EXHIBIT 10.3
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 20(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.
RAPTOR NETWORKS TECHNOLOGY, INC.
AMENDED AND RESTATED SENIOR CONVERTIBLE NOTE
Issuance Date: July 31, 2006 Original Principal Amount: U.S. $_________
FOR VALUE RECEIVED, Raptor Networks Technology, Inc., a
Colorado corporation (the "COMPANY"), hereby promises to pay to
_____________________ or registered assigns ("HOLDER") the amount set out above
as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the "PRINCIPAL") when due,
whether upon the Maturity Date (as defined below), on any Installment Date with
respect to the Installment Amount due on such Installment Date (each, as defined
herein), acceleration, redemption or otherwise (in each case in accordance with
the terms hereof) and to pay interest ("INTEREST") on any outstanding Principal
at the applicable Interest Rate (as defined below) from the date set out above
as the Issuance Date (the "ISSUANCE DATE") until the same becomes due and
payable, whether upon an Interest Date (as defined below), any Installment Date
or, the Maturity Date, acceleration, conversion, redemption or otherwise (in
each case in accordance with the terms hereof); provided, however, that (a) in
the event that the Initial Effective Date has occurred by February 12, 2007, the
Principal amount of this Note shall be reduced by [approximately 8.6% of the
Original Principal Amount] or (b) in the event that the Initial Effective Date
has not occurred by February 12, 2007, but has occurred by April 1, 2007, the
Principal amount of this Note shall be reduced by [approximately 4.0% of the
Original Principal Amount]. This Amended and Restated Senior Convertible Note
(including all Senior Convertible Notes issued in exchange, transfer or
replacement hereof, this "NOTE") amends, supplements, modifies and completely
restates and supersedes the Senior Convertible Note, dated July 31, 2006
(the "EXISTING NOTE"), issued by the Company to the Holder in the Original
Principal Amount of $_________, but shall not, except as specifically amended
hereby or as set forth in the Amendment Agreements (as defined below),
constitute a release, satisfaction or novation of any of the obligations under
any other Transaction Document (as defined in the Securities Purchase
Agreement). This Note is one of an issue of Amended and Restated Senior
Convertible Notes issued pursuant to the Amendment and Exchange Agreements dated
as of January 18, 2007 by and between each of the Buyers (as defined in the
Securities Purchase Agreement) and the Company (the "AMENDMENT AGREEMENTS" and
the date the transactions contemplated by the Amendment Agreements are
consummated, the "AMENDMENT DATE") (together with the new senior convertible
notes issued pursuant to the Amendment Agreements, the "NOTES" and such other
Amended and Restated Senior Convertible Notes and new senior convertible notes,
the "OTHER NOTES"). Certain capitalized terms used herein are defined in Section
30.
(1) PAYMENTS OF PRINCIPAL. On each Installment Date, the Company shall
pay to the Holder an amount equal to the Installment Amount due on such
Installment Date in accordance with Section 8. On the Maturity Date, the Company
shall pay to the Holder an amount in cash representing all outstanding
Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as
defined in Section 26), if any, on such Principal and Interest. The "MATURITY
DATE" shall be July 31, 2008, 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, (ii) through the date that is ten (10) Business Days after the
consummation of a Change of Control in the event that a Change of Control is
publicly announced or a Change of Control Notice (as defined in Section 5(b)) is
delivered prior to the Maturity Date, and (iii) to the latest designated date
for repayment upon the deferral of payment of any Installment Amount in
accordance with Section 8(d). Other than as specifically permitted by this Note,
the Company may not prepay any portion of the outstanding Principal, accrued and
unpaid interest or accrued and unpaid Late Charges on Principal and Interest, if
any.
(2) INTEREST; INTEREST RATE. Interest on this Note shall commence
accruing on the Amendment Date and shall be computed on the basis of a 360-day
year comprised of twelve (12) thirty (30) day months and shall be payable in
arrears for each Calendar Quarter on the first (1st) day of the succeeding
Calendar Quarter during the period beginning on the Issuance Date and ending on,
and including, the Maturity Date (each, an "INTEREST DATE") with the first (1st)
Interest Date being April 1, 2007. Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest Date, and to
the extent that any Principal amount of this Note is converted prior to such
Interest Date, accrued and unpaid Interest with respect to such converted
Principal amount and accrued and unpaid Late Charges, if any, with respect to
such Principal and Interest shall be payable by way of inclusion of such
Interest and Late Charges in the Conversion Amount, in accordance with Section
3(b)(i). From and after the occurrence and during the continuance of an Event of
-2-
Default, the Interest Rate shall be increased to fifteen percent (15.0%). In the
event that such Event of Default is subsequently cured, the adjustment referred
to in the preceding sentence shall cease to be effective as of the date of such
cure; provided that the Interest as calculated and unpaid at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default.
(3) CONVERSION OF NOTES. This Note shall be convertible into shares of
the Company's common stock, par value $0.001 per share (the "COMMON STOCK"), on
the terms and conditions set forth in this Section 3.
(a) CONVERSION RIGHT. Subject to the provisions of Section 3(d)
and subject to the Company's right to elect to pay accrued and unpaid Interest
and Late Charges, if any, in cash as set forth in Section 3(c)(i), 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
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. Subject to the Company's right to elect to
pay accrued and unpaid Interest and Late Charges, if any, in cash as set forth
in Section 3(c)(i), 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, 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 with respect
to such Principal and Interest.
(ii) "CONVERSION PRICE" means, as of any Conversion
Date (as defined below) or other date of determination, $0.43948, 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 Trading Day (a "CONVERSION DATE"), the
Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or
prior to 11:59 p.m., New York Time, on a Business Day, 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). Accrued and unpaid Interest
and Late Charges, if any, on any Principal portion of the Conversion Amount
being converted shall be payable to the record holder of this Note on the
-3-
applicable Share Delivery Date (as defined below) in shares of Common Stock so
long as there has been no Equity Conditions Failure; provided however, that the
Company may, at its option following notice to the Holder, pay accrued and
unpaid Interest and/or Late Charges, if any, on any Principal portion of the
Conversion Amount being converted on the applicable Share Delivery Date in cash
("CASH INTEREST/CHARGES"). On or before the second (2nd) Trading Day following
the date of receipt of a Conversion Notice, the Company shall transmit by
facsimile a confirmation of receipt of such Conversion Notice to the Holder and
the Company's transfer agent (the "TRANSFER AGENT"). On or before the third
(3rd) Business Day following the date of receipt of a Conversion Notice (the
"SHARE DELIVERY DATE"), the Company shall (1) (x) provided that the Transfer
Agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program and that securities are to be issued without legends
pursuant to Section 2(g) of the Securities Purchase Agreement, credit such
aggregate number of shares of Common Stock (including any shares of Common Stock
delivered in respect of Interest and/or Late Charges) to which the Holder shall
be entitled to the Holder's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system or (y) if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program or if
securities are to be issued with legends pursuant to Section 2(g) of the
Securities Purchase Agreement, 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 and (2) if the Company has elected to pay Cash Interest/Charges, pay
to the Holder in cash an amount equal to the accrued and unpaid Interest and/or
Late Charges, if any, on the Principal portion of the Conversion Amount up to
and including the Conversion Date. If this Note is physically surrendered for
conversion pursuant to Section 3(c)(iii) and the outstanding Principal of this
Note is greater than the Principal portion of the Conversion Amount being
converted, then the Company shall as soon as practicable and in no event later
than five (5) Business Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note (in accordance with Section 20(d))
representing the outstanding Principal not converted. The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date. In the event of a partial
conversion of this Note pursuant hereto, the Principal amount and Interest
converted shall be deducted from the Installment Amounts relating to the
Installment Dates as set forth in the Conversion Notice.
(ii) COMPANY'S FAILURE TO TIMELY CONVERT. If the
Company shall fail to issue a certificate to the Holder or credit the Holder's
balance account with DTC, as applicable, for the number of shares of Common
Stock to which the Holder is entitled upon conversion of any Conversion Amount
on or prior to the date which is five (5) Trading Days after the Conversion Date
(a "CONVERSION FAILURE"), then (A) 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 (I) 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 (II) the Closing Sale Price of the Common Stock on the Share
Delivery Date and (B) 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
-4-
to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In
addition to the foregoing, if within three (3) Trading Days after the Company's
receipt of the facsimile copy of a Conversion Notice the Company shall fail to
issue and deliver a certificate to the Holder or credit the Holder's balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon such holder's conversion of any Conversion Amount, 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
the number of shares of Common Stock issuable upon such conversion that the
Holder anticipated receiving from the Company (a "BUY-IN"), then the Company
shall, within five (5) Trading Days after the Holder's request and in the
Holder's discretion, either (A) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions and other out of
pocket expenses, if any) for such number of shares of Common Stock so purchased
(the "BUY-IN PRICE"), at which point the Company's obligation to deliver such
certificate (and to issue such Common Stock) shall terminate, or (B) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (1) such number of
shares of Common Stock, times (2) the Closing Bid Price on the Conversion Date.
(iii) 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 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 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 20.
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
entire outstanding Principal 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 (except as required above).
(iv) PRO RATA CONVERSION; DISPUTES. In the event that
the Company receives a Conversion Notice from more than one holder of Notes for
the same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion, the Company, subject to Section
3(d), shall convert from each holder of Notes electing to have Notes converted
on such date a pro rata amount of such holder's portion of its Notes submitted
for conversion based on the principal amount of Notes submitted for conversion
-5-
on such date by such holder relative to the aggregate principal amount of all
Notes submitted for conversion on such date. In the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in connection with a
conversion of this Note, the Company shall issue to the Holder the number of
shares of Common Stock not in dispute and resolve such dispute in accordance
with Section 25.
