EXHIBIT 10.14
THE NOTE REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS NOTE MAY NOT BE TRANSFERRED
EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR (B) PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS. THIS LEGEND SHALL BE
ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
SOMANTA INCORPORATED
Amended and Restated Secured Convertible Promissory Note
Up to $1,250,000 November 8, 2005
This Amended and Restated Secured Convertible Promissory Note (this
"Note") amends, restates and replaces in its entirety that certain Existing Note
(as hereinafter defined) and is issued in substitution by Somanta Incorporated
(formerly Bridge Oncology Products, Inc.), a Delaware corporation (the
"Company"), with its principal executive office at 19200 Von Karman Avenue,
Suite 400, Irvine, CA 92612, in favor of SCO Capital Partners LLC, a Delaware
limited liability company, with offices at 1285 Avenue of the Americas, 35th
Floor, New York, New York 10019 ("SCO" and together with any permitted
registered assigns, the "Payee"). The "Existing Note" means that certain Secured
Convertible Promissory Note of the Company, $1,000,000 principal amount, issued
in favor of SCO on August 23, 2005.
FOR VALUE RECEIVED, the Company, promises to pay to the order of Payee
the principal sum equal to the aggregate principal amount of all Tranches loaned
to the Company by Payee (the "Principal Amount"), which Principal Amount shall
in no event exceed $1,250,000, plus all accrued and unpaid interest thereon,
pursuant to the Letter Agreement dated as of even date herewith, between the
Company and the Payee (the "Letter Agreement"), on the Maturity Date.
Capitalized terms used and not defined herein shall have the meanings ascribed
thereto in the Letter Agreement.
The Initial Tranche in the amount of One Million Dollars ($1,000,000)
was fully funded and delivered by the Payee to the Company on August 23, 2005
and has been accruing interest at the Base Interest Rate (as defined below)
since such date. Subject to the conditions specified herein and in the Letter
Agreement, Additional Tranches will be made available to the Company on or after
the date hereof in such amounts as may be requested by the Company pursuant to a
Request Letter, provided that (i) no such Tranche shall be in a principal amount
less than $50,000, (ii) the aggregate amount of all Tranches hereunder shall not
exceed the Maximum Funded Amount and (iii) the Company shall have delivered to
SCO a duly authorized and executed Warrant together with its initial Request
Letter. Each Additional Tranche will be funded within two (2) business days
following the date on which SCO has received a Request Letter specifying the
requested amount of such Additional Tranche and a certification (in form and
substance satisfactory to SCO) signed by an authorized officer of the Company
that all applicable conditions to funding set forth herein have been satisfied
and that (i) the Company is not in breach of any covenant provided in this Note,
the Letter Agreement, the Security Documents, the Engagement Letter, the Warrant
or any other agreement between the Company and either SCO or SCO Securities LLC
in connection with the foregoing agreements (collectively, the "Transaction
Documents") and (ii) any and all representations and warranties made by the
Company in this Note shall be true and correct as of the time of funding of each
such Additional Tranche.
The Company hereby authorizes the Payee to endorse on the Schedule of
Tranches attached to this Note as Exhibit A all Tranches made to the Company and
all payments of principal amounts in respect of such Tranches, which
endorsements shall, in the absence of manifest error, be conclusive as to the
outstanding principal amount of all Tranches; provided, however, that the
failure to make such notation with respect to any Tranche or payment shall not
limit or otherwise affect the obligations of the Company under the Letter
Agreement, this Note or otherwise.
The Maturity Date shall mean the earliest of (i) the date on
which any Qualified Financing (as defined herein) occurs, (ii) the date on which
an Event of Default (as defined herein) occurs, or (iii) February 28, 2006;
provided, however, that upon the occurrence of an Event of Default the Payee
shall, at its sole discretion, have the right to defer payment of the amounts
due under this Note until February 28, 2007 and shall maintain its conversion
right pursuant to Section 9 hereof until such date. "Qualified Financing" means
the consummation by the Company (or the parent of the Company, as the case may
be) of its next round of equity financing resulting in gross proceeds to the
Company of at least Five Million Dollars ($5,000,000.00), which amount shall not
include amounts that may be invested through the conversion of this Note or any
other promissory notes issued by the Company, and as to which at least Two
Million, Five Hundred Thousand Dollars ($2,500,000) of such securities issued by
the Company (or the parent of the Company, as the case may be) in such financing
(the "New Securities") are purchased by institutional investors. The Principal
Amount, accrued interest and any other amounts due under this Note are payable
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts.
Interest on this Note shall accrue on the Principal Amount outstanding from time
to time, commencing on the date hereof, at a rate per annum computed in
accordance with Section 4 hereof. This Note is made with full recourse to the
Company and upon all the warranties, representations, covenants and agreements
contained herein. Any amounts borrowed and repaid pursuant to this Note may not
be reborrowed.
The Company (i) waives presentment, demand, protest or notice of any
kind in connection with this Note and (ii) agrees, upon the occurrence of an
Event of Default (as defined below), to pay to the holder of this Note, on
demand, all reasonable out-of-pocket costs and expenses (including legal fees)
incurred in connection with the enforcement and collection of this Note.
1. Prepayment. This Note shall not be subject to any prepayment
by the Company without the consent of the Payee in its sole discretion, except
that the Company may prepay this Note in its entirety, plus all accrued and
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unpaid interest hereon, within five business days following the consummation by
the Company (or the parent of the Company, as the case may be) of its next round
of equity financing resulting in gross proceeds to the Company of at least Six
Million Dollars ($6,000,000.00), which amount shall not include amounts (i) that
may be invested through the conversion of this Note or any other promissory
notes issued by the Company and (ii) that may be invested by SCO or any other
Bridge Holder (as defined below).
2. Day of Payment. Whenever any payment to be made hereunder
shall become due and payable on a day which is not a Business Day (as defined
below), such payment may be made on the next succeeding Business Day without
being deemed past due and, in the case of any payment of principal, such
extension of time shall in such case be included in computing interest on such
payment. As used herein, "Business Day" shall mean any day which is not a
Saturday or Sunday and on which banks in the State of New York are not
authorized or required to close. Interest on past due principal and accrued
interest thereon shall be calculated as follows: the aggregate amount of
principal and interest past due as of such day of determination multiplied by
the Default Interest Rate (as defined herein) and multiplied by a fraction, the
numerator of which is the number of days such aggregate principal and interest
is past due as of such day of determination and the denominator of which is 360.
3. Use of Proceeds. The Company shall use the proceeds of each
Tranche solely for the purposes set forth on Schedule A, unless otherwise
consented to in writing by Payee.
4. Computation of Interest.
A. Base Interest Rate. Subject to subsections 4B and 4C below,
the outstanding Principal Amount shall bear interest at a per annum rate of 7.5%
(the "Base Interest Rate"), payable on the Maturity Date.
B. Penalty Interest. In the event the Note is not repaid on
the Maturity Date, the rate of interest applicable to the unpaid Principal
Amount and accrued interest thereon shall be adjusted to twelve percent (12%)
per annum (the "Default Interest Rate") from the date of default until
repayment; provided, that in no event shall the interest rate exceed the Maximum
Rate provided in Section 4C below.
C. Maximum Rate. In the event that it is determined that New
York law is not applicable to the indebtedness evidenced by this Note or that
under New York law ("Applicable Usury Laws") the interest, charges and fees
payable by the Company in connection herewith or in connection with any other
document or instrument executed and delivered in connection herewith cause the
effective interest rate applicable to the indebtedness evidenced by this Note to
exceed the maximum rate allowed by law (the "Maximum Rate"), then such interest
shall be recalculated for the period in question and any excess over the Maximum
Rate paid with respect to such period shall be credited, without further
agreement or notice, to the Principal Amount outstanding hereunder to reduce
said balance by such amount with the same force and effect as though the Company
had specifically designated such extra sums to be so applied to principal and
the Payee had agreed to accept such extra payment(s) as a premium-free
prepayment. All such deemed prepayments shall be applied to the principal
balance payable at maturity.
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5. Collateral. This Note is secured by a Security Agreement dated
as of August 22, 2005 (as amended, modified or supplemented from time to time,
the "Security Agreement") of the Company in favor of the Payee covering all
assets and future assets of the Company therein described (collectively, the
"Collateral"), and is entitled to the benefits thereof. The Security Agreement,
the Uniform Commercial Code financing statements in connection with the Security
Agreement, and any and all other documents executed and delivered by the Company
to the Payee under which the Payee is granted liens on assets of the Company are
collectively referred to as the "Security Documents."
6. Covenants of Company.
A. Affirmative Covenants. The Company covenants and agrees
with respect to the Company and each of its Subsidiaries (which, for purposes of
this Note means any entity (i) in which the Company, directly or indirectly,
owns 51% of the capital stock or holds an equity or similar interest and (ii)
which conducts substantive business activities or holds material assets) that on
and after the date hereof, so long as this Note shall remain in effect, or the
Principal Amount of, or interest thereon, or any fee, expense or amount payable
hereunder or with respect to this Note shall be unpaid, it will perform the
obligations set forth in this Section 6A:
(i) Conduct of Business. The Company will, and will cause
each of its Subsidiaries to, use its best efforts to conduct its business in a
manner consistent with past practices, do or to be done all things necessary to
preserve relationship with its material vendors, customers, distributors, sales
representatives and others having material business relationships with the
Company or any of its Subsidiaries, and obtain the consent of the Payee on any
capital expenditure in excess of $25,000, unless such expenditure is accounted
for on Schedule A hereto. The Company will, and will cause each of its
Subsidiaries to, use commercially reasonable efforts to perform all obligations,
and comply with the terms and provisions of, any Contract (as such term is
defined in the Security Agreement) to which it is a party;
(ii) Taxes and Levies. The Company will, and will cause
each of its Subsidiaries to, promptly pay and discharge all taxes, assessments,
and governmental charges or levies imposed upon the Company or any of its
Subsidiaries, or upon any of their income and profits, or upon any of their
property, before the same shall become delinquent, as well as all claims for
labor, materials and supplies which, if unpaid, might become a lien or charge
upon such properties or any part thereof; provided, however, that neither the
Company nor any of its Subsidiaries shall be required to pay and discharge any
such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings and the Company and
each of its Subsidiaries shall set aside on its books adequate reserves in
accordance with generally accepted accounting principles ("GAAP") with respect
to any such tax, assessment, charge, levy or claim so contested; provided,
further, that this Section 6A(ii) shall not apply to those claims for labor,
materials and supplies which the Payee consents in writing shall be excluded
herewith, notwithstanding that such claims, if unpaid, might become a lien or
charge upon such properties or any part thereof.
(iii) Maintenance of Existence. The Company will, and will
cause each of its Subsidiaries to, do or cause to be done all things reasonably
necessary to preserve and keep in full force and effect its corporate existence,
rights (character and statutory) and franchises, except where the failure to
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comply would not have a Material Adverse Effect (as defined herein) on the
Company or any of its Subsidiaries;
(iv) Maintenance of Property. The Company will, and will
cause each of its Subsidiaries to, at all times maintain, preserve, protect and
keep its property used or useful in the conduct of its business in good repair,
working order and condition, and from time to time make all needful and proper
repairs, renewals, replacements and improvements thereto as shall be reasonably
required in the conduct of its business and protect and maintain its licenses
and its patents, copyrights, trademarks and trade secrets and all registrations
and application for registration thereof except where the failure to take such
action would not reasonably be expected to have a Material Adverse Effect;
(v) Compliance with Laws. The Company will, and will
cause each of its Subsidiaries to, use its best efforts to comply with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, any governmental agency, in respect of the conduct of its business
and the ownership of its properties (including without limitation applicable
statutes, regulations and orders relating to equal employment opportunities or
environmental standards or controls), except such as are being contested in good
faith by appropriate proceedings, except where failure to comply would not have
a Material Adverse Effect;
(vi) Insurance. The Company will, and will cause each of
its Subsidiaries to, keep adequately insured all property of a character usually
insured by similar corporations and carry such other insurance as is usually
carried by similar corporations;
(vii) Books and Records. The Company will, and will cause
each of its Subsidiaries to, at all times keep true and correct books, records
and accounts reflecting all of its business affairs and transactions in
accordance with GAAP. Such books and records shall be open at reasonable times
and upon reasonable notice to the inspection of the Payee or its agents, subject
to customary confidentiality restrictions but in no event more than once in each
month absent a good-faith showing of need for additional inspection;
(viii) Notice of Certain Events. The Company will, and will
cause each of its Subsidiaries to, give prompt written notice (with a
description in reasonable detail) to the Payee of:
(a) the occurrence of any Event of Default or
any event which, with the giving of notice or the lapse of time, would
constitute an Event of Default; and
(b) the delivery of any notice effecting the
acceleration of any indebtedness which singly or together with any other
accelerated indebtedness exceeds $25,000;
(c) the issuance by any court or governmental
agency or authority of any injunction, order, decision or other restraint
prohibiting, or having the effect of prohibiting, the making of or invalidating,
or having the effect of invalidating, any material provision of this Agreement,
of the initiation of any litigation or similar proceedings seeking any such
injunction, order, decision, or other restraint;
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(d) the filing or commencement of any action,
suit or proceeding against the Company or any of its Subsidiaries, whether at
law or in equity or by or before any court of any Federal, state, municipal or
other governmental agency or authority, which is brought by or on behalf of any
governmental agency or authority, or in which injunctive or other equitable
relief is sought and such relief, if obtained, would materially impair the right
or ability of the Company to perform it obligations under this Note;
(e) the commencement of any claim, litigation,
proceeding or tax audit not covered by insurance when the amount claimed is in
any individual claim, litigation, proceeding or tax audit in excess of $25,000
or, in the aggregate, $50,000; and
(f) of any material development materially and
adversely affecting the business, properties, liabilities, obligations,
financial condition, prospects, operations or results of operations of the
Company and its Subsidiaries, taken as a whole;
(ix) Financial Statements and Information. The Company
shall furnish or cause to be furnished to the Payee:
(a) within 90 days after the end of each fiscal
year, a copy of the audited consolidated balance sheet of the Company and its
Subsidiaries, together with the related statements of income, changes in
stockholder's equity, changes in cash flows as of the end of and for such fiscal
year, all reported on by the accountants to the effect that such consolidated
financial statements present fairly in all material respects the financial
condition and results of operations of the Company and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied;
(b) within 45 days after the end of each of the
first three fiscal quarters of each fiscal year, a copy of the consolidated
balance sheet of the Company and each of its Subsidiaries together with the
related statements of income and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, all certified by one of
its financial officers as presenting fairly in all material respects the
financial conditions and results of operations of the Company and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes;
(c) promptly after the same become available,
copies of all proxy statements and other materials distributed by the Company or
any of its Subsidiaries to its stockholders, as the case may be; and
(d) promptly following any request therefor,
such other information regarding the business, financial condition or operations
of the Company or compliance with the terms of this Note, as the Payee may
reasonably request, subject to customary confidentiality agreements and without
causing undue expense to the Company or undue distraction of its employees or
management.
B. Negative Covenants. The Company covenants and agrees with
respect to the Company and each of its Subsidiaries that, so long as this Note
shall remain in effect, or the Principal Amount of, or interest thereon, or any
fee, expense or amount payable hereunder or with respect to this Note shall be
unpaid, it will perform the obligations set forth in this Section 6B:
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(i) Business in the Ordinary Course. The Company will,
and will cause each of its Subsidiaries to, (i) refrain from engaging in
transactions other than in the ordinary course of business consistent with past
practice; (ii) operate its respective businesses in accordance and in compliance
with all applicable laws, ordinances, rules or regulations or orders, including,
without limitation environmental laws, and all permits, authorizations, consents
and approvals; (iii) maintain all permits and licenses in effect and, if
necessary, make all appropriate filings for the renewal of any permits or
licenses; (iv) refrain from entering into any transaction involving capital
expenditures or commitments therefor (including any borrowings in connection
with such transaction) of more than $25,000, individually, or $50,000 in the
aggregate, or the disposal of any properties or assets (other than inventory in
the ordinary course) with a value of more than $25,000, individually, or
$50,000, in the aggregate, except in the case of foregoing clauses (ii) and
(iii) where the failure to take such action would not reasonably be expected to
have a Material Adverse Effect or where such action is accounted for on Schedule
A hereto;
(ii) Merger, Liquidation, Dissolution. The Company will
not, and will not permit any of its Subsidiaries to, liquidate or dissolve,
consolidate with, or merge into or with, any other corporation or other entity,
except that any wholly-owned subsidiary may merge with another wholly-owned
subsidiary or with the Company (so long as the Company is the surviving
corporation and no Event of Default shall occur as a result thereof); provided,
however, that the Company may permit its Subsidiaries to liquidate or dissolve
only on the condition that all of the assets of such Subsidiaries are
immediately transferred to the Company and only if such liquidation or
dissolution, as the case may be, would not result in a Material Adverse Effect;
(iii) Sales of Assets. The Company will not, and will not
permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose
of, or grant options, warrants or other rights with respect to, all or a
substantial part of its properties or assets to any person or entity, provided
that this clause (iii) shall not restrict any disposition made in the ordinary
course of business and consisting of capital goods which are obsolete or have no
remaining useful life;
(iv) Acquisition, Transfer or License of Intellectual
Property. The Company will not, and will not permit any of its Subsidiaries to,
acquire, sell, transfer, assign, license (whether as licensee or licensor),
sublicense (whether as sublicensee or sublicensor) or otherwise obtain, dispose
of or encumber any of the Company's or its Subsidiary's Intellectual Property
(as defined below) or any Intellectual Property of any third party, as the case
may be;
(v) Redemptions. The Company will not redeem or
repurchase any outstanding equity and/or debt securities of the Company or its
Subsidiaries (or securities convertible into or exchangeable for equity
securities of such entity);
(vi) Indebtedness. Other than indebtedness for borrowed
money of the Company or any of its Subsidiaries existing on the date of this
Note and identified on the schedule delivered to the Payee on the date hereof,
neither the Company nor any of its Subsidiaries will hereafter create, incur,
assume or suffer to exist, contingently or otherwise, any indebtedness for
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borrowed money, except (A) in the ordinary course of business (consistent with
past practice) but not to exceed $50,000 in the aggregate at any time
outstanding and (B) the insurance premium financing arrangements with AFCO in
the aggregate amount of $70,578;
(vii) Negative Pledge. Other than Liens (as defined below)
existing on the date of this Note and expressly identified in the schedule
delivered to the Payee on the date hereof, the Company will not, and will not
permit any of its Subsidiaries to, hereafter create, incur, assume or suffer to
exist any mortgage, pledge, hypothecation, assignment, security interest,
encumbrance, lien (statutory or other), preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement and any
financing lease) (each, a "Lien") upon any of its property, revenues or assets,
whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments or other
governmental charges or levies not at the time delinquent or thereafter payable
without penalty or being contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set aside on
its books;
(b) Liens of carriers, warehousemen, mechanics,
materialman and landlords incurred in the ordinary course of business for sums
not overdue or being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books;
(c) Liens (other than Liens arising under the
Employee Retirement Income Security Act of 1974, as amended, or Section 412(n)
of the Internal Revenue Code of 1986, as amended) incurred in the ordinary
course of business in connection with workers' compensation, unemployment
insurance or other forms of governmental insurance or benefits, or to secure
performance of tenders, statutory obligations, leases and contracts (other than
for borrowed money) entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds;
(d) Judgment Liens in existence less than 30
days after the entry thereof or with respect to which execution has been stayed
in an amount not to exceed $25,000 singly or in the aggregate; and
(e) any security interest granted to Immunodex,
Inc. or its successor in the BrE3 and Mc3 cell lines solely in connection with
that certain license agreement dated as of August 18, 2005, between Immunodex,
Inc. and Somanta Limited (the liens described in (a)-(e) being referred to
herein as "Permitted Liens");
(viii) Investments. The Company will not, and will not
permit any of its Subsidiaries to, purchase, own, invest in or otherwise
acquire, directly or indirectly, any stock or other securities or make or permit
to exist any investment or capital contribution or acquire any interest
whatsoever in any other person or entity or permit to exist any loans or
advances for such purposes except for (i) investments in direct obligations of
the United States of America or any agency thereof, (ii) obligations guaranteed
by the United States of America, (iii) certificates of deposit or other
obligations of any bank or trust company organized under the laws of the United
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States or any state thereof and having capital and surplus of at least $500,000,
(iv) existing investments in Subsidiaries, or (v) an investment in any
subsidiary created for the purpose of making that investment;
(ix) Transactions with Affiliates. The Company will not,
and will not permit any of its Subsidiaries to, enter into any transaction,
including, without limitation, the purchase, sale, lease or exchange of
property, real or personal, the purchase or sale of any security, the borrowing
or lending of any money, or the rendering of any service, with any person or
entity affiliated with the Company or any of its Subsidiaries (including
officers, directors and shareholders owning five (5%) percent or more of the
Company's outstanding capital stock), except (i) in the ordinary course of and
pursuant to the reasonable requirements of its business and upon fair and
reasonable terms not less favorable than would be obtained in a comparable
arms-length transaction with any other person or entity not affiliated with the
Company and, where the transaction is valued in excess of $5,000, with the prior
written consent of the Payee, which shall not be unreasonably withheld, (ii)
transactions pursuant to existing agreements as set forth on Schedule B hereto
delivered to the Payee on the date hereof and (iii) transactions contemplated by
the Transaction Documents and any other agreements entered into in connection
with this Note;
(x) Fundamental Changes. The Company will not, and will
not permit any of its Subsidiaries to, consolidate or merge with any other
person or entity, or to permit any other person or entity to merge into or
consolidate with it or any of its Subsidiaries;
(xi) Acquisitions. The Company will not, and will not
permit any of its Subsidiaries to, at any time, acquire all or substantially all
of the assets or any of the capital stock of any person or entity, except that
the Company may acquire the assets of any of its wholly-owned subsidiaries;
(xii) Restricted Payments. The Company will not, and will
not permit any of its Subsidiaries to, declare, pay or make any dividend or
other distribution, direct or indirect, on account of any shares of capital
stock in such person or entity now or hereafter outstanding (other than a
dividend payable solely in shares of such capital stock to the holders of such
shares) or any redemption, retirement, sinking fund or similar payment, purchase
or other acquisition, direct or indirect, of any shares of any class of its
capital stock now or hereafter outstanding (collectively, "Restricted
Payments"), except:
(a) any wholly-owned subsidiary of the Company
may make Restricted Payments to the Company; and
(b) Restricted Payments made by any Subsidiary
of the Company to the Company in amounts sufficient to enable the Company, as
the consolidated taxpayer for itself and its Subsidiaries, if applicable, to pay
taxes when due;
(xiii) Lines of Business. Except as contemplated by the
agreements entered into in connection with this Note, the Company will not, and
will not permit any of its Subsidiaries to, materially change the nature of the
business of the Company and its Subsidiaries as conducted on the date hereof or
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enter into any new business which materially increase the risk profile of the
Company and its Subsidiaries, taken as a whole;
(xiv) Amendment of Documents. Other than as may be required
in connection with the consummation of a Qualified Financing, the Company will
not, and will not permit any of its Subsidiaries to, modify, amend, supplement
or terminate, or agree to modify, amend, supplement or terminate, their
organizational documents;
(xv) Stock Option Plan; Board of Directors.
Notwithstanding anything to the contrary set forth in this Note, the Company
will not, and will not permit any of its Subsidiaries to, without the written
consent of the Payee (a) adopt a stock option plan other than the Company's 2005
Omnibus Equity Incentive Plan, pursuant to which eight million (8,000,000)
shares of common stock of the Company have been reserved (the "2005 Plan"), or
increase the number of shares of common stock issuable pursuant to an existing
stock option plan, including, without limitation, the 2005 Plan or (b) amend its
by-laws to increase the number of directors serving on its board of directors;
and
(xvi) Issuance of Equity Securities. The Company will not,
and will not permit any of its Subsidiaries to, authorize or issue, or obligate
itself to issue, any equity security (including any security convertible into or
exercisable for any equity security) other than (A) shares of common stock of
the Company issuable upon exercise of the options issued to Somanta
Optionholders pursuant to the Share Exchange Agreement (as defined in the Letter
Agreement) or to holders of options granted under the 2005 Plan, such exercise
pursuant to the terms of such options as originally issued and (B) shares of
capital stock of any Subsidiary issued to the Company.
(xvii) Compliance with Schedule A. Notwithstanding anything
to the contrary set forth in Section 6A or 6B above, if any act or forbearance
from acting is expressly described and accounted for in the Use of Proceeds set
forth on Schedule A hereto, such act, including, without limitation, any
expenditure or entry into or termination of any agreement or contract, or
forbearance from acting, shall not constitute a breach or default under any of
the covenants set forth in Section 6A or 6B as the case may be nor shall it
constitute an Event of Default hereunder.
7. Events of Default.
A. The term "Event of Default" shall mean any of the events
set forth in this Section 7A:
(i) Non-Payment of Obligations. The Company shall default
in the payment of the principal or accrued interest of this Note as and when the
same shall become due and payable, whether by acceleration or otherwise.
(ii) Non-Performance of Affirmative Covenants. The Company
shall default in the due observance or performance of any covenant set forth in
(a) clauses (i), (iii), (vi), (viii) and (ix) of Section 6A or (b) clauses (ii),
(iv), (v) and (vii) of Section 6A and such default of any covenant set forth in
clauses (ii), (iv), (v) and (vii) of Section 6A shall continue unremediated for
ten (10) Business Days.
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(iii) Non-Performance of Negative Covenants. The Company
shall default in the due observance or performance of any covenant set forth in
Section 6B.
(iv) Bankruptcy. The Company (or any of its Subsidiaries)
shall:
(a) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other custodian for the
Company or any of its Subsidiaries, or any of their property, or make a general
assignment for the benefit of creditors; or
(b) in the absence of such application, consent
or acquiesce in the appointment of a trustee, receiver, sequestrator or other
custodian for the Company or any of its Subsidiaries, or for any part of their
property; or
(c) permit or suffer to exist (i) the
commencement of any bankruptcy, reorganization, debt arrangement or other case
or proceeding under any bankruptcy or insolvency law, (ii) any dissolution,
winding up or liquidation proceeding, in respect of the Company or any of its
Subsidiaries, or (iii) the appointment of a trustee, receiver, sequestrator or
other custodian, without causing the same to be dismissed within forty-five (45)
days; and, if such case or proceeding is not commenced by the Company or
converted to a voluntary case, such case or proceeding shall be consented to or
acquiesced in by the Company or any of its Subsidiaries, or shall result in the
entry of an order for relief; or
(d) take any corporate or other action
authorizing, or in furtherance of, any of the foregoing; or
(v) Cross-Default. The Company (or any of its Subsidiary)
shall default in the payment when due of any amount payable under any other
obligation for money borrowed in an amount exceeding Twenty Five Thousand
Dollars ($25,000); or
(vi) Cross-Acceleration. Any indebtedness for borrowed
money of the Company (or any of its Subsidiaries) identified on the schedule
delivered to the Payee on the date hereof in an aggregate principal amount
exceeding Twenty Five Thousand Dollars ($25,000) shall be duly declared to be or
shall become due and payable prior to the stated maturity thereof; or
(vii) Orders, Judgments or Decrees. If any order, judgment,
or decree shall be entered in any proceeding against the Company (or any
Subsidiary) requiring such party to divest itself of a substantial part of its
or his assets, or awarding a money judgment or judgments against any such entity
aggregating more than $25,000, and if, within thirty (30) days after entry
thereof, such order, judgment or decree shall not have been discharged or
execution thereof stayed pending appeal; or if, within thirty (30) days after
the expiration of any such stay, such judgment, order or decree shall not have
been discharged; or
(viii) Invalidity of Note or Security Documents. This Note
or any other Security Document shall for any reason cease to be, or shall be
asserted by the Company not to be, a legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, or the security interest or
Lien purported to be created by any of the Security Documents shall for any
reason cease to be, or be asserted by the Company not to be, a valid, first
priority perfected security interest in any Collateral (except to the extent
otherwise permitted under any of the Security Documents); or
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(ix) Other Breaches, Defaults. The Company shall default
and/or be in breach of any representation, warranty or covenant made by the
Company to the Payee provided under this Note, any Security Document, the Letter
Agreement, the Engagement Letter or any other agreement between the Company and
either SCO or SCO Securities LLC in connection with the foregoing agreements,
other than with respect to those representations and warranties contained in
Section 8 of this Note and in Section 5 of the Security Agreement.
B. Rights and Remedies Cumulative. No right or remedy herein
conferred upon the Payee is intended to be exclusive of any other right or
remedy contained herein or in any instrument or document delivered in connection
with or pursuant to this Note or the Security Documents, and every such right or
remedy shall be cumulative and shall be in addition to every other such right or
remedy contained herein and therein or now or hereafter existing at law or in
equity or by statute, or otherwise.
C. Rights and Remedies Not Waived. No course of dealing
between the Company and the Payee or any failure or delay on the part of the
Payee in exercising any rights or remedies of the Payee and no single or partial
exercise of any rights or remedies hereunder or under the Security Documents
shall operate as a waiver or preclude the exercise of any other rights or
remedies hereunder.
8. Representations of the Company. The Company represents and
warrants to the Payee that:
A. Corporate Organization; Etc. The Company and its
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the full corporate power and authority to carry on their businesses as they
are now being conducted and to own the properties and assets they now own; are
duly qualified or licensed to do business as a foreign corporation in good
standing in the jurisdictions in which such qualification is required, except
where the failure to so qualify or to be so licensed would not have a Material
Adverse Effect on its business, financial condition, results of operations or on
its ability to continue to conduct its business as currently conducted. The
copies of the articles of incorporation and by-laws (or other relevant
organization documents) and any amendments thereto of the Company and each of
its Subsidiaries heretofore delivered to the Payee are complete and correct
copies of such instruments as currently in effect. As used in this Note,
"Material Adverse Effect" means any material adverse effect on the business,
properties, assets, operations, results of operations, prospects or financial
condition of the Company and its Subsidiaries, taken as a whole. The term
"Material Adverse Effect" does not include any material developments adversely
affecting (i) the industry in which the Company is engaged generally or (ii) the
national economy, security, stability or peace of the United States or any
country, taken as a whole.
B. Capitalization. The authorized, issued and outstanding
capital stock of the Company prior to the consummation of the transactions
contemplated hereby is set forth in Schedule 8B. All of such outstanding shares
have been and are, or upon issuance will be, validly issued, fully paid and
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non-assessable. Except as disclosed in the schedule delivered to the Payee on
the date hereof, (i) no shares of the Company's capital stock are subject to
preemptive rights under Delaware law or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no outstanding
debt securities issued by the Company (other than as may be issued pursuant to
the Letter Agreement); (iii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act; (v) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
this Note; and (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. All prior
sales of securities of the Company or any of its Subsidiaries were either
registered under the 1933 Act and applicable state securities laws or exempt
from such registration, and no security holder has any rescission rights with
respect thereto except to the extent any such rights would not reasonably be
expected to have a Material Adverse Effect.
C. Financial Statements. The financial statements of the
Company provided to the Payee have been prepared in accordance with GAAP, during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements), show all material liabilities, absolute or contingent, of
the Company required to be required to be recorded thereon, and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods
indicated (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
D. Absence of Changes. Since April 30, 2005, there have been
no material adverse changes in the financial condition, business or properties
of the Company or of the Company and its Subsidiaries, taken as a whole. Except
as set forth in the schedule to be delivered to the Payee on the date hereof,
since April 30, 2005, (i) the Company has not incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, which is
material to the business of the Company, (ii) there has not been any change in
the capital stock of, or any incurrence of long-term debt by, the Company, or
any issuance of options, warrants or other rights to purchase the capital stock
of the Company, or any adverse change or any development involving, so far as
the Company can now reasonably foresee, a prospective adverse change in the
condition (financial or otherwise), net worth, results of operations, business,
key personnel or properties which would be material to the business or financial
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condition of the Company, and (iii) the Company has not become a party to, and
neither the business nor the property of the Company has become the subject of,
any material litigation whether or not in the ordinary course of business.
E. Title. Except as set forth in or contemplated by the
schedule to be delivered to the Payee on the date hereof, the Company has good
and marketable title to all material properties and assets owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except as not
prohibited by Section 6(B)(vii) hereof or such as are not significant or
important in relation to the Company's business; all of the material leases and
subleases under which the Company is the lessor or sublessor of properties or
assets or under which the Company holds properties or assets as lessee or
sublessee are in full force and effect, and the Company is not in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no material claim has been asserted by anyone adverse
to rights of the Company as lessor, sublessor, lessee or sublessee under any of
the leases or subleases mentioned above, or affecting or questioning the right
of the Company to continued possession of the leased or subleased premises or
assets under any such lease or sublease. The Company owns, leases or licenses
all such properties as are necessary to its operations.
F. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights (the "Intellectual Property") necessary
to conduct their respective businesses as now conducted. Except as set forth on
the schedule delivered to the Payee on the date hereof, none of the Company's
Intellectual Property has expired or terminated, or is expected to expire or
terminate within two years from the date of this Note, except where such
expiration or termination would not have either individually or in the aggregate
a Material Adverse Effect. The Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of Intellectual
Property of others, or of any such development of similar or identical trade
secrets or technical information by others and, except as set forth on such
schedule, no claim, action or proceeding has been made or brought against, or to
the Company's knowledge, has been threatened against, the Company or its
Subsidiaries regarding Intellectual Property or other infringement, except where
such infringement, claim, action or proceeding would not reasonably be expected
to have either individually or in the aggregate a Material Adverse Effect.
Except as set forth on such schedule, the Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
Intellectual Property except where the failure to do so would not reasonably be
expected to have either individually or in the aggregate a Material Adverse
Effect.
G. Litigation. Except as set forth in or contemplated by the
schedule delivered to the Payee on the date hereof, there is no material action,
suit, investigation, customer complaint, claim or proceeding at law or in equity
by or before any court, arbitrator, governmental instrumentality or authority or
other agency now pending or, to the knowledge of the Company, threatened against
the Company, the adverse outcome of which would be reasonably likely to have a
Material Adverse Effect. The Company is not subject to any judgment, order,
writ, injunction or decree of any Federal, state, municipal or other
-14-
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign which have a Material Adverse Effect.
H. Taxes. Except as set forth in or contemplated by the
schedule delivered to the Payee on the date hereof, the Company has filed all
Federal, state, local and foreign tax returns which are required to be filed by
it or otherwise met its disclosure obligations to the relevant agencies and all
such returns are true and correct in all material respects. The Company has paid
or adequately provided for all tax liabilities of the Company as reflected on
such returns or determined to be due on such returns or pursuant to any
assessments received by it or which it is obligated to withhold from amounts
owing to any employee, creditor or third party. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The Company
has properly accrued all taxes required to be accrued by GAAP consistently
applied. The tax returns of the Company have never been audited by any state or
Federal authorities. The Company has not waived any statute of limitations with
respect to taxes or agreed to any extension of time with respect to any tax
assessment or deficiency.
I. Compliance With Laws; Licenses; Etc. The business of the
Company and its Subsidiaries is not being conducted in violation of any law,
ordinance or regulation of any governmental entity except for such violations
the sanctions for which either individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect, and the Company has
not received notice of any violation of or noncompliance with any Federal,
state, local or foreign, laws, ordinances, regulations and orders applicable to
its business which has not been cured, the violation of, or noncompliance with
which, would be reasonably likely to have a Material Adverse Effect. The Company
has all material licenses and permits and other governmental certificates,
authorizations and permits and approvals (collectively, "Licenses") required by
every Federal, state and local government or regulatory body for the operation
of its business as currently conducted and the use of its properties, except
where the failure to be licensed or possess a permit would not reasonably be
expected to have a Material Adverse Effect. The Licenses are in full force and
effect and to the Company's knowledge no violations currently exist in respect
of any License and no proceeding is pending or threatened to revoke or limit any
thereof.
J. Existing Indebtedness. The schedule delivered to the Payee
on the date hereof is a complete and correct list of all indebtedness for
borrowed money of the Company and its Subsidiaries in an unpaid principal amount
exceeding $10,000, showing as to each item of such indebtedness the obligor, the
aggregate principal amount outstanding and a brief description of any security
therefor (after giving effect to the application of the proceeds of the sale of
this Note). The Company is not in default in any material respect in the
performance or observance of any of the terms, covenants or conditions contained
in any instrument evidencing any such indebtedness and no event has occurred and
is continuing which, with notice or the lapse of time or both, would become such
a default.
K. Security Interest. Assuming that the Security Documents are
in proper form and are perfected in accordance with applicable laws and
regulations on the date thereof, the Security Documents create and grant to the
Payee a legal, valid and perfected first priority security interest in the
-15-
Collateral. The Collateral is not subject to any other Lien or security interest
whatsoever except Permitted Liens.
L. Subsidiaries. As of the date hereof, (i) the Company has
only the Subsidiaries set forth on, and the authorized, issued and outstanding
capital stock of each Subsidiary is as set forth on, the schedule delivered to
the Payee on the date hereof and (ii) the ownership interests in each Subsidiary
of the Company are duly authorized, validly issued, fully paid and nonassessable
and are owned beneficially and of record by the persons set forth on such
schedule, free and clear of all Liens. As of the date hereof, the Subsidiaries
of the Company have not issued any securities convertible into, or options or
warrants for, any common or preferred equity securities thereof, except as set
forth on such schedule. Except as set forth on such schedule, there are no
agreements, voting trusts or understandings binding on the Company or any of its
Subsidiaries restricting the transfer of the voting securities of any of the
Company's Subsidiaries or affecting in any manner the sale, pledge, assignment
or other dispositions thereof, including any right of first refusal, option,
redemption, call or other right with respect thereto, whether similar or
dissimilar to any of the foregoing.
M. Investment Companies and Other Regulated Entities. Neither
the Company nor any of its Subsidiaries is (i) an "investment company" or a
company "controlled" by an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940, as amended, or (ii) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935 or the Federal Power Act, as amended.
N. Absence of Certain Restrictions. No indenture, certificate
of designation for preferred stock, agreement or instrument to which the Company
or any of its Subsidiary is a party (other than this Note or any Note issued
pursuant to the Letter Agreement), prohibits or limits in any way, directly or
indirectly the ability of any such Subsidiary to make Restricted Payments or
repay any indebtedness to the Company or to another Subsidiary of the Company.
O. Authorization; No Violation.
---------------------------
(a) The Company has full corporate power and authority
necessary to enter into the Transaction Documents to carry out the transactions
contemplated by the Transaction Documents. The Board of Directors of the Company
has taken such necessary action to authorize the execution and delivery of the
Transaction Documents and the consummation of the transactions contemplated
thereby. The Transaction Documents have been duly executed and delivered by the
Company and are legal, valid and binding obligations of the Company enforceable
against it in accordance with its terms except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefore may be brought.
-16-
(b) Neither the execution and delivery of any of the
Transaction Documents nor the consummation of the transactions contemplated
thereby will violate any provision of the articles or certificate of
incorporation or by-laws or other organizational documents of the Company, be in
conflict with, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under or result in the termination
of, or accelerate the performance required by, or cause the acceleration of the
maturity of any debt or obligation pursuant to, or result in the creation or
imposition of any security interest, lien or other encumbrance upon any property
or assets of the Company, any agreement or commitment to which the Company is a
party or by which the Company is bound or to which the property of the Company
is subject, or violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority applicable to the
Company.
9. Conversion Right.
A. Conversion Upon a Qualified Financing.
-------------------------------------
(i) Upon written notice to the Company, the Payee may, at
its sole option, upon the initial closing of the next Qualified Financing,
convert the outstanding principal hereunder and all interest accrued thereon
into such number of shares of fully paid and non-assessable New Securities that
is equal to the quotient of (A) the outstanding principal hereunder plus all
interest accrued thereon divided by (B) the lowest price per share at which New
Securities are issued in the Qualified Financing. In addition, in connection
with such conversion, the Payee shall receive rights as a purchaser and holder
of New Securities (including, without limitation, customary registration rights)
no less favorable in the aggregate and in any single instance than those granted
to any other purchaser of New Securities. The Company agrees that it has no
right to prevent the Payee from effecting such conversion without the Payee's
consent, whether by attempting to prepay this Note (whether or not there shall
have been a default hereunder) or otherwise. For avoidance of doubt, if the
Payee does not elect to convert this Note into New Securities in the Qualified
Financing, then this Note shall become immediately due and payable upon the
consummation of the Qualified Financing, and the Company shall immediately, upon
such consummation, pay in full all outstanding principal hereunder and all
interest accrued thereon to the Payee.
(ii) Notice of Qualified Financing. The Company shall
notify the Payee in writing not less than 10 business days prior to the expected
closing date of any Qualified Financing. Such notice shall include all of the
material terms of the proposed Qualified Financing and shall include, as
promptly as such documents are available, then-current drafts of the transaction
documents for the Qualified Financing. Following such notice, the Company shall
provide Payee with any transaction documents or revised drafts thereof at the
same time that such transaction documents or drafts are made available to any
investor in the Qualified Financing. The Company shall negotiate the terms of
such transaction documents in good faith with the Payee.
(iii) Fractional Shares. Upon the conversion of this Note
pursuant to this Section 9.A, fractional shares representing New Securities
shall be issued only if fractional shares are issuable in connection with the
Qualified Financing to investors generally. If no fractional shares are so
issuable, then with respect to any fraction of a share called for upon the
conversion of this Note or any portion hereof, a cash amount equal to such
fraction shall be paid to the Payee.
B. Optional Conversion.
-------------------
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(i) At any time after February 28, 2006, the outstanding
principal hereunder plus all interest accrued thereon may, at the Payee's
option, be converted into such number of shares of common stock, par value $0.01
per share, of the Company (the "Common Stock") that would result in SCO,
together with the other Bridge Holders (as defined below), holding 80% of the
Common Stock of the Company (or of all capital stock of the Company, if
applicable) on and subject to the terms and conditions set forth in this Section
9.B (such number of shares, the "Conversion Number"). For purposes of the
foregoing calculations, the total number of shares of Common Stock (or other
capital stock of the Company, if applicable) shall be determined on a
fully-diluted basis. "Bridge Holders" shall have the meaning assigned to such
term in that certain Voting Agreement dated as of August 22, 2005 (the "Voting
Agreement"), by and among the Company, the persons and entities listed in
Exhibit A thereto as Bridge Holders and the persons and entities listed in
Exhibit B thereto as Somanta Holders, in each case, identified therein.
(ii) Mechanics of Conversion.
-----------------------
(a) Such right of conversion shall be exercised
by the Payee by delivering to the Company a conversion notice substantially in
the form attached hereto as Exhibit B (the "Conversion Notice"), appropriately
completed and duly signed, and by surrender not later than five (5) business
days thereafter of this Note (or if the original Note has been lost or
destroyed, an affidavit of Payee in customary form certifying as to such loss or
destruction). The Conversion Notice shall also contain a statement of the name
or names (with addresses and tax identification or social security numbers) in
which the certificate or certificates representing the shares of Common Stock
shall be issued, if other than the name in which this Note is registered.
Promptly after the receipt of the Conversion Notice, the Company shall issue and
deliver, or cause to be delivered, to the Payee or such Payee's nominee, a
certificate or certificates for the number of shares of Common Stock equal to
the Conversion Number which shares shall be fully paid and non-assessable. Such
conversion shall be deemed to have been effected as of the date of receipt by
the Company of the Conversion Notice (the "Conversion Date"), and the person or
persons entitled to receive the shares of Common Stock issuable upon conversion
shall be treated for all purposes as the holder or holders of record of such
shares of Common Stock as of the close of business on the Conversion Date.
(b) The Company shall effect such issuance of
Common Stock within three (3) trading days after the Conversion Date and shall
transmit the certificates by messenger or reputable overnight delivery service
to reach the address designated by the Payee within three (3) trading days after
the receipt by the Company of such Conversion Notice. If certificates evidencing
the Common Stock are not received by the holder within five (5) Business Days
after the Conversion Notice, then the Payee will be entitled to revoke and
withdraw its Conversion Notice, in whole or in part, at any time prior to its
receipt of those certificates. The person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such Common Stock on the Conversion Date. If the
conversion has not been rescinded in accordance with this paragraph and the
Company fails to deliver to the holder such certificate or certificates pursuant
to this Section 9B in accordance herewith, prior to the seventh (7th) Business
Day after the Conversion Date (assuming timely surrender of the Note), the
Company shall pay to the Payee, in cash, on a per diem basis, an amount equal to
2% of the principal amount and all interest accrued thereon of the Note until
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such delivery takes place and interest shall continue to accrue as provided in
Section 4.A as if no Conversion Notice had been delivered.
(iii) The Company's obligation to issue Common Stock upon
conversion of Note shall be absolute, is independent of any covenant of the
Payee, and shall not be subject to: (i) any offset or defense; or (ii) any
claims against the Payee whether pursuant to this Note any Transaction Document
or otherwise.
(iv) Reservation of Shares. The Company shall at all times
reserve and keep available for issuance to the Payee from its authorized but
unissued shares of Common Stock, a number of shares of Common Stock that is
sufficient to fully convert this Note pursuant to this Section 9.B.
(v) Fractional Shares. No fractional shares of Common
Stock shall be issued upon the conversion of this Note pursuant to this Section
9.B. Any fractional share of Common Stock that would otherwise be issuable upon
conversion pursuant to this Section 9.B shall be rounded up to the nearest whole
number of shares of Common Stock.
10. Miscellaneous.
A. Parties in Interest. All covenants, agreements and
undertakings in this Note binding upon the Company or the Payee shall bind and
inure to the benefit of the successors and permitted assigns of the Company and
the Payee, respectively. The Payee shall not be entitled to assign this Note
without the written consent of the Company, which consent shall not be
unreasonably withheld.
B. Governing Law. This Note shall be governed by and construed
in accordance with the laws of the State of New York without regard to the
conflicts of laws or principles thereof. The parties hereto hereby agree that
any suit or proceeding arising directly and/or indirectly pursuant to or under
this instrument or the consummation of the transactions contemplated hereby,
shall be brought solely in a federal or state court located in the City, County
and State of New York. By its execution hereof, the parties hereby covenant and
irrevocably submit to the in personam jurisdiction of the federal and state
courts located in the City, County and State of New York and agree that any
process in any such action may be served upon any of them personally, or by
certified mail or registered mail upon them or their agent, return receipt
requested, with the same full force and effect as if personally served upon them
in New York City. The parties hereto waive any claim that any such jurisdiction
is not a convenient forum for any such suit or proceeding and any defense or
lack of in personam jurisdiction with respect thereto. In the event of any such
action or proceeding, the party prevailing therein shall be entitled to payment
from the other party hereto of its reasonable counsel fees and disbursements in
an amount judicially determined.
C. Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT
EXECUTED AND DELIVERED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE
-19-
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PAYEE OR
THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S PURCHASING
THIS NOTE.
D. Expenses and Fees. All fees, costs and expenses of every
kind and nature, including but not limited to the reasonable attorneys' fees and
legal expenses, incurred by Payee in connection with the collection,
administration, or enforcement of its rights under this Note or in defending or
prosecuting any actions or proceedings arising out of or related to any amounts
due to Payee under this Note shall be borne and paid by the Company upon written
demand by the Payee and until paid, shall be added to the amounts due hereunder
and bear interest at a rate per annum equal to 12%.
E. Entire Agreement. This Note (including any schedule
referenced herein), the Security Documents and the Letter Agreement set forth
the entire agreement of the parties with respect to the subject matter hereof
and thereof, superseding and replacing any agreement or understanding that may
have existed between the parties prior to the date hereof in respect to such
subject matter.
[Signature Page Follows.]
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IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first specified above by the duly authorized representative of the Company.
SOMANTA INCORPORATED
By: /s/ TERRANCE J. BRUGGEMAN
-------------------------------------
Name: Terrance J. Bruggeman
Title: Executive Chairman
Schedule A
----------
Use of Proceeds
---------------
Schedule B
----------
Affiliate Transactions
----------------------
EXHIBIT A
SCHEDULE OF TRANCHES
--------------------
- --------------------------------------------------------------------------------
Date Principal Amount Unpaid Principal Name of Person
of Tranche Balance of Note Making Notation
- --------------------------------------------------------------------------------
August 23, 2005 $1,000,000 $1,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT B
FORM OF CONVERSION NOTICE
(To be executed by the Payee in order to convert the Note)
The undersigned hereby irrevocably elects to convert the Secured Convertible
Promissory Note (the "Note") of Somanta Incorporated, a Delaware corporation
(the "Company"), held by the undersigned into shares of Common Stock, according
to the terms and conditions of the Note and the conditions hereof, as of the
date written below. The undersigned hereby requests that certificates for the
shares of Common Stock to be issued to the undersigned pursuant to this
Conversion Notice be issued in the name of, and delivered to, the undersigned or
its designee as indicated below. If the shares of Common Stock are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. A copy of the Note being converted
is attached hereto (and the original Note shall be transmitted to the
Corporation pursuant to the terms thereof). All capitalized terms used in this
Conversion Notice, but not otherwise defined herein shall have the meanings
assigned in the Note. Execution and delivery of this Conversion Notice by
facsimile shall be valid an binding for all purposes and shall be effective upon
such facsimile transmission.
______________________________________________________________________________
Date of Conversion (Date of Notice)
Conversion Information:[NAME OF PAYEE]
___________________________________
Address of Payee:
___________________________________
___________________________________
Issue Common Stock to (if different than above):
Name:______________________________
Address:___________________________
___________________________________
Tax ID #:__________________________
________________________________________________
Name of Payee
By:_____________________________________________
Name:
Title: