) "Principal Market" means the OTC Bulletin Board.
(uu) "Public Information Failure" means the Company's failure for any
reason to satisfy the current public information requirement under Rule 144(c)
at any time during the period commencing from the six (6) month anniversary of
the Closing and ending at such time that all of the Securities (as defined in
the Securities Purchase Agreement) can be sold either pursuant to a registration
statement, or if a registration statement is not available for the resale of all
of the Securities, may be sold without the requirement for the Company to be in
38
compliance with Rule 144(c)(1) and otherwise without restriction or limitation
pursuant to Rule 144.
(vv) "Redemption Date" means an Event of Default Redemption Date, an Offer
to Repurchase Date and/or Company Optional Redemption Date.
(ww) "Redemption Notices" means, collectively, the Event of Default
Redemption Notices, the Company Optional Redemption Notices and the Offer to
Repurchase Notices, each of the foregoing, individually, a Redemption Notice.
(xx) "Redemption Prices" means, collectively, the Event of Default
Redemption Price, the Offer to Repurchase Price and the Company Optional
Redemption Price, each of the foregoing, individually, a Redemption Price.
(yy) "Registrable Securities" shall have the meaning ascribed to such term
in the Registration Rights Agreement.
(zz) "Registration Failure" means if (i) the Registration Statement
covering all the Registrable Securities required to be covered thereby and
required to be filed by the Company pursuant to the Registration Rights
Agreement is (A) not filed with the SEC on or before the respective Filing
Deadline (as defined in the Registration Rights Agreement) or (B) not declared
effective by the SEC on or before the respective Effectiveness Deadline (as
defined in the Registration Rights Agreement) or (ii) on any day after the
respective Effective Date (as defined in the Registration Rights Agreement)
sales of all of the Registrable Securities required to be included on such
Registration Statement cannot be made (other than during an Allowable Grace
Period pursuant to such Registration Statement or otherwise (including, without
limitation, because of the suspension of trading or any other limitation imposed
by an Eligible Market, a failure to keep such Registration Statement effective,
a failure to disclose such information as is necessary for sales to be made
pursuant to such Registration Statement or a failure to register a sufficient
number of shares of Common Stock or to maintain the listing of the Common
Stock)).
(aaa) "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 shares of Common Stock issuable upon
conversion of this Note and the Other Notes and exercise of the Warrants.
(bbb) "Registration Statement" shall have the meaning ascribed to such term
in the Registration Rights Agreement.
(ccc) "Related Fund" means, with respect to any Person, a fund or account
managed by such Person or an Affiliate of such Person.
(ddd) "Required Holders" means the holders of Notes representing at least a
majority of the aggregate principal amount of the Notes then outstanding.
(eee) "Rule 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto.
39
(fff) "SEC" means the United States Securities and Exchange Commission.
(ggg) "Securities Act" means the Securities Act of 1933, as amended.
(hhh) "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.
(iii) "Security Documents" shall have the meaning ascribed to such term in
the Registration Rights Agreement.
(jjj) "Subject Entity" means any Person, Persons or Group or any Affiliate
or associate of any such Person, Persons or Group.
(kkk) "Subscription Date" means January [ ], 2014.
(lll) "Successor Entity" means one or more Person or Persons (or, if so
elected by the Holder, the Company or Parent Entity) formed by, resulting from
or surviving any Fundamental Transaction or one or more Person or Persons (or,
if so elected by the Holder, the Company or the Parent Entity) with which such
Fundamental Transaction shall have been entered into.
(mmm) "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).
(nnn) "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.
(ooo) "Warrant Shares" means shares of Common Stock issuable by the Company
upon the exercise of any of the Warrants.
(ppp) "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 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
40
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 OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC
Markets 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,
reclassification or similar transaction during the applicable calculation
period.
[Signature Page Follows]
41
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as
of the Issuance Date set out above.
ADVANCED CANNABIS SOLUTIONS, INC.
By:
----------------------------------
Name:
Title:
42
44
EXHIBIT I
ADVANCED CANNABIS SOLUTIONS, INC.
CONVERSION NOTICE
Reference is made to the Senior Secured Convertible Note (the "Note") issued to
the undersigned by Advanced Cannabis Solutions, Inc., a Colorado corporation
(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, no par value (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
and E-mail:
-------------------------------------------------------
Authorization:
----------------------------------------------------------
By:
------------------------------------------------------------
Title:
--------------------------------------------------------
Dated:
----------------------------------------------------------------------
Account Number:
---------------------------------------------------------
(if electronic book entry transfer)
Transaction Code Number:
------------------------------------------------
(if electronic book entry transfer)
43
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
Corporate Stock Transfer, Inc.to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated January
__, 2014 from the Company and acknowledged and agreed to by Corporate Stock
Transfer, Inc.
ADVANCED CANNABIS SOLUTIONS, INC.
By:
----------------------------------
Name:
Title:
44