(d) LIMITATIONS ON CONVERSIONS.
(i) BENEFICIAL OWNERSHIP. The Company shall not effect
any conversion of this Note, and the Holder of this Note shall not have the
right to convert any portion of this Note pursuant to Section 3(a), to the
extent that after giving effect to such conversion, the Holder (together with
the Holder's affiliates) would beneficially own in excess of 4.99% (the "MAXIMUM
PERCENTAGE") of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted portion of
this Note beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any Other Notes or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 3(d)(i), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
ACT"). For purposes of this Section 3(d)(i), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company's most recent
Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB, Form 8-K or other public filing
with the Securities Exchange Commission, as the case may be (y) a more recent
public announcement by the Company or (z) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within two (2) Business Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Note, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. By written notice to
the Company, the Holder may increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that
(i) any such increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to the Holder and not to any other holder of Notes.
(ii) ELIGIBLE MARKET REGULATION. The Company shall not
be obligated to issue any shares of Common Stock upon conversion of this Note if
the issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon conversion or exercise,
as applicable, of the Notes and Warrants without breaching the Company's
obligations under the rules or regulations of any applicable Eligible Market
(the "EXCHANGE CAP"), except that such limitation shall not apply in the event
-6-
that the Company (A) obtains the approval of its stockholders as required by the
applicable rules of such Eligible Market for issuances of Common Stock in excess
of such amount or (B) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be reasonably
satisfactory to the Required Holders. Until such approval or written opinion is
obtained, no purchaser of the Notes pursuant to the Securities Purchase
Agreement (the "PURCHASERS") shall be issued in the aggregate, upon conversion
or exercise or otherwise, as applicable, of Notes or Warrants, shares of Common
Stock in an amount greater than the product of the Exchange Cap multiplied by a
fraction, the numerator of which is the principal amount of Notes issued to a
Purchaser pursuant to the Securities Purchase Agreement on the Closing Date and
the denominator of which is the aggregate principal amount of all Notes issued
to the Purchasers pursuant to the Securities Purchase Agreement on the Closing
Date (with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the
event that any Purchaser shall sell or otherwise transfer any of such
Purchaser's Notes, the transferee shall be allocated a pro rata portion of such
Purchaser's Exchange Cap Allocation, and the restrictions of the prior sentence
shall apply to such transferee with respect to the portion of the Exchange Cap
Allocation allocated to such transferee. In the event that any holder of Notes
shall convert all of such holder's Notes into a number of shares of Common Stock
which, in the aggregate, is less than such holder's Exchange Cap Allocation,
then the difference between such holder's Exchange Cap Allocation and the number
of shares of Common Stock actually issued to such holder shall be allocated to
the respective Exchange Cap Allocations of the remaining holders of Notes on a
pro rata basis in proportion to the aggregate principal amount of the Notes then
held by each such holder.
(4) RIGHTS UPON EVENT OF DEFAULT.
(a) EVENT OF DEFAULT. Each of the following events shall
constitute an "EVENT OF DEFAULT":
(i) the failure of the applicable Registration
Statement required to be filed pursuant to the Registration Rights Agreement to
be declared effective by the SEC on or prior to the date that is sixty (60) days
after the applicable Effectiveness Deadline (as defined in the Registration
Rights Agreement), or, while the applicable Registration Statement is required
to be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the applicable Registration Statement lapses for
any reason (including, without limitation, the issuance of a stop order) or is
unavailable to any holder of the Notes for sale of all of such holder's
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten (10) consecutive days or for
more than an aggregate of thirty (30) days in any 365-day period (other than
days during an Allowable Grace Period (as defined in the Registration Rights
Agreement)); provided, however, that notwithstanding anything to the contrary
contained herein, the Company's failure to meet one or more of the requirements
of this Section 4(a) shall not constitute an Event of Default where such failure
is solely the result of a comment received by the SEC requiring a limit on the
number of Registrable Securities included in the applicable Registration
Statement in order for such Registration Statement to be able to avail itself of
Rule 415 under the 1933 Act;
-7-
(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 any holder of the 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 any Notes into shares of Common Stock that is tendered
in accordance with the provisions of the Notes, other than pursuant to Section
3(d);
(iv) at any time following the tenth (10th)
consecutive Business Day subsequent to the earlier of the Stockholder Approval
Date (as defined in the Securities Purchase Agreement) and the Stockholder
Meeting Deadline (as defined in the Securities Purchase Agreement) that the
Holder's Authorized Share Allocation (as defined below) is less than the number
of shares of Common Stock that the Holder would be entitled to receive upon a
conversion of the full Conversion Amount of this Note (without regard to any
limitations on conversion set forth in Section 3(d) or otherwise);
(v) the Company's failure to pay to the Holder any
amount of Principal, Interest, Late Charges or other amounts when and as due
under this Note (including, without limitation, the Company's failure to pay any
redemption payments or amounts hereunder) or any other Transaction Document (as
defined in the Securities Purchase Agreement) 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 Late Charges when and as due, in which
case only if such failure continues for a period of at least five (5) Business
Days;
(vi) any default under, redemption of or acceleration
prior to maturity of any Indebtedness of the Company or any of its Subsidiaries
(as defined in Section 3(a) of the Securities Purchase Agreement) which,
individually or in the aggregate, exceeds $50,000, other than with respect to
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;
-8-
(ix) a final judgment or judgments for the payment of
money aggregating in excess of $350,000 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 $350,000 amount set
forth above so long as the Company 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) the Company breaches any representation, warranty,
covenant or other term or condition of any Transaction Document, except, in the
case of a breach of a covenant or other term or condition of any Transaction
Document which is curable, only if such breach continues for a period of at
least ten (10) consecutive Business Days;
(xi) any breach or failure in any respect to comply
with either of Sections 8 or 16 of this Note or Section 4(q) of the Securities
Purchase Agreement;
(xii) the failure of the Company to obtain the
Stockholder Approval by the Stockholder Approval Date; or
(xiii) any Event of Default (as defined in the Other
Notes) occurs with respect to any Other Notes.
(b) REDEMPTION RIGHT. Upon the occurrence of an Event of
Default with respect to this Note, the Company shall within two (2) Business
Days deliver written notice thereof via facsimile and overnight courier (an
"EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the
Holder's receipt of an Event of Default Notice and the Holder becoming aware of
an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT
REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice
shall indicate the Conversion Amount 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 at
a price equal to the greater of (i) the product of (A) the Conversion Amount to
be redeemed and (B) the Redemption Premium and (ii) the product of (A) the
product of (1) the Conversion Rate with respect to such Conversion
Amount in effect at such time as the Holder delivers an Event of Default
Redemption Notice and (2) the Equity Value Redemption Premium and (B) the
greater of (1) the Closing Sale Price of the Common Stock on the date
immediately preceding such Event of Default, (2) the Closing Sale Price of the
Common Stock on the date immediately after such Event of Default and (3) the
Closing Sale Price of the Common Stock on the date the Holder delivers the Event
of Default Redemption Notice (the "EVENT OF DEFAULT REDEMPTION PRICE").
Redemptions required by this Section 4(b) shall be made in accordance with the
provisions of Section 14. 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
-9-
voluntary prepayments. In the event of a partial redemption of this Note
pursuant hereto, the principal amount redeemed shall be deducted from the
Installment Amounts relating to the applicable Installment Dates as set forth in
the Event of Default Redemption Notice. The parties hereto agree that in the
event of the Company's redemption of any portion of the Note under this Section
4(b), the Holder's damages would be uncertain and difficult to estimate because
of the parties' inability to predict future interest rates and the uncertainty
of the availability of a suitable substitute investment opportunity for the
Holder. Accordingly, any Redemption Premium due under this Section 4(b) is
intended by the parties to be, and shall be deemed, a reasonable estimate of the
Holder's actual loss of its investment opportunity and not as a penalty.
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
(a) ASSUMPTION. The Company shall not enter into or be party to
a Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Note and the other Transaction
Documents in accordance with the provisions of this Section 5(a) pursuant to
written agreements in form and substance reasonably satisfactory to the Required
Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Notes in exchange
for such Notes a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to the Notes, including,
without limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Notes then outstanding held by
such holder, having similar conversion rights and having similar ranking to the
Notes, and satisfactory to the Required Holders and (ii) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose common
stock is quoted on or listed for trading on an Eligible Market (a "PUBLIC
SUCCESSOR ENTITY"). Upon the occurrence of any Fundamental Transaction, the
Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this Note
referring to the "Company" shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of the
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon conversion or redemption of this
Note at any time after the consummation of the Fundamental Transaction, in lieu
of the shares of the Company's Common Stock (or other securities, cash, assets
or other property) issuable upon the conversion or redemption of the Notes prior
to such Fundamental Transaction, such shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent Entity), as
adjusted in accordance with the provisions of this Note. The provisions of this
Section shall apply similarly and equally to successive Fundamental Transactions
and shall be applied without regard to any limitations on the conversion or
redemption of this Note.
(b) REDEMPTION RIGHT. No sooner than fifteen (15) days nor
later than ten (10) days prior to the consummation of a Change of Control, but
not prior to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight courier to the
Holder (a "CHANGE OF CONTROL NOTICE"). At any time during the period beginning
after the Holder's receipt of a Change of Control Notice and ending twenty (20)
Trading Days after the date of the consummation of such Change of Control, the
-10-
Holder may require the Company to redeem all or any portion of this Note by
delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion
Amount the Holder is electing to require the Company to redeem. The portion of
this Note subject to redemption pursuant to this Section 5 shall be redeemed by
the Company in cash at a price equal to the greater of (i) 150% of the
Conversion Amount being redeemed and (ii) the product of (A) the product of (1)
the Equity Value Redemption Premium and (2) the Conversion Amount being redeemed
multiplied by (B) the quotient determined by dividing (x) the aggregate cash
consideration and the aggregate cash value of any non-cash consideration per
Common Share to be paid to the holders of the Common Shares upon consummation of
the Change of Control (any such non-cash consideration consisting of marketable
securities to be valued at the higher of (x) the Closing Sale Price of such
securities as of the Trading Day immediately prior to the consummation of such
Change of Control, (y) the Closing Sale Price as of the Trading Day immediately
following the public announcement of such proposed Change of Control and (z) the
Closing Sale Price as of the Trading Day immediately prior to the public
announcement of such proposed Change of Control) by (y) the Conversion Price
(the "CHANGE OF CONTROL REDEMPTION PRICE"). Redemptions required by this Section
5 shall be made in accordance with the provisions of Section 14 and shall have
priority to payments to stockholders in connection with a Change of Control. To
the extent redemptions required by this Section 5(b) are deemed or determined by
a court of competent jurisdiction to be prepayments of the Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 5, but subject to Section 3(d), until
the Change of Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this Section
5(c) (together with any interest thereon) may be converted, in whole or in part,
by the Holder into Common Stock pursuant to Section 3. In the event of a partial
redemption of this Note pursuant hereto, the principal amount redeemed shall be
deducted from the Installment Amounts relating to the applicable Installment
Dates as set forth in the Change of Control Redemption Notice. The parties
hereto agree that in the event of the Company's redemption of any portion of the
Note under this Section 5(b), the Holder's damages would be uncertain and
difficult to estimate because of the parties' inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder. Accordingly, any Change of Control
redemption premium due under this Section 5(b) is intended by the parties to be,
and shall be deemed, a reasonable estimate of the Holder's actual loss of its
investment opportunity and not as a penalty.
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
(a) PURCHASE RIGHTS. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
-11-
(b) OTHER CORPORATE EVENTS. In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, at the Holder's option, (i) in
addition to the shares of Common Stock receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled with
respect to such shares of Common Stock had such shares of Common Stock been held
by the Holder upon the consummation of such Corporate Event (without taking into
account any limitations or restrictions on the convertibility of this Note) or
(ii) in lieu of the shares of Common Stock otherwise receivable upon such
conversion, such securities or other assets received by the holders of shares of
Common Stock in connection with the consummation of such Corporate Event in such
amounts as the Holder would have been entitled to receive had this Note
initially been issued with conversion rights for the form of such consideration
(as opposed to shares of Common Stock) at a conversion rate for such
consideration commensurate with the Conversion Rate. Provision made pursuant to
the preceding sentence shall be in a form and substance satisfactory to the
Required Holders. The provisions of this Section shall apply similarly and
equally to successive Corporate Events and shall be applied without regard to
any limitations on the conversion or redemption of this Note.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON
STOCK. If and whenever 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 Security) for a consideration per share (the "NEW ISSUANCE
PRICE") less than a price (the "APPLICABLE PRICE") equal to the Conversion Price
in effect immediately prior to such issue or sale (the foregoing a "DILUTIVE
ISSUANCE"), then immediately after such Dilutive Issuance the Conversion Price
then in effect shall be reduced to an amount equal to the New Issuance Price.
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 such Option is less than the Applicable Price, then such share of
Common Stock shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 7(a)(i), the "lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option" shall be equal to the sum of the lowest
-12-
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon granting or sale of the Option,
upon exercise of the Option and upon conversion or exchange or exercise of any
Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such share of Common Stock or of such Convertible Securities upon the exercise
of such Options or upon the actual issuance of such Common Stock upon conversion
or exchange or exercise of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 7(a)(ii), the "lowest price per share for which one share of Common
Stock is issuable upon such conversion or exchange or exercise" shall be equal
to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon the
issuance or sale of the Convertible Security and upon the conversion or exchange
or exercise of such Convertible Security. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such share of Common
Stock upon conversion or exchange or exercise of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 7(a), no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If
the purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 7(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
Subscription Date are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No adjustment shall be
made if such adjustment would result in an increase of the Conversion Price then
in effect.
-13-
(iv) CALCULATION OF CONSIDERATION RECEIVED. In case
any Option or Convertible Security is issued in connection with the issue or
sale of other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such Option or
Convertible Security by the parties thereto, the Option or Convertible Security
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such securities on the
date of receipt. If any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the Required Holders. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such consideration will be
determined within five (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the Required Holders. The determination of such appraiser shall
be deemed binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Company.
(v) RECORD DATE. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(b) ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time on or after the
Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time on or after the Subscription Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(c) OTHER EVENTS. If any event occurs of the type contemplated
by the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.
-14-
(8) COMPANY INSTALLMENT CONVERSION OR REDEMPTION.
(a) GENERAL. On each applicable Installment Date the Company
shall pay to the Holder of this Note the Installment Amount due on such date by
converting such Installment Amount into shares of Common Stock, in accordance
with this Section 8 (a "COMPANY CONVERSION"); provided, however, that the
Company may, at its option following notice to the Holder, pay the Installment
Amount by redeeming such Installment Amount in cash (a "COMPANY REDEMPTION") or
by any combination of a Company Conversion and a Company Redemption so long as
all of the outstanding applicable Installment Amount shall be converted and/or
redeemed by the Company on the applicable Installment Date, subject to the
provisions of this Section 8; provided, further, however that if there has been
an Equity Conditions Failure, then the applicable Installment Amount shall be
redeemed in its entirety by the Company pursuant to a Company Redemption.
Notwithstanding the foregoing, the Company may not effect a Company Conversion
of any Installment Amount under this Section in excess of the Holder Pro Rata
Amount of the applicable Volume Limitation. On or prior to the date which is the
sixth (6th) Trading Day prior to each Installment Date (each, an "INSTALLMENT
NOTICE DUE DATE"), the Company shall deliver written notice (each, a "COMPANY
INSTALLMENT NOTICE" and the date all of the holders receive such notice is
referred to as to the "COMPANY INSTALLMENT NOTICE DATE"), to each holder of
Notes which Company Installment Notice shall (i) either (A) confirm that the
applicable Installment Amount of such holder's Note shall be converted in whole
pursuant to a Company Conversion (such amount to be converted, the "COMPANY
CONVERSION AMOUNT") or (B) (1) state that the Company elects to redeem, or is
required to redeem in accordance with the provisions of the Notes, in whole or
in part, the applicable Installment Amount pursuant to a Company Redemption and
(2) specify the portion (including Interest and Late Charges, if any, on such
amount and Interest) which the Company elects or is required to redeem pursuant
to a Company Redemption (such amount to be redeemed, the "COMPANY REDEMPTION
AMOUNT") and the portion (including Interest and Late Charges, if any, on such
amount and Interest), if any, that the Company elects to convert pursuant to a
Company Conversion (such amount also, a "COMPANY CONVERSION AMOUNT") which
amounts when added together, must equal the applicable Installment Amount and
(ii) if the Installment Amount is to be paid, in whole or in part, pursuant to a
Company Conversion, certify that the Equity Conditions have been satisfied as of
the date of the Company Installment Notice. Each Company Installment Notice
shall be irrevocable. If the Company does not timely deliver a Company
Installment Notice in accordance with this Section 8, then the Company shall be
deemed to have delivered an irrevocable Company Installment Notice confirming a
Company Conversion and shall be deemed to have certified that the Equity
Conditions in connection with any such conversion have been satisfied. Except as
expressly provided in this Section 8(a), the Company shall convert and/or redeem
the applicable Installment Amount of this Note pursuant to this Section 8 and
the corresponding Installment Amounts of the Other Notes pursuant to the
corresponding provisions of the Other Notes in the same ratio of the Installment
Amount being converted and/or redeemed hereunder. The Company Conversion Amount
(whether set forth in the Company Installment Notice or by operation of this
Section 8) shall be converted in accordance with Section 8(b) and the Company
Redemption Amount shall be redeemed in accordance with Section 8(c).
-15-
(b) MECHANICS OF COMPANY CONVERSION. (i) If the Company
delivers a Company Installment Notice and confirms, or is deemed to have
confirmed, in whole or in part, a Company Conversion in accordance with Section
8(a), then on the Trading Day prior to the Installment Date the Company shall,
or shall direct the Transfer Agent to, deliver to the Holder's account with DTC,
or issue to the Holder a certificate for, a number of shares of Common Stock
equal to the quotient of (A) such Company Conversion Amount divided by (B) the
Initial Company Conversion Price (the "PRE-INSTALLMENT CONVERSION SHARES"). On
the Trading Day immediately after the end of the Company Conversion Measuring
Period (the "INSTALLMENT SETTLEMENT DATE"), the Company shall, or shall direct
the Transfer Agent to, deliver to the Holder's account with DTC, or issue to the
Holder a certificate for, a number of additional shares of Common Stock, if any,
equal to the Installment Balance Conversion Shares. If an Event of Default
occurs during any applicable Company Conversion Measuring Period and the Holder
elects an Event of Default Redemption in accordance with Section 4(b), then, at
the Holder's option, either (1) the Holder, upon receipt of the Event of Default
Redemption Price (which Redemption Price includes redemption of any portion of a
Company Conversion Amount represented by Pre-Installment Conversion Shares that
the Holder shall return to the Company), shall return any Pre-Installment
Conversion Shares delivered in connection with the applicable Installment Date,
which the Holder has not otherwise sold, transferred or disposed of, to the
Company or (2) the Conversion Amount used to calculate the Event of Default
Redemption Price shall be reduced by the product of (x) the Company Conversion
Amount applicable to such Installment Date multiplied by (y) the Conversion
Share Ratio.
(ii) If there is an Equity Conditions Failure or the
Volume Limitation is exceeded at any time prior to the Installment Date or the
Installment Settlement Date, as applicable, then at the option of the Holder
designated in writing to the Company, the Holder may require the Company to do
either one or both of the following: (A) the Company shall redeem all or any
part designated by the Holder of the unconverted Company Conversion Amount (such
designated amount is referred to as the "FIRST REDEMPTION AMOUNT") on such
Installment Date or Installment Settlement Date, as applicable, and the Company
shall pay to the Holder on such Installment Date, by wire transfer of
immediately available funds, an amount in cash equal to 125% of such First
Redemption Amount, and/or (B) the Company Conversion shall be null and void with
respect to all or any part designated by the Holder of the unconverted Company
Conversion Amount and the Holder shall be entitled to all the rights of a holder
of this Note with respect to such amount of the Company Conversion Amount as if
such amount had never been converted; provided, however, that the Conversion
Price for such unconverted Company Conversion Amount shall thereafter be
adjusted to equal the lesser of (1) the Company Conversion Price as in effect on
the date on which the Holder voided the Company Conversion and (2) the Company
Conversion Price as in effect on the date on which the Holder delivers a
Conversion Notice relating thereto. In the event the Holder elects to require
payment of the First Redemption Amount upon an Equity Conditions Failure
following the Installment Date, at the Holder's option, either (x) the Holder
shall, upon receipt of a First Redemption Amount (which amount includes
redemption of any portion of a Company Conversion Amount represented by
Pre-Installment Conversion Shares that the Holder shall return to the Company),
return any Pre-Installment Conversion Shares delivered in connection with the
applicable Installment Date, which the Holder has not otherwise sold,
transferred or disposed of, to the Company or (y) any related First Redemption
Amount shall be reduced by the product of (I) the Company Conversion Amount
applicable to such Installment Date multiplied by (II) the Conversion Share
Ratio. If the Company fails to redeem any First Redemption Amount on or before
-16-
the applicable Installment Date or Installment Settlement Date, as applicable,
by payment of such amount on the applicable Installment Date or Installment
Settlement Date, as applicable, then the Holder shall have the rights set forth
in Section 14(a) as if the Company failed to pay the applicable Company
Redemption Price and all other rights under this Note (including, without
limitation, such failure constituting an Event of Default described in Section
4(a)(xi)). Notwithstanding anything to the contrary in this Section 8(b), but
subject to 3(d), until the Company delivers Common Stock representing the
Company Conversion Amount to the Holder, the Company Conversion Amount may be
converted by the Holder into Common Stock pursuant to Section 3. In the event
that the Holder elects to convert the Company Conversion Amount prior to the
applicable Installment Date as set forth in the immediately preceding sentence,
the Company Conversion Amount so converted shall be deducted from the
Installment Amounts relating to the applicable Installment Dates as set forth in
the applicable Conversion Notice.
(c) MECHANICS OF COMPANY REDEMPTION. If the Company elects a
Company Redemption in accordance with Section 8(a), then the Company Redemption
Amount which is to be paid to the Holder on the applicable Installment Date
shall be redeemed by the Company, and the Company shall pay to the Holder on
such Installment Date, by wire transfer of immediately available funds, an
amount in cash (the "COMPANY INSTALLMENT REDEMPTION PRICE") equal to 100% of the
Company Redemption Amount. If the Company fails to redeem the Company Redemption
Amount on the applicable Installment Date by payment of the Company Installment
Redemption Price on such date, then at the option of the Holder designated in
writing to the Company (and any such designation shall be deemed, a Conversion
Notice pursuant to Section 3(c) for purposes of this Note), the Holder may
require the Company to convert all or any part of the Company Redemption Amount
at 75% of the Company Conversion Price. Conversions required by this Section
8(c) shall be made in accordance with the provisions of Section 3(c).
Notwithstanding anything to the contrary in this Section 8(c), but subject to
Section 3(d), until the Company Installment Redemption Price (together with any
Interest and Late Charges thereon) is paid in full, the Company Redemption
Amount (together with any Interest and thereon) may be converted, in whole or in
part, by the Holder into Common Stock pursuant to Section 3. In the event the
Holder elects to convert all or any portion of the Company Redemption Amount
prior to the applicable Installment Date as set forth in the immediately
preceding sentence, the Company Redemption Amount so converted shall be deducted
from the Installment Amounts relating to the applicable Installment Dates as set
forth in the applicable Conversion Notice.
(d) DEFERRED INSTALLMENT AMOUNT. Notwithstanding any provision
of this Section 8 to the contrary, the Holder may, at its option and in its sole
discretion, deliver a notice to the Company at least two (2) Business Days prior
to any Installment Notice Due Date electing to have the payment of all or any
portion of an Installment Amount payable on the next Installment Date deferred
up to a date that is two (2) years from the originally scheduled Installment
Date. Any notice delivered by the Holder pursuant to this Section 8(d) shall set
forth (i) the amount of the applicable Installment Amount being deferred and
(ii) the date that such amount shall now be payable. Any amount deferred
pursuant to this Section 8(d) shall continue to accrue Interest through the
designated payment date and shall be paid on such date in cash.
-17-
(9) COMPANY'S RIGHT OF MANDATORY CONVERSION.
(a) MANDATORY CONVERSION. If at any time from and after the
Initial Effective Date (the "MANDATORY CONVERSION ELIGIBILITY DATE"), (i) the
arithmetic average of the Weighted Average Price of the Common Stock for any
five (5) consecutive Trading Days following the Mandatory Conversion Eligibility
Date (the "MANDATORY CONVERSION MEASURING PERIOD") equals or exceeds either (A)
150% (the "FIRST CONVERSION THRESHOLD") or (B) 175% (the "SECOND CONVERSION
THRESHOLD") of the Conversion Price on the Closing Date (subject to appropriate
adjustments for stock splits, stock dividends, stock combinations and other
similar transactions after the Subscription Date) and (ii) there is not then an
Equity Conditions Failure, the Company shall have the right to require the
Holder to convert (1) if the First Conversion Threshold has been met, up to the
First Conversion Threshold Amount or (2) if the Second Conversion Threshold has
been met, all, but not less than all, of the Conversion Amount then remaining
under this Note, in each case as designated in the Mandatory Conversion Notice
(as defined below) into fully paid, validly issued and nonassessable shares of
Common Stock in accordance with Section 3(c) hereof at the Conversion Price as
of the Mandatory Conversion Date (as defined below) (a "MANDATORY CONVERSION").
The Company may exercise its right to require conversion under this Section 9(a)
by delivering within not more than two (2) Trading Days following the end of
such Mandatory Conversion Measuring Period a written notice thereof by facsimile
and overnight courier to all, but not less than all, of the holders of Notes and
the Transfer Agent (the "MANDATORY CONVERSION NOTICE" and the date all of the
holders received such notice by facsimile is referred to as the "MANDATORY
CONVERSION NOTICE DATE"). The Mandatory Conversion Notice shall be irrevocable.
The Mandatory Conversion Notice shall state (u) the Trading Day selected for the
Mandatory Conversion in accordance with Section 9(a), which Trading Day shall be
no later than ten (10) Business Days following the Mandatory Conversion Notice
Date (the "MANDATORY CONVERSION DATE"), (v) the aggregate Conversion Amount,
including any applicable First Conversion Threshold Amount, of the Notes subject
to Mandatory Conversion from the Holder and all of the holders of the Notes
pursuant to this Section 9 (and analogous provisions under the Other Notes), (w)
the number of shares of Common Stock to be issued to such Holder on the
Mandatory Conversion Date, (x) that upon consummation of the Mandatory
Conversion the Series M Warrants shall become exercisable in accordance with the
terms thereof, (y) the number of shares of Common Stock into which the Series M
Warrants shall become exercisable and (z) that there has been no Equity
Conditions Failure; provided, however, that the Company may not effect a
Mandatory Conversion under this Section in excess of the Holder Pro Rata Amount
of the applicable Volume Limitation. Notwithstanding the foregoing, the Company
may effect only one (1) Mandatory Conversion with respect to the First
Conversion Threshold Amount during any twenty (20) consecutive Trading Days.
(b) PRO RATA CONVERSION REQUIREMENT. If the Company elects to
cause a conversion of any Conversion Amount of this Note pursuant to Section
9(a), then it must simultaneously take the same action in the same proportion
with respect to the Other Notes. If the Company elects a Mandatory Conversion of
this Note pursuant to Section 9(a) (or similar provisions under the Other Notes)
with respect to less than all of the Conversion Amounts of the Notes then
outstanding, then the Company shall require conversion of a Conversion Amount
from each of the holders of the Notes equal to the product of (i) the aggregate
Conversion Amount of Notes which the Company has elected to cause to be
-18-
converted pursuant to Section 9(a), multiplied by (ii) the fraction, the
numerator of which is the sum of the aggregate Original Principal Amount of the
Notes purchased by such holder of outstanding Notes and the denominator of which
is the sum of the aggregate Original Principal Amount of the Notes purchased by
all holders holding outstanding Notes (such fraction with respect to each holder
is referred to as its "CONVERSION ALLOCATION PERCENTAGE," and such amount with
respect to each holder is referred to as its "PRO RATA CONVERSION AMOUNT");
provided, however, that in the event that any holder's Pro Rata Conversion
Amount exceeds the outstanding Principal amount of such holder's Note, then such
excess Pro Rata Conversion Amount shall be allocated amongst the remaining
holders of Notes in accordance with the foregoing formula. In the event that the
initial holder of any Notes shall sell or otherwise transfer any of such
holder's Notes, the transferee shall be allocated a pro rata portion of such
holder's Conversion Allocation Percentage and the Pro Rata Conversion Amount.
(10) HOLDER'S RIGHT OF OPTIONAL CONVERSION/REDEMPTION. At any time and
from time to time after November 30, 2006, the Holder shall have the
right, in its sole discretion, to require that the Company, provided there has
been no Equity Conditions Failure convert, or, at the Company's election, redeem
a Principal amount of this Note in an amount up to the Available
Conversion/Redemption Amount plus accrued and unpaid Late Charges with respect
to such Principal and Interest (the "CONVERSION/REDEMPTION AMOUNT") by
delivering written notice thereof (a "HOLDER OPTIONAL CONVERSION/REDEMPTION
NOTICE" and the date the Holder delivers such notice, the "HOLDER OPTIONAL
CONVERSION/REDEMPTION NOTICE DATE"). Within one (1) Business Day of the Holder
Optional Conversion/Redemption Notice Date, the Company shall deliver to the
Holder a written notice (a "COMPANY CONVERSION/REDEMPTION NOTICE" and the date
the Holder receives such written notice, the "COMPANY CONVERSION/REDEMPTION
NOTICE DATE") which notice shall (i) either (A) confirm that the
Conversion/Redemption Amount shall be converted (an "OPTIONAL CONVERSION") in
full (the "OPTIONAL CONVERSION AMOUNT") or (B)(1) state that the Company elects
to redeem (an "OPTIONAL REDEMPTION"), in whole or in part, the
Conversion/Redemption Amount and (2) specify the portion which the Company
elects to redeem pursuant to an Optional Redemption (such amount to be redeemed,
the "OPTIONAL REDEMPTION AMOUNT") and the portion, if any, that the Company
elects to convert pursuant to an Optional Conversion (such amount also, an
"OPTIONAL CONVERSION AMOUNT") and (ii) if the Conversion/Redemption Amount is to
be paid, in whole or in part, pursuant to an Optional Conversion Amount, certify
that there has been no Equity Conditions Failure. Each Company
Conversion/Redemption Notice shall be irrevocable. The Company shall redeem and
convert any Optional Redemption Amounts and Optional Conversion Amounts within
five (5) Trading Days of the Company Conversion/Redemption Notice Date (the
"OPTIONAL CONVERSION/REDEMPTION DATE"). The portion of this Note subject to
redemption pursuant to this Section 10 shall be redeemed by the Company in cash
at a price equal to the Optional Redemption Amount (the "HOLDER OPTIONAL
REDEMPTION PRICE"). Optional Conversions made pursuant to this Section 10 shall
be made in accordance with Section 8(b) and references in Section 8(b) to (u)
the Installment Amount shall be deemed to refer to the Conversion/Redemption
Amount, (v) the Company Conversion shall be deemed to refer to the Optional
Conversion, (w) the Company Conversion Amount shall be deemed to refer to the
Optional Conversion Amount (plus accrued and unpaid Interest thereon), (x) the
Installment Date shall be deemed to refer to the Optional Conversion/Redemption
Date, (y) the Company Conversion Price shall be deemed to refer to the Optional
Conversion Price, and (z) the Company Conversion Measuring Period shall be
deemed to refer to the Optional Conversion Measuring Period. Optional
Redemptions made pursuant to this Section 10 shall be made in accordance with
Section 14.
-19-
(11) [Intentionally Omitted].
(12) 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.
(13) RESERVATION OF AUTHORIZED SHARES.
(a) RESERVATION. Commencing on the Issuance Date and until the
Stockholder Approval Date, the Company shall reserve in respect of the Notes and
Warrants not less than 34,078,554 shares of Common Stock. Immediately on and
after the Stockholder Approval Date, the Company shall reserve out of its
authorized and unissued Common Stock a number of shares of Common Stock for each
of the Notes equal to 130% of the Conversion Rate with respect to the Conversion
Amount of each such Note as of the Issuance Date and, for so long thereafter as
any of the Notes are outstanding, the Company shall take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 130% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding; provided that at no
time shall the number of shares of Common Stock so reserved be less than the
number of shares required to be reserved by the previous sentence (without
regard to any limitations on conversions) (such applicable amount, the "REQUIRED
RESERVE AMOUNT"). The initial number of shares of Common Stock reserved for
conversions of the Notes and each increase in the number of shares so reserved
shall be allocated pro rata among the holders of the Notes based on the
principal amount of the Notes held by each holder at the Closing (as defined in
the Securities Purchase Agreement) or increase in the number of reserved shares,
as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a
holder shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.
(b) INSUFFICIENT AUTHORIZED SHARES. If at any time while any of
the Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of shares of
Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE
FAILURE"), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than seventy-five (75) days after the occurrence of such
-20-
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders that they
approve such proposal.
(14) HOLDER'S REDEMPTIONS.
(a) MECHANICS. The Company shall deliver the applicable Event
of Default Redemption Price to the Holder within five (5) Business Days after
the Company's receipt of the Holder's Event of Default Redemption Notice. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder (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 Company shall deliver the applicable
Company Installment Redemption Price to the Holder on the applicable Installment
Date. The Company shall deliver the applicable Holder Optional Redemption Price
on the applicable Optional Redemption Date. In the event of a redemption of less
than all of the Conversion Amount of this Note, the Company shall promptly cause
to be issued and delivered to the Holder a new Note (in accordance with Section
20(d)) representing the outstanding Principal which has not been redeemed. In
the event that the Company does not pay the applicable Redemption Price to the
Holder within the time period required, at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option, in lieu of redemption, to require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the Company's
receipt of such notice, (x) the applicable Redemption Notice shall be null and
void with respect to such Conversion Amount, (y) the Company shall immediately
return this Note, or issue a new Note (in accordance with Section 20(d)) to the
Holder representing the sum of such Conversion Amount to be redeemed together
with accrued and unpaid Interest with respect to such Conversion Amount and
accrued and unpaid Late Charges with respect to such Conversion Amount and
Interest and (z) the Conversion Price of this Note or such new Notes shall be
adjusted to the lesser of (A) the Conversion Price as in effect on the date on
which the applicable Redemption Notice is voided and (B) the lowest Closing Bid
Price of the Common Stock during the period beginning on and including the date
on which the applicable Redemption Notice is delivered to the Company and ending
on and including the date on which the applicable Redemption Notice is voided.
The Holder's delivery of a notice voiding a Redemption Notice and exercise of
its rights following such notice shall not affect the Company's obligations to
make any payments of Late Charges which have accrued prior to the date of such
notice with respect to the Conversion Amount subject to such notice.
-21-
(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 5(b) or Section 10 (each, an
"OTHER REDEMPTION NOTICE"), the Company shall immediately, but no later than two
(2) Business Days of its receipt thereof, forward to the Holder by facsimile a
copy of such notice. If the Company receives a Redemption Notice and one or more
Other Redemption Notices, during the seven (7) Business Day period beginning on
and including the date which is three (3) Business Days prior to the Company's
receipt of the Holder's Redemption Notice and ending on and including the date
which is three (3) Business Days after the Company's receipt of the Holder's
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other Redemption
Notices received during such seven (7) Business Day period, then the Company
shall redeem a pro rata amount from each holder of the Notes (including the
Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by
the Company during such seven (7) Business Day period.
(15) VOTING RIGHTS. The Holder shall have no voting rights as the
holder of this Note, except as required by law, including, but not limited to,
the Colorado Corporations and Associations Act, and as expressly provided in
this Note.
(16) COVENANTS.
(a) RANK. All payments due under this Note (a) shall rank PARI
PASSU with all Other Notes and (b) shall be senior to all other Indebtedness
of the Company and its Subsidiaries other than Permitted Senior Indebtedness.
(b) INCURRENCE OF INDEBTEDNESS. So long as this Note is
outstanding, the Company shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to
exist any Indebtedness, other than the Indebtedness evidenced by this Note and
the Other Notes and other Permitted Indebtedness.
(c) EXISTENCE OF LIENS. So long as this Note is outstanding,
the Company shall not, and the Company shall not permit any of its Subsidiaries
to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "LIENS") other than Permitted Liens.
(d) RESTRICTED PAYMENTS. The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Permitted Indebtedness, whether by way of payment in respect of principal
of (or premium, if any) or interest on, such Indebtedness if at the time such
payment is due or is otherwise made or, after giving effect to such payment, an
event constituting, or that with the passage of time and without being cured
would constitute, an Event of Default has occurred and is continuing.
(e) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of
the Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms, the Company shall not, directly or indirectly, redeem,
repurchase or declare or pay any cash dividend or distribution on its capital
stock without the prior express written consent of the Required Holders.
-22-
(17) PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to receive such dividends paid and distributions made to the holders of
Common Stock to the same extent as if the Holder had converted this Note into
Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date for such
dividends and distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.
(18) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote
at a meeting duly called for such purpose or the written consent without a
meeting of the Required Holders shall be required for any change or amendment to
this Note or the Other Notes.
(19) 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 3(c)(iii) above and Section 2(f) of the Securities Purchase Agreement.
(20) 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 20(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 20(d)) to the Holder representing the outstanding Principal not
being transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii)
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.
(b) LOST, STOLEN OR MUTILATED NOTE. Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 20(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 20(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.
-23-
(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 20(a) or Section 20(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.
(21) 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.
(22) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not limited to, attorneys' fees and disbursements.
(23) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed against
any person as the drafter hereof. The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.
(24) 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.
-24-
(25) 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, Conversion
Price or any Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within three (3)
Business Days 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 three (3) Business Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within three (3) Business Days submit via facsimile (a) the
disputed determination of the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price to an independent, reputable investment bank selected by
the Company and approved by the Holder or (b) the disputed arithmetic
calculation of the Conversion Rate, Conversion Price or any Redemption Price to
the Company's independent, outside accountant. The Company, at the Company's
expense, shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than ten (10) 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.
(26) NOTICES; PAYMENTS.
(a) NOTICES. Whenever notice is required to be given under this
Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 10(f) of the Securities Purchase Agreement. The Company shall
provide the Holder with prompt written notice of all actions taken pursuant to
this Note, including in reasonable detail a description of such action and the
reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon any adjustment of
the Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least twenty (20) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to any pro
rata subscription offer to holders of Common Stock or (C) for determining rights
to vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder.
(b) PAYMENTS. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder's wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day and, in the case of any Interest Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not
-25-
be taken into account for purposes of determining the amount of Interest due on
such date. Any amount of Principal or other amounts due under the Transaction
Documents, other than Interest, which is not paid when due shall result in a
late charge being incurred and payable by the Company in an amount equal to
interest on such amount at the rate of eighteen percent (18%) per annum from the
date such amount was due until the same is paid in full ("LATE Charge").
(27) 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.
(28) 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.
(29) GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. In the event that any provision
of this Note is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Company
in any other jurisdiction to collect on the Company's obligations to the Holder,
to realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court ruling in favor of the Holder. THE COMPANY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
(30) CERTAIN DEFINITIONS. For purposes of this Note, the following
terms shall have the following meanings:
(a) "ADDITIONAL EFFECTIVE DATE" has the meaning ascribed to
such term in the Registration Rights Agreement.
-26-
(b) "APPROVED STOCK PLAN" means any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, consultant, officer or
director for services provided to the Company.
(c) "AVAILABLE CONVERSION/REDEMPTION AMOUNT" means the Holder
Pro Rata Amount of 20% of the aggregate dollar trading volume (as reported on
Bloomberg) of the Common Stock on the Principal Market over the twenty (20)
consecutive Trading Day period immediately prior to the applicable Holder
Optional Conversion/Redemption Notice Date.
(d) "BLOOMBERG" means Bloomberg Financial Markets.
(e) "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.
(f) "CALENDAR QUARTER" means each of: the period beginning on
and including January 1 and ending on and including March 31; the period
beginning on and including April 1 and ending on and including June 30; the
period beginning on and including July 1 and ending on and including September
30; and the period beginning on and including October 1 and ending on and
including December 31.
(g) "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, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (ii) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.
(h) "CHANGE OF CONTROL CONSIDERATION" means, for any Change of
Control, an amount, if any, equal to the sum of the aggregate cash consideration
and the aggregate cash value of any marketable securities per share of Common
Stock to be paid to the holders of the Common Stock upon consummation of such
Change of Control, with any such marketable securities to be valued at the
Closing Sale Price of such securities as of the Trading Day following the public
announcement of such proposed Change of Control.
(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
-27-
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 25. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during the
applicable calculation period.
(j) "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Purchase Agreement.
(k) "COMPANY CONVERSION PRICE" means, the lower of (i) the
applicable Conversion Price and (ii) that price which shall be computed as 90%
of the arithmetic average of the Weighted Average Price of the Common Stock on
each of the twenty (20) consecutive Trading Days immediately preceding the
applicable Installment Settlement Date or, in the event the Conversion Price is
adjusted upon the voiding of a Company Conversion pursuant to Section 8(b)(ii),
the date of delivery of the applicable Conversion Notice (each such period, a
"COMPANY CONVERSION MEASURING PERIOD"); provided, however, that if the Weighted
Average Price for the twenty (20) Trading Days before the applicable Installment
Settlement Date or date of delivery of the applicable Conversion Notice, as the
case may be, is above $1.00, then the Company Conversion Price shall be computed
as 92.5% of the arithmetic average of the Weighted Average Price of the Common
Stock during the Company Conversion Measuring Period. All such determinations
shall be appropriately adjusted for any stock split, stock dividend, stock
combination during or other similar transaction that proportionately decreases
or increases the Common Stock the applicable such Company Conversion Measuring
Period.
(l) "CONSOLIDATED NET INCOME" means, for any applicable period,
the net income (loss) of the Company and its Subsidiaries for such period,
determined on a consolidated basis and in accordance with GAAP, but excluding
from the determination of Consolidated Net Income (without duplication) (a) any
extraordinary or non recurring gains or losses or gains or losses from
Dispositions, (b) restructuring charges, (c) any tax refunds, net operating
losses or other net tax benefits, (d) effects of discontinued operations and (e)
interest income (including interest paid-in-kind).
(m) "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.
-28-
(n) "CONVERSION SHARE RATIO" means, as to any applicable
Installment Date, the quotient of (i) the number of Pre-Installment Conversion
Shares delivered in connection with such Installment Date DIVIDED BY (ii) the
number of Post-Installment Conversion Shares relating to such Installment Date.
(o) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(p) "DISPOSITION" means any transaction, or series of related
transactions, pursuant to which the Company or any of its Subsidiaries sells,
assigns, transfers or otherwise disposes of any property or assets (whether now
owned or hereafter acquired) to any Person (other than the Company or any of its
Subsidiaries), in each case, whether or not the consideration therefor consists
of cash, securities or other assets owned by the acquiring Person, excluding any
sales of inventory in the ordinary course of business on ordinary business
terms.
(q) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the American Stock Exchange, The NASDAQ Global Market, The
NASDAQ Global Select Market or The NASDAQ Capital Market.
(r) "EQUITY CONDITIONS" means that each of the following
conditions is satisfied: (i) on each day during the period beginning six (6)
months prior to the applicable date of determination and ending on and including
the applicable date of determination (the "EQUITY CONDITIONS MEASURING PERIOD"),
either (x) the Registration Statements filed pursuant to the Registration Rights
Agreement shall be effective and available for the resale of all remaining
Registrable Securities in accordance with the terms of the Registration Rights
Agreement and there shall not have been any Grace Periods (as defined in the
Registration Rights Agreement); provided, however, that in connection with a
Mandatory Conversion or payment of an Installment Amount this condition shall be
deemed satisfied if one or more Registration Statements covering the shares of
Common Stock to be issued (including Common Stock issuable upon exercise of any
Series M Warrants issued on any Mandatory Conversion Date) on the applicable
Mandatory Conversion Date or Installment Date, as the case may be, are effective
and available for the resale of such shares of Common Stock (the foregoing, the
"REGISTRATION CONDITION"); provided, further, however, that (1) with respect to
the second (2nd) Installment Date, the Registration Condition shall be met for
an Equity Conditions Measuring Period equal to the period beginning one (1)
month prior to the second (2nd) Installment Date and ending on and including the
second (2nd) Installment Date, (2) with respect to the third (3rd) Installment
Date, the Registration Condition shall be met for an Equity Conditions Measuring
Period equal to the period beginning two (2) months prior to the third (3rd)
Installment Date and ending on and including the third (3rd) Installment Date,
(3) with respect to the fourth (4th) Installment Date, the Registration
Condition shall be met for an Equity Conditions Measuring Period equal to the
period beginning three (3) months prior to the fourth (4th) Installment Date and
ending on and including the fourth (4th) Installment Date, (4) with respect to
the fifth (5th) Installment Date, the Registration Condition shall be met for an
Equity Conditions Measuring Period equal to the period beginning four (4) months
prior to the fifth (5th) Installment Date and ending on and including the fifth
-29-
(5th) Installment Date and (5) with respect to the sixth (6th) Installment Date,
the Registration Condition shall be met for an Equity Conditions Measuring
Period equal to the period beginning five (5) months prior to the sixth (6th)
Installment Date and ending on and including the sixth (6th) Installment Date;
provided, further, however, that with respect to the Installment Dates on April
1, 2007 and April 1, 2008, the Company may have a Grace Period, which shall not
exceed twenty (20) days, prior to each such Installment Date to the extent such
Grace Period relates to the filing of supplements and/or amendments to the
Registration Statement to incorporate filings under the 1934 Act into the
Registration Statement in order to maintain the effectiveness of the
Registration Statement so long as any such Grace Period does not occur during
the five (5) Trading Day period immediately prior to each such Installment Date
or (y) all shares of Common Stock issuable upon conversion of the Notes and
exercise of the Warrants shall be eligible for sale without restriction and
without the need for registration under any applicable federal or state
securities laws; (ii) on each day during the Equity Conditions Measuring Period,
the Common Stock is designated for quotation on the Principal Market or any
other Eligible Market and shall not have been suspended from trading on such
exchange or market (other than suspensions of not more than two (2) days and
occurring prior to the applicable date of determination due to business
announcements by the Company) nor shall delisting or suspension by such exchange
or market been threatened or pending either (A) in writing by such exchange or
market or (B) by falling below the then effective minimum listing maintenance
requirements of such exchange or market; (iii) during the one (1) year period
ending on and including the date immediately preceding the applicable date of
determination, the Company shall have delivered shares of Common Stock upon
conversion of the Notes and upon exercise of the Warrants to the holders on a
timely basis as set forth in Section 3(c)(i) hereof (and analogous provisions
under the Other Notes) and Section 1(a) of the Warrants; (iv) any applicable
shares of Common Stock to be issued in connection with the event requiring
determination may be issued in full without violating Section 3(d) hereof and
the rules or regulations of the Principal Market or any applicable Eligible
Market; (v) the Company shall not have failed to timely make any payments within
ten (10) Business Days of when such payment is due pursuant to any Transaction
Document; (vi) during the Equity Conditions Measuring Period, there shall not
have occurred either (A) the public announcement of a pending, proposed or
intended Fundamental Transaction which has not been abandoned, terminated or
consummated, or (B) an Event of Default or (C) an event that with the passage of
time or giving of notice would constitute an Event of Default; (vii) the Company
shall have no knowledge of any fact that would cause (x) the Registration
Statements required pursuant to the Registration Rights Agreement not to be
effective and available for the resale of all remaining Registrable Securities
in accordance with the terms of the Registration Rights Agreement, or in the
case of a Mandatory Conversion or payment of an Installment Amount, the
Registration Statements covering the shares of Common Stock to be issued
(including Common Stock issuable upon exercise of any Series M Warrants issued
on any Mandatory Conversion Date) on the applicable Mandatory Conversion Date or
Installment Date, as the case may be, not to be effective and available for the
resale of such shares of Common Stock or (y) any shares of Common Stock issuable
upon conversion of the Notes and shares of Common Stock issuable upon exercise
of the Warrants not to be eligible for sale without restriction pursuant to Rule
144(k) and any applicable state securities laws; (viii) the Company otherwise
shall have been in compliance with and shall not have breached any provision,
covenant, representation or warranty of any Transaction Document and (ix) the
Company shall have obtained the Stockholder Approval on or before the
Stockholder Meeting Deadline and, if required by the terms of the Securities
Purchase Agreement, the Additional Stockholder Approval.
-30-
(s) "EQUITY CONDITIONS FAILURE" means that (i) on any day
during the period commencing ten (10) Trading Days prior to the applicable
Conversion Date through the applicable Share Delivery Date, (ii) on any day
during the period commencing ten (10) Trading Days prior to the applicable
Company Installment Notice Date through the applicable Installment Date, (iii)
on any day during the period commencing ten (10) Trading Days prior to the
applicable Mandatory Conversion Notice Date through the applicable Mandatory
Conversion Date, or (iv) on any day during the period commencing ten (10)
Trading Days prior to the applicable Holder Optional Conversion/Redemption
Notice Date through the applicable Optional Conversion/Redemption Date, the
Equity Conditions have not been satisfied (or waived in writing by the Holder).
(t) "EQUITY VALUE REDEMPTION PREMIUM" means for any Change of
Control Notice or Event of Default Notice, as applicable, delivered or required
to be delivered in connection with a Change of Control or Event of Default, as
applicable, 130%; provided, however, that, in connection with any Change of
Control in which the Change of Control Consideration equals or exceeds 200% of
the Conversion Price then in effect, then the Equity Value Redemption Premium
shall equal 120%.
(u) "EXCLUDED SECURITIES" means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon conversion
of the Notes or the exercise of the Warrants; (iii) pursuant to a bona fide firm
commitment underwritten public offering with a nationally recognized underwriter
which generates gross proceeds to the Company in excess of $35,000,000 (other
than an "at-the-market offering" as defined in Rule 415(a)(4) under the 1933 Act
and "equity lines"); (iv) in connection with any strategic acquisition or
transaction by the Company, whether through an acquisition of stock or a merger
of any business, assets or technologies the primary purpose of which is not to
raise equity capital; (v) upon 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, (vi) in
connection with a strategic acquisition or strategic partnership by the Company,
the primary purpose of which is not to raise capital; (vii) with respect to the
issuance of debt instruments, without any equity or equity-linked features, in
connection with an asset-backed financing; (viii) warrants issued on or about
the Issuance Date to Bridge Bank National Association ("BRIDGE BANK") and/or
Agility Capital LLC ("AGILITY") as payment of the success fee pursuant to the
Loan and Security Agreement dated April 27, 2006, by and among the Company,
Bridge Bank and Agility, as amended by the First Amendment to Loan and Security
Agreement dated April 27,2006 which warrants shall have an exercise price equal
to or greater than the Conversion Price in effect as of the Issuance Date and be
exercisable, in the aggregate, for no more than 412,500 shares of Common Stock
("BRIDGE BANK WARRANTS"); and (ix) warrants issued to Montgomery & Co., LLC
("MONTGOMERY") as partial payment of fees to Montgomery for providing placement
agent services to the Company in conjunction with the transactions contemplated
by the Transaction Documents which warrants shall have an exercise price equal
to or greater than the Conversion Price in effect as of the Issuance Date and be
exercisable, in the aggregate, for no more than 600,710 shares of Common Stock
("MONTGOMERY WARRANTS").
-31-
(v) "FISCAL QUARTER" means each of the fiscal quarters adopted
by the Company for financial reporting purposes that correspond to the Company's
fiscal year that ends on December 31, or such other fiscal quarter adopted by
the Company for financial reporting purposes in accordance with GAAP.
(w) "FIRST CONVERSION THRESHOLD AMOUNT" means an amount equal
to (x) 50% of the Conversion Amount of this Note on the Issuance Date MINUS (y)
the aggregate Conversion Amount of this Note converted or redeemed pursuant to
the terms of this Note.
(x) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company
to another Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock (not including any shares of Voting Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Voting Stock (not including any
shares of Voting Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock or (vi) any "person" or "group" (as
these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act) is or shall become the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock
of the Company.
(y) "GAAP" means United States generally accepted accounting
principles, consistently applied.
(z) "HOLDER PRO RATA AMOUNT" means a fraction (i) the numerator
of which is the Principal amount of this Note on the Closing Date and (ii) the
denominator of which is the aggregate principal amount of all Notes issued to
the initial purchasers pursuant to the Securities Purchase Agreement on the
Closing Date.
(aa) "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,
-32-
(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.
(bb) "INITIAL COMPANY CONVERSION PRICE" means, as of any date
of determination, that price which shall be the lower of (i) the applicable
Conversion Price and (ii) that price computed as 90% of the arithmetic average
of Weighted Average Prices of the Common Stock during the five (5) consecutive
Trading Day period ending on the Trading Day immediately prior to the
Installment Date (such period, the "INITIAL COMPANY CONVERSION MEASURING
PERIOD"); provided, however, that if the Weighted Average Price for the twenty
(20) Trading Days before the applicable Installment Date is above $1.00, then
the Initial Company Conversion Price shall be computed as 92.5% of the
arithmetic average of the Weighted Average Price of the Common Stock during the
Initial Company Conversion Measuring Period. All such determinations shall be
appropriately adjusted for any stock split, stock dividend, stock combination or
other similar transaction that proportionately decreases or increases the Common
Stock during such Initial Company Conversion Measuring Period.
(cc) "INITIAL EFFECTIVE DATE" has the meaning ascribed to such
term in the Registration Rights Agreement.
(dd) "INSTALLMENT AMOUNT" means as to the initial Installment
Date (and, unless increased pursuant to Section 8(d) due to any deferred
Installment Amount, such amount shall be the Installment Amount to be paid on
each subsequent Installment Date), an amount equal to the lesser of (i) the
quotient of (A) the aggregate outstanding Principal of this Note DIVIDED BY (B)
the number of whole months from such Installment Date through the Maturity Date
and (ii) the Principal amount under this Note as of such Installment Date, in
each case as any such Installment Amount may be reduced pursuant to the terms of
this Note, whether upon conversion, redemption or otherwise, together with, the
sum of any accrued and unpaid Interest with respect to such Principal amount and
accrued and unpaid Late Charges, if any, with respect to such Principal amount
and Interest. In the event the Holder shall sell or otherwise transfer any
portion of this Note, the transferee shall be allocated a pro rata portion of
the each unpaid Installment Amount hereunder.
-33-
(ee) "INSTALLMENT BALANCE CONVERSION SHARES" means, for any
Installment Date, a number of shares of Common Stock equal to (i) the
Post-Installment Conversion Shares for such date MINUS (ii) the amount of any
Pre-Installment Conversion Shares delivered on such date; provided that in the
event that the amount of Pre-Installment Conversion Shares exceeds the
Post-Installment Conversion Shares for such date (such excess, the "INSTALLMENT
CONVERSION SHARES EXCESS"), the outstanding Principal under this Note shall be
reduced by the product of (x) the Installment Conversion Share Excess and (y)
the Company Conversion Price and the Installment Balance Conversion Shares shall
equal zero (0).
(ff) "INSTALLMENT DATE" means, (i) initially, the earlier of
(A) the first (1st) day of the calendar month immediately following the Initial
Effective Date and (B) May 1, 2007 and, (ii) thereafter, the first (1st) day of
each calendar month prior to the Maturity Date.
(gg) "INTEREST RATE" means, 9.25% per annum, subject to
adjustment at the beginning of each Calendar Quarter beginning with the Calendar
Quarter ended September 30, 2006 in the event that the Interest Rate Conditions
are satisfied as of the last date of the applicable Calendar Quarter, then in
which case the Interest Rate shall equal seven percent (7.0%) per annum
thereafter.
(hh) "INTEREST RATE CONDITIONS" means that (i) the Equity
Conditions are presently satisfied (or waived in writing by the Holder), (ii)
the Company has publicly reported Revenues in excess of $30,000,000 for the
twelve (12) month period including the most current Fiscal Quarter and the
immediately preceding three (3) Fiscal Quarters and (iii) the Company has
reported a positive Consolidated Net Income for each of the last four (4) Fiscal
Quarters but, with respect to clauses (ii) and (iii), only if and as set forth
in the financial statements of the Company contained in the most recent Form
10-QSB or Form 10-KSB of the Company.
(ii) "OPTIONAL CONVERSION PRICE" means, the lower of (i) the
applicable Conversion Price and (ii) that price which shall be computed as 90%
of the arithmetic average of the Weighted Average Price of the Common Stock on
each of the five (5) consecutive Trading Days immediately preceding the
applicable Optional Conversion/Redemption Date (each such period, an "OPTIONAL
CONVERSION/REDEMPTION MEASURING PERIOD"); provided, however, that if the
Weighted Average Price for the twenty (20) Trading Days before the applicable
Optional/Conversion Redemption Date is above $1.00, then the Company Conversion
Price shall be computed as 92.5% of the arithmetic average of the Weighted
Average Price of the Common Shares during the Optional Conversion/Redemption
Measuring Period. All such determinations shall be appropriately adjusted for
any stock split, stock dividend, stock combination during or other similar
transaction that proportionately decreases or increases the Common Stock the
applicable such Optional Conversion/Redemption Measuring Period.
(jj) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(kk) "PARENT ENTITY" of a Person means an entity that, directly
or indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or, if
there is more than one such Person or Parent Entity, the Person or Parent Entity
with the largest public market capitalization as of the date of consummation of
the Fundamental Transaction.
-34-
(ll) "PERMITTED INDEBTEDNESS" means (i) the Indebtedness
evidenced by this Note and the Other Notes, (ii) Permitted Senior Indebtedness
and (iii) the Boston Life and Woodruff Sawyer Indebtedness described on Schedule
3(s) to the Securities Purchase Agreement.
(mm) "PERMITTED LIENS" means (i) any Lien for taxes not yet due
or delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment
(as defined in the Security Agreement) acquired or held by the Company or any of
its Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
equipment, or (B) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (v) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (i) and (iv) above, provided
that any extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, (vi) 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, (viii)
Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 4(a)(ix) and (ix) Liens securing
Permitted Senior Indebtedness.
(nn) "PERMITTED SENIOR INDEBTEDNESS" the principal of (and
premium, if any), interest on, and all fees and other amounts (including,
without limitation, any reasonable out-of-pocket costs, enforcement expenses
(including reasonable out-of-pocket legal fees and disbursements), collateral
protection expenses and other reimbursement or indemnity obligations relating
thereto) payable by Company and/or its Subsidiaries under or in connection with
any credit facility to be entered into by the Company and/or its Subsidiaries
with one or more financial institutions (and on terms and conditions) at any
time following the Effective Date of the final Registration Statement filed to
register the amount of Registrable Securities issuable upon conversion of the
Notes, in form and substance reasonably satisfactory to the Required Holders;
PROVIDED, HOWEVER, that such Indebtedness may only be incurred if (i) the Equity
Conditions are satisfied as of the date such Indebtedness is being incurred (the
"INCURRENCE DATE"), (ii) either (A) the Closing Sale Price of the Common Stock
is greater than $1.00 for each of forty (40) consecutive Trading Days ending on
the Trading Day immediately preceding the Incurrence Date or (B) the aggregate
dollar trading volume (as reported on Bloomberg) of the Common Stock on the
Principal Market or other Eligible Market is greater than $200,000 for each of
forty (40) consecutive Trading Days ending on the Trading Day immediately
preceding the Incurrence Date and (iii) such Indebtedness is in the form of a
borrowing base loan to the Company and/or its Subsidiaries with the collateral
in such borrowing base consisting of the eligible inventory and/or accounts
receivable of the Company and its Subsidiaries.
-35-
(oo) "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.
(pp) "POST-INSTALLMENT CONVERSION SHARES" means, for any
Installment Date, that number of shares of Common Stock equal to the applicable
Company Conversion Amount for such Installment Date DIVIDED BY the Company
Conversion Price (without taking into account the delivery of any
Pre-Installment Conversion Shares).
(qq) "PRINCIPAL MARKET" means the OTC Bulletin Board.
(rr) "REDEMPTION NOTICES" means, collectively, the Event of
Default Redemption Notices, the Change of Control Redemption Notices, the
Company Installment Notice (if a Company Redemption has been elected) and the
Company Conversion/Redemption Notice (if an Optional Redemption has been
elected), each of the foregoing, individually, a Redemption Notice.
(ss) "REDEMPTION PREMIUM" means (i) in the case of the Events
of Default described in Section 4(a)(i) - (vi) and (ix) - (xiii), 125% or (ii)
in the case of the Events of Default described in Section 4(a)(vii) - (viii),
100%.
(tt) "REDEMPTION PRICES" means, collectively, the Event of
Default Redemption Price, Change of Control Redemption Price, the Company
Installment Redemption Price and the Holder Optional Redemption Price, each of
the foregoing, individually, a Redemption Price.
(uu) "REGISTRATION RIGHTS AGREEMENT" means that certain amended
and restated registration rights agreement dated as of January 18, 2007 and
among the Company and the initial holders of the Notes, as the same may be
amended, modified or supplemented from time to time, relating to, among other
things, the registration of the resale of the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants.
(vv) "REQUIRED HOLDERS" means the holders of Notes representing
at least a majority of the aggregate principal amount of the Notes then
outstanding.
(ww) "REVENUES" means the amount set forth in the line item
entitled "Net Revenues" in the Company's publicly available financial
statements, as prepared in accordance with GAAP.
(xx) "SEC" means the United States Securities and Exchange
Commission.
(yy) "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, as amended by the Amendment
Agreement, as the same may be amended, modified or supplemented from time to
time, pursuant to which the Company issued the Notes and Warrants.
-36-
(zz) "SERIES M 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.
(aaa) "SUBSCRIPTION DATE" means July 30, 2006.
(bbb) "SUCCESSOR ENTITY" means the Person, which may be the
Company, formed by, resulting from or surviving any Fundamental Transaction or
the Person with which such Fundamental Transaction shall have been made,
provided that if such Person is not a publicly traded entity whose common stock
or equivalent equity security is quoted or listed for trading on an Eligible
Market, Successor Entity shall mean such Person's Parent Entity.
(ccc) "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).
(ddd) "VOLUME LIMITATION" means 20% of the aggregate dollar
trading volume (as reported on Bloomberg) of the Common Stock on the Principal
Market over the twenty (20) consecutive Trading Day period immediately prior to
the applicable Interest Notice Date, the Installment Notice Date or the
Mandatory Conversion Notice Date, as applicable.
(eee) "VOTING STOCK" of a Person means capital stock of such
Person of the class or classes pursuant to which the holders thereof have the
general voting power to elect, or the general power to appoint, at least a
majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
(fff) "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.
(ggg) "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
-37-
such other time as such market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as such
market publicly announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 25. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
(31) 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 two (2) Business Days after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information relating to the Company or its Subsidiaries, the
Company so shall indicate to such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.
[Signature Page Follows]
-38-
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Issuance Date set out above.
RAPTOR NETWORKS TECHNOLOGY, INC.
By: /S/ THOMAS M. WITTENSCHLAEGER
-------------------------------
Name: Thomas M. Wittenschlaeger
Title: Chief Executive Officer
-39-
EXHIBIT I
RAPTOR NETWORKS TECHNOLOGY, INC.
CONVERSION NOTICE
Reference is made to the Amended and Restated Senior Convertible Note (the
"NOTE") issued to the undersigned by Raptor Networks Technology, Inc. (the
"COMPANY"). In accordance with and pursuant to the Note, the undersigned hereby
elects to convert the Conversion Amount (as defined in the Note) of the Note
indicated below into shares of Common Stock par value $0.001 per share (the
"COMMON STOCK") of the Company, as of the date specified below.
Date of Conversion:
--------------------------------------------------
Aggregate Conversion Amount to be converted:
-------------------------
Please confirm the following information:
Conversion Price:
----------------------------------------------------
Number of shares of Common Stock to be issued:
-----------------------
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Facsimile Number:
----------------------------------------------------
Authorization:
-------------------------------------------------------
By:
----------------------------------------------------------
Title:
------------------------------------------------
Dated:
------------------------------------------------------------------------
Account Number:
------------------------------------------------------
(if electronic book entry transfer)
Transaction Code Number:
---------------------------------------------
(if electronic book entry transfer)
Installment Amounts to be reduced and amount of reduction:
--------------------
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs [INSERT NAME OF TRANSFER AGENT] to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
January __, 2007 from the Company and acknowledged and agreed to by [INSERT NAME
OF TRANSFER AGENT].
RAPTOR NETWORKS TECHNOLOGY, INC.
By:______________________________________
Name:
Title: