THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT,
OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR
OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR
REGULATION S UNDER SAID ACT.
CALLABLE SECURED CONVERTIBLE NOTE
Yucaipa, California
June 16, 2008 $20,000
FOR VALUE RECEIVED, INGEN TECHNOLOGIES, INC., a Georgia Corporation
(hereinafter called the "BORROWER"), hereby promises to pay to the order of AJW
Partners, LLC or registered assigns (the "HOLDER") the sum of $20,000 on June
16, 2011 (the "MATURITY DATE"), and to pay interest on the unpaid principal
balance hereof at the rate of six percent (6%) (the "INTEREST RATE") per annum
from June 16, 2008 (the "ISSUE DATE") until the same becomes due and payable,
whether at maturity or upon acceleration or by prepayment or otherwise. Any
amount of principal or interest on this Note which is not paid when due shall
bear interest at the rate of fifteen percent (15%) per annum from the due date
thereof until the same is paid ("DEFAULT INTEREST"). Interest shall commence
accruing on the Issue Date, shall be computed on the basis of a 365-day year and
the actual number of days elapsed and shall be payable quarterly provided that
no interest shall be due and payable for any month in which the Trading Price
(as such term is defined below) is greater than $0.12 for each Trading Day (as
such term is defined below) of the month. All payments due hereunder (to the
extent not converted into common stock, no par value per share (the "COMMON
STOCK") in accordance with the terms hereof) shall be made in lawful money of
the United States of America. All payments shall be made at such address as the
Holder shall hereafter give to the Borrower by written notice made in accordance
with the provisions of this Note. 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 payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date. As
used in this Note, the term "business day" shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of New York, New
York are authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement, dated June 16,
2008, pursuant to which this Note was originally issued (the "PURCHASE
AGREEMENT").
This Note is free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Borrower and will not impose
personal liability upon the holder thereof. The obligations of the Borrower
under this Note shall be secured by that certain Security Agreement and that
certain Intellectual Property Security Agreement, each dated June 16, 2008 by
and between the Borrower and the Holder.
The following terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 CONVERSION RIGHT. The Holder shall have the right from time to
time, and at any time on or prior to the earlier of (i) the Maturity Date and
(ii) the date of payment of the Default Amount (as defined in Article III)
pursuant to Section 1.6(a) or Article HI, the Optional Prepayment Amount (as
defined in Section 5.1 or any payments pursuant to Section 1.7, each in respect
of the remaining outstanding principal amount of this Note to convert all or any
part of the outstanding and unpaid principal amount of this Note into fully paid
and non-assessable shares of Common Stock, as such Common Stock exists on the
Issue Date, or any shares of capital stock or other securities of the Borrower
into which such Common Stock shall hereafter be changed or reclassified at the
conversion price (the "CONVERSION PRICE") determined as provided herein (a
"CONVERSION"); PROVIDED, HOWEVER, that in no event shall the Holder be entitled
to convert any portion of this Note in excess of that portion of this Note upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Notes or the unexercised or unconverted portion of
any other security of the Borrower (including, without limitation, the warrants
issued by the Borrower pursuant to the Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Note with respect to which the determination
of this proviso is being made, would result in beneficial ownership by the
Holder and its affiliates of more than 4.99% of the outstanding shares of Common
Stock and PROVIDED FURTHER that the Holder shall not be entitled to convert any
portion of this Note during any month immediately succeeding a Determination
Date on which the Borrower exercises its prepayment option pursuant to Section
5.2 of this Note. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G
thereunder, except as otherwise provided in clause (1) of such proviso. The
number of shares of Common Stock to be issued upon each conversion of this Note
shall be determined by dividing the Conversion Amount (as defined below) by the
applicable Conversion Price then in effect on the date specified in the notice
of conversion, in the form attached hereto as Exhibit A (the "NOTICE OF
CONVERSION"), delivered to the Borrower by the Holder in accordance with Section
1.4 below; provided that the Notice of Conversion is submitted by facsimile (or
by other means resulting in, or reasonably expected to result in, notice) to the
Borrower before 6:00 p.m., New York, New York time on such conversion date (the
"CONVERSION DATE"). The term "CONVERSION AMOUNT" means, with respect to any
conversion of this Note, the sum of (1) the principal amount of this Note to be
converted in such conversion PLUS (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Note to the
Conversion Date, provided, however, that the Company shall have the right to pay
any or all interest in cash PLUS (3) Default Interest, if any, on the amounts
referred to in the immediately preceding clauses (1) and/or (2) PLUS (4) at the
Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
Agreement, dated as of June 16, 2008, executed in connection with the initial
issuance of this Note and the other Notes issued on the Issue Date (the
"REGISTRATION RIGHTS AGREEMENT"). The term "DETERMINATION DATE" means the last
business day of each month after the Issue Date.
1.2 CONVERSION PRICE.
(A) CALCULATION OF CONVERSION PRICE. The Conversion Price shall be the
Variable Conversion Price (as defined herein) (subject, in each case, to
equitable adjustments for stock splits, stock dividends or rights offerings by
the Borrower relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). The "VARIABLE CONVERSION PRICE"
shall mean the Applicable Percentage (as defined herein) multiplied by the
Market Price (as defined herein). "MARKET PRICE" means the average of the lowest
three (3) Trading Prices (as defined below) for the Common Stock during the
twenty (20) Trading Day period ending one Trading Day prior to the date the
Conversion Notice is sent by the Holder to THE Borrower via facsimile (the
"CONVERSION DATE"). "TRADING PRICE" means, for any security as of any date, the
intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB") as
reported by a reliable reporting service ("REPORTING SERVICE") mutually
acceptable to Borrower and Holder and hereafter designated by Holders of a
majority in interest of the Notes and the Borrower or, if the OTCBB IS not the
principal trading market for such security, the intraday trading price OF such
security on the principal securities exchange or trading market where such
security is listed or traded or, if no intraday trading price of such security
is available in any of the foregoing manners, the average of the intraday
trading prices of any market makers for such security that are listed in the
"pink sheets" by the National Quotation Bureau, Inc. If the Trading Price cannot
be calculated for such security on such date in the manner provided above, the
Trading Price shall be the fair market value AS mutually determined by the
Borrower and the holders of a majority in interest of the Notes being converted
for which the calculation of the Trading Price is required in order to determine
the Conversion Price of such Notes. "TRADING DAY" shall mean any day on which
the Common Stock is traded for any period on the OTCBB, or on the principal
securities exchange or other securities market on which the Common Stock is then
being traded. "APPLICABLE PERCENTAGE" SHALL mean 50%.
(B) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding
anything contained in Section 1.2(a) to the contrary, in the event the Borrower
(i) makes a public announcement that it intends to consolidate or merge with any
other corporation (other than a merger in which the Borrower is the surviving or
continuing corporation AND its capital stock is unchanged) or sell or transfer
ALL or substantially all of the assets of the Borrower or (ii) any person, group
or entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower's Common Stock (or any other takeover scheme) (the
date of the announcement referred to in clause (i) or (ii) is hereinafter
referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price shall,
effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower of
(x) the Conversion Price which would have been applicable for a Conversion
occurring on the Announcement Date and (y) the Conversion Price that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date, the Conversion Price shall be determined as set forth in this Section
1.2(a). For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall
mean, with respect to any proposed transaction or tender offer (or takeover
scheme) for which a public announcement as contemplated by this Section 1.2(b)
has been made, the date upon which the Borrower (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section
1.2(b) to become operative.
1.3 AUTHORIZED SHARES. The Borrower covenants that upon the increase in
the number of authorized shares of the Company's Common Stock to 500,000,000
shares within thirty (30) days from the date hereof and during the period the
conversion right exists thereafter, the Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance of Common Stock upon the full
conversion of this Note and the other Notes issued pursuant to the Purchase
Agreement. The Borrower is required at all times to have authorized and reserved
two times the number of shares that is actually issuable upon full conversion of
the Notes (based on the Conversion Price of the Notes or the Exercise Price of
the Warrants in effect FROM TIME TO time) (the "RESERVED AMOUNT"). The Reserved
Amount shall be increased from time to time in accordance with the Borrower's
obligations pursuant to Section 4(h) of the Purchase Agreement. The Borrower
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non- assessable. In addition, if the Borrower shall issue any
securities or make any change to its capital structure which would change the
number of shares of Common Stock into which the Notes shall be convertible at
the then current Conversion Price, the Borrower shall at the same time make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Notes. The Borrower (i) acknowledges that it has
irrevocably instructed its transfer agent to issue certificates for the Common
Stock issuable upon conversion of this Note, and (ii) agrees that its issuance
of this Note shall constitute full authority to its officers and agents who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock in accordance with the terms
and conditions of this NOTE.
IF, at any time a Holder of this Note submits a Notice of Conversion,
and the Borrower does not have sufficient authorized but unissued shares of
Common Stock available to effect such conversion in accordance with the
provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section 4.8,
the Borrower shall issue to the Holder all of the SHARES of Common Stock which
are then available to effect such conversion. The portion of this Note which the
Holder included in its Conversion Notice and which exceeds the amount which is
then convertible into available shares of Common Stock (the "EXCESS AMOUNT")
shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the Holder's option at any time after) the date additional shares of Common
Stock are authorized by the Borrower to permit such conversion, at which time
the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date thereafter elected by the Holder in
respect thereof. In addition, the Borrower shall pay to the Holder payments
("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount of (x)
the SUM OF (1) the then outstanding principal amount of this Note PLUS (2)
accrued and unpaid interest on the unpaid principal amount of this Note through
the Authorization Date (as defined below) PLUS (3) Default Interest, if any, on
the amounts referred to in clauses (1) and/or (2), MULTIPLIED BY (y) .24,
MULTIPLIED BY (z) (N/365), where N = the number of days from the day the holder
submits a Notice of Conversion giving rise to a Conversion Default (the
"CONVERSION DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the
Borrower authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Note. The Borrower
shall use its best efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable following the earlier of (i) such time that the
Holder notifies the Borrower or that the Borrower otherwise becomes aware that
there are or likely will be insufficient authorized and unissued shares to allow
full conversion thereof and (ii) a Conversion Default. The Borrower shall send
notice to the Holder of the authorization of additional shares of Common Stock,
the Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient authorized shares of Common Stock) at the applicable Conversion
Price, at the Borrower's option, as follows:
(a) In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth (5th) day of the month following
the month in which it has accrued; and
(b) In the event Holder elects to take such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the Conversion
Price (as in effect at the time of conversion) at any time after the fifth day
of the month following the month in which it has accrued in accordance with the
terms of this Article I (so long as there is then a sufficient number of
authorized shares of Common Stock).
The Holder's election shall be made in writing to the Borrower at any
time prior to 6:00 p.m., New York, New York time, on the third day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower's failure
to maintain a sufficient number of authorized shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).
1.4 METHOD OF CONVERSION.
(A) MECHANICS OF CONVERSION. Subject to Section 1.1, this Note may be
converted by the Holder in whole or in part at any time from time to time after
the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (BY
facsimile or other reasonable means of communication dispatched on the
Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 1.4(B), surrendering this Note at the principal office of the Borrower.
(B) SURRENDER OF NOTE UPON CONVERSION. Notwithstanding anything to the
contrary set forth herein, upon conversion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Borrower unless the entire unpaid principal amount of this Note is so
converted. The Holder and the Borrower shall maintain records showing the
principal amount so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Borrower, so as
not to require physical surrender of this Note upon each such conversion. In the
event of any dispute or discrepancy, such records of the Borrower shall be
controlling and determinative in the absence of manifest error. Notwithstanding
the foregoing, if any portion of this Note is converted as aforesaid, the Holder
may not transfer this Note unless the Holder first physically surrenders this
Note to the Borrower, whereupon the Borrower will forthwith issue and deliver
upon the order of the Holder a new Note of like tenor, registered as the Holder
(upon payment by the Holder of any applicable transfer taxes) may request,
representing in the aggregate the remaining UNPAID principal amount of this
Note. The Holder and any assignee, by acceptance of this Note, acknowledge and
agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Note, the unpaid and unconverted principal amount of this
Note represented by this Note may be less than the amount stated on the face
hereof.
(C) PAYMENT OF TAXES. The Borrower SHALL not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this Note in a name other THAN that of the Holder (or in street name), and
the Borrower shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be held for the
Holder's account) requesting the issuance thereof SHALL have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower THAT such tax has been paid.
(D) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon receipt by the
Borrower from the Holder of a facsimile transmission (or other reasonable means
of communication) of a Notice of Conversion meeting the requirements for
conversion as provided in this Section 1.4, the Borrower shall issue and deliver
or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable UPON such conversion within three (3)
business days after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this Note) (such third
business day being hereinafter referred to as the "DEADLINE") in accordance with
the terms hereof and the Purchase Agreement (including, without limitation, in
accordance with the requirements of Section 2(g) of the Purchase Agreement that
certificates for shares of Common Stock issued on or after the effective date of
the Registration Statement upon conversion of this Note shall not bear any
restrictive legend).
(E) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt by the
Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder
of record of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on this Note
shall be reduced to reflect such conversion, and, unless the Borrower defaults
on its obligations under this Article I, all rights with respect to the portion
of this Note being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets, as herein
provided, on such conversion. If the Holder shall have given a Notice of
Conversion as provided herein, the Borrower's obligation to issue and deliver
the certificates for Common Stock shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Borrower to the holder
of record, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the Conversion
Date so long as the Notice of Conversion is received by the Borrower before 6:00
p.m., New York, New York time, on such date.
(F) DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER. In lieu of
delivering physical certificates representing the Common Stock issuable upon
conversion, provided the Borrower's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system.
(G) FAILURE TO DELIVER COMMON STOCK PRIOR TO DEADLINE. Without in any
way limiting the Holder's right to pursue other remedies, including actual
damages and/or equitable relief, the parties agree that if delivery of the
Common Stock issuable upon conversion of this Note is more than three (3)
business days after the Deadline (other than a failure due to the circumstances
described in Section 1.3 above, which failure shall be governed by such Section)
the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond
the Deadline that the Borrower fails to deliver such Common Stock. Such cash
amount shall be paid to Holder by the fifth day of the month following the month
in which it has accrued or, at the option of the Holder (by written notice to
the Borrower by the first day of the month following the month in which it has
accrued), shall be added to the principal amount of this Note, in which event
interest shall accrue thereon in accordance with the terms of this Note and such
additional principal amount shall be convertible into Common Stock in accordance
with the terms of this Note.
1.5 CONCERNING, THE SHARES. The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless (i) such shares
are sold pursuant to an effective registration statement under the Act or (ii)
the Borrower or its transfer agent shall have been furnished with an opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the shares to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration or (iii) such shares are sold or transferred pursuant to Rule
144 under the Act (or a successor rule) ("RULE 144") or (iv) such shares are
transferred to an "affiliate" (as defined in Rule 144) of the Borrower who
agrees to sell or otherwise transfer the shares only in accordance with this
Section 1.5 and who is an Accredited Investor (as defined in the Purchase
Agreement). Except as otherwise provided in the Purchase Agreement (and subject
to the removal provisions set forth below), until such time as the shares of
Common Stock issuable upon conversion of this Note have been registered under
the Act as contemplated by the Registration Rights Agreement or otherwise may be
sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, each certificate for
shares of Common Stock issuable upon conversion of this Note that has not been
so included in an effective registration statement or that has not been sold
pursuant to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the following form,
as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION
OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER
SAID ACT."
The legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any transfer legend if
(i) the Borrower or its transfer agent shall have received an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and the shares are
so sold or transferred, (ii) such Holder provides the Borrower or its transfer
agent with reasonable assurances that the Common Stock issuable upon conversion
of this Note (to the extent such securities are deemed to have been acquired on
the same date) can be sold pursuant to Rule 144 or (iii) in the case of the
Common Stock issuable upon conversion of this Note, such security is registered
for sale by the Holder under an effective registration statement filed under the
Act or otherwise may be sold pursuant to Rule 144 without any restriction as to
the number of securities as of a particular date that can then be immediately
sold. Nothing in this Note shall (i) limit the Borrower's obligation under the
Registration Rights Agreement or (ii) affect in any way the Holder's obligations
to comply with applicable prospectus delivery requirements upon the resale of
the securities referred to herein.
1.6 EFFECT OF CERTAIN EVENTS.
(A) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of the Holder,
the sale, conveyance or disposition of all or substantially all of the assets of
the Borrower, the effectuation by the Borrower of a transaction or series of
related transactions in which more than 50% of the voting power of the Borrower
is disposed of, or the consolidation, merger or other business combination of
the Borrower with or into any other Person (as defined below) or Persons when
the Borrower is not the survivor shall either: (i) be deemed to be an Event of
Default (as defined in Article III) pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a condition to
such transaction an amount equal to the Default Amount (as defined in Article
III) or (ii) be treated pursuant to Section 1.6(b) hereof. "PERSON" shall mean
any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
(B) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. IF, at any time when
this Note is issued and outstanding and prior to conversion of all of the Notes,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Borrower shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the Borrower or
another entity, or in case of any sale or conveyance of all or substantially all
of the assets of the Borrower other than in connection with a plan of complete
liquidation of the Borrower, then the Holder of this Note shall thereafter have
the right to receive upon conversion of this Note, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the Holder would have been entitled to receive in such transaction
had this Note been converted in full immediately prior to such transaction
(without regard to any limitations on conversion set forth herein), and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Note to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Note) shall
thereafter be applicable, as nearly as may be practicable in relation to any
securities or assets thereafter deliverable upon the conversion hereof. The
Borrower shall not effect any transaction described in this Section 1.6(b)
unless (a) it first gives, to the extent practicable, thirty (30) days prior
written notice (but in any event at least fifteen (15) days prior written
notice) of the record date of the special meeting of shareholders to approve, or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the Holder shall be entitled
to convert this Note) and (b) the resulting successor or acquiring entity (if
not the Borrower) assumes by written instrument the obligations of this Section
1.6(b). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.
(C) ADJUSTMENT DUE TO DISTRIBUTION. IF the Borrower shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the Borrower's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a "DISTRIBUTION"), then the Holder of this Note shall be
entitled, upon any conversion of this Note after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had such Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(D) ADJUSTMENT DUE TO DILUTIVE ISSUANCE. If, at any time when any Notes
are issued and outstanding, the Borrower issues or sells, or in accordance with
this Section 1.6(d) hereof is deemed to have issued or sold, any shares of
Common Stock for no consideration or for a consideration per share (before
deduction of reasonable expenses or commissions or underwriting discounts or
allowances in connection therewith) less than the Variable Conversion Price in
effect on the date of such issuance (or deemed issuance) of such shares of
Common Stock (a "DILUTIVE ISSUANCE"), then immediately upon the Dilutive
Issuance, the Variable Conversion Price will be reduced to the amount of the
consideration per share received by the Borrower in such Dilutive Issuance;
PROVIDED that only one adjustment will be made for each Dilutive Issuance.
The Borrower shall be deemed to have issued or sold shares of Common
Stock if the Borrower in any manner issues or grants any warrants, rights or
options (not including employee stock option plans), whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "OPTIONS") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Variable Conversion Price then in effect, then the Variable Conversion Price
shall be equal to such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Borrower as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Borrower upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Conversion Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
Additionally, the Borrower shall be deemed to have issued or sold
shares of Common Stock if the Borrower in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options), and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Variable Conversion Price then in effect, then the Variable Conversion Price
shall be equal to such price per share. For the purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon such
conversion or exchange" is determined by dividing (i) the total amount, if any,
received or receivable by the Borrower as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Borrower upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment to the Variable Conversion Price will be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(E) PURCHASE RIGHTS. If, at any time when any Notes are issued and
outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS")
pro rata to the record holders of any class of Common Stock, then the Holder of
this Note will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Note (without regard to any limitations on
conversion contained herein) 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.
(F) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.6, the Borrower, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder of a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Borrower
shall, upon the written request at any time of the Holder, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Note.
1.7 TRADING MARKET LIMITATIONS. Unless permitted by the applicable
rules and regulations of the principal securities market on which the Common
Stock is then listed or traded, in no event shall the Borrower issue upon
conversion of or otherwise pursuant to this Note and the other Notes issued
pursuant to the Purchase Agreement more than the maximum number of shares of
Common Stock that the Borrower can issue pursuant to any rule of the principal
United States securities market on which the Common Stock is then traded (the
"MAXIMUM SHARE AMOUNT"), which shall be 19.99% of the total shares outstanding
on the Closing Date (as defined in the Purchase Agreement), subject to equitable
adjustment from time to time for stock splits, stock dividends, combinations,
capital reorganizations and similar events relating to the Common Stock
occurring after the date hereof. Once the Maximum Share Amount has been issued
(the date of which is hereinafter referred to as the "MAXIMUM CONVERSION DATE"),
if the Borrower fails to eliminate any prohibitions under applicable law or the
rules or regulations of any stock exchange, interdealer quotation system or
other self- regulatory organization with jurisdiction over the Borrower or any
of its securities on the Borrower's ability to issue shares of Common Stock in
excess of the Maximum Share Amount (a "TRADING MARKET PREPAYMENT EVENT"), in
lieu of any further right to convert this Note, and in full satisfaction of the
Borrower's obligations under this Note, the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum Conversion Date (the "TRADING
MARKET PREPAYMENT DATE"), an amount equal to 130% TIMES the sum of (a) the then
outstanding principal amount of this Note immediately following the Maximum
Conversion Date, PLUS (b) accrued and unpaid interest on the unpaid principal
amount of this Note to the Trading Market Prepayment Date,p.ts (c) Default
Interest, if any, on the amounts referred to in clause (a) and or (b) above,
PLUS (d) any optional amounts that may be added thereto at the Maximum
Conversion Date by the Holder in accordance with the terms hereof (the then
outstanding principal amount of this Note immediately following the Maximum
Conversion Date, PLUS the amounts referred to in clauses (b), (c) and (d) above
shall collectively be referred to as the "REMAINING CONVERTIBLE AMOUNT"). With
respect to each Holder of Notes, the Maximum Share Amount shall refer to such
Holder's p rata share thereof determined in accordance with Section 4.8 below.
In the event that the sum of (x) the aggregate number of shares of Common Stock
issued upon conversion of this Note and the other Notes issued pursuant to the
Purchase Agreement PLUS (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Note and the other Notes issued pursuant
to the Purchase Agreement, represents at least one hundred percent (100%) of the
Maximum Share Amount (the "TRIGGERING EVENT"), the Borrower will use its best
efforts to seek and obtain Shareholder Approval (or obtain such other relief as
will allow conversions hereunder in excess of the Maximum Share Amount) as soon
as practicable following the Triggering Event and before the Maximum Conversion
Date. As used herein, "SHAREHOLDER APPROVAL" means approval by the shareholders
of the Borrower to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon full conversion of the then outstanding Notes
but for the Maximum Share Amount.
1.8 STATUS AS SHAREHOLDER. Upon submission of a Notice of Conversion by
a Holder, (i) the shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed such Holder's allocated
portion of the Reserved Amount or Maximum Share Amount) shall be deemed
converted into shares of Common Stock and (ii) the Holder's rights as a Holder
of such converted portion of this Note shall cease and terminate, excepting only
the right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Borrower to comply with the terms of this
Note. Notwithstanding the foregoing, if a Holder has not received certificates
for all shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Deadline with respect to a conversion of any portion of this
Note for any reason, then (unless the Holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Borrower) the Holder
shall regain the rights of a Holder of this Note with respect to such
unconverted portions of this Note and the Borrower shall, as soon as
practicable, return such unconverted Note to the Holder or, if the Note has not
been surrendered, adjust its records to reflect that such portion of this Note
has not been converted. In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Section 1.3) for the Borrower's failure to convert this Note.
ARTICLE II. CERTAIN COVENANTS
2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have
any obligation under this Note, the Borrower shall not without the Holder's
written consent (a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock except for distributions pursuant to any shareholders' rights plan which
is approved by a majority of the Borrower's disinterested directors.
2.2 RESTRICTION ON STOCK REPURCHASES. SO long as the BORROWER shall
have any obligation under this Note, the Borrower shall not without the Holder's
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.
2.3 BORROWINGS. So long as the Borrower shall have any obligation under
this Note, the Borrower shall not, without the Holder's written consent, create,
incur, assume or suffer to exist any liability for borrowed money, except (a)
borrowings in existence or committed on the date hereof and of which the
Borrower has informed Holder in writing prior to the date hereof, (b)
indebtedness to trade creditors or financial institutions incurred in the
ordinary course of business or (c) borrowings, the proceeds of which shall be
used to repay this Note.
2.4 SALE OF ASSETS. So long as the Borrower shall have any obligation
under this Note, the Borrower shall not, without the Holder's written consent,
sell, lease or otherwise dispose of any significant portion of its assets
outside the ordinary course of business. Any consent to the disposition of any
assets may be conditioned ON A specified use OF THE proceeds of disposition. The
Holder will have ten (10) days to respond to said sale and Holder's consent can
not be unreasonably withheld.
2.5 ADVANCES AND LOANS. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the Holder's written
consent, lend money, give credit or make advances to any person, firm, joint
venture or corporation, including, without limitation, officers, directors,
employees, subsidiaries and affiliates of the Borrower, except loans, credits or
advances (a) in existence or committed on THE date hereof and which the Borrower
has informed Holder in writing prior to the date hereof, (b) made in the
ordinary course of business or (c) not in excess of $50,000.
2.6 CONTINGENT LIABILITIES. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the Holder's written
consent, which shall not be unreasonably withheld, assume, guarantee, endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any person, firm, partnership, joint venture or corporation, except by the
endorsement of negotiable instruments for deposit or collection and except
assumptions, guarantees, endorsements and contingencies (a) in existence or
committed on the date hereof and which the Borrower has informed Holder in
writing prior to the date hereof, and (b) similar transactions in the ordinary
course of business.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "EVENT OF DEFAULT")
shall occur:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay the
principal hereof or interest thereon when due on this Note, whether at maturity,
upon a Trading Market Prepayment Event pursuant to Section 1.7, upon
acceleration or otherwise;
3.2 CONVERSION AND THE SHARES. The Borrower fails to issue shares of
Common Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note, fails to transfer or cause its
transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the Holder upon conversion of
or otherwise pursuant to this Note as and when required by this Note or the
Registration Rights Agreement, or fails to remove any restrictive legend (or to
withdraw any stop transfer instructions in respect thereof) on any certificate
for any shares of Common Stock issued to the Holder upon conversion of or
otherwise pursuant to this Note as and when required by this Note or the
Registration Rights Agreement (or makes any announcement, statement or threat
that it does not intend to honor the obligations described in this paragraph)
and any such failure shall continue uncured (or any announcement, statement or
threat not to honor its obligations shall not be rescinded in writing) for three
(3) business days after the Borrower shall have been notified thereof in writing
by the Holder;
3.3 FAILURE TO TIMELY FILE REGISTRATION OR EFFECT REGISTRATION. The
Borrower fails to file the Registration Statement within thirty (30) days
following the receipt of written demand of the Investors or obtain effectiveness
with the Securities and Exchange Commission of the Registration Statement within
one hundred twenty (120) days following the receipt of written demand of the
Investors or such Registration Statement lapses in effect (or sales cannot
otherwise be made thereunder effective, whether by reason of the Borrower's
failure to amend or supplement the prospectus included therein in accordance
with the Registration Rights Agreement or otherwise) for more than ten (10)
consecutive days or twenty (20) days in any twelve month period after the
Registration Statement becomes effective;
3.4 BREACH OF COVENANTS. The Borrower breaches any material covenant or
other material term or condition contained in Sections 1.3, 1.6 or 1.7 of this
Note, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the Purchase Agreement
and such breach continues for a period of ten (10) days after written notice
thereof to the Borrower from the Holder;
3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any
representation or warra nty of the Borrower made herein or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith (including, without limitation, the Purchase Agreement and the
Registration Rights Agreement), shall be false or misleading in any material
respect when made and the breach of which has (or with the passage of time will
have) a material adverse effect on the rights of the Holder with respect to this
Note, the Purchase Agreement or the Registration Rights Agreement;
3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed;
3.7 JUDGMENTS. Any money judgment, writ or similar process shall be
entered or filed against the Borrower or any subsidiary of the Borrower or any
of its property or other assets for more than $50,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;
3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower, unless such proceeding shall be stayed within thirty
(30) days;
3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to maintain the
listing of the Common Stock on at least one of the OTCBB or an equivalent
replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange; or
3.10 DEFAULT UNDER OTHER NOTES. An Event of Default has occurred and is
continuing under any of the other Notes issued pursuant to the Purchase
Agreement,
then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Notes issued pursuant to the Purchase Agreement exercisable through
the delivery of written notice to the Borrower by such Holders (the "DEFAULT
Notice"), and upon the occurrence of an Event of Default specified in Section
3.6 or 3.8 (unless, under Section 3.8, such proceeding shall be stayed within 30
days), the Notes shall become immediately due and payable and the Borrower shall
pay to the Holder, in full satisfaction of its obligations hereunder, an amount
equal to the greater of (i) 140% TIMES the sum of (w) the then outstanding
principal amount of this Note 11 S (x) accrued and unpaid interest on the unpaid
principal amount of this Note to the date of payment (the "MANDATORY PREPAYMENT
DATE") PLUS (Y) Default Interest, if any, on the amounts referred to in clauses
(w) and/or (x) PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3
and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights
Agreement (the then outstanding principal amount of this Note to the date of
payment PLUS the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the "DEFAULT SUM") or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the highest number of
shares of Common Stock issuable upon conversion of or otherwise pursuant to such
Default Sum in accordance with Article I, treating the Trading Day immediately
preceding the Mandatory Prepayment Date as the "Conversion Date" for purposes of
determining the lowest applicable Conversion Price, unless the Default Event
arises as a result of a breach in respect of a specific Conversion Date in which
case such Conversion Date shall be the Conversion Date), MULTIPLIED BY (b) the
highest Closing Price for the Common Stock during the period beginning on the
date of first occurrence of the Event of Default and ending one day prior to the
Mandatory Prepayment Date (the "Default Amount") and all other amounts payable
hereunder shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived, together with
all costs, including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity. If the Borrower fails to pay the Default
Amount within five (5) business days of written notice that such amount is due
and payable, then the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that there are
sufficient authorized shares), to require the Borrower, upon written notice, to
immediately issue, in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the Conversion
Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1 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 privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
4.2 NOTICES. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or sent by
United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be 35193 Avenue
"A", Suite-C, Yucaipa, CA 92399, facsimile number: (909) 790-7185. Both the
Holder and the Borrower may change the address for service by service of written
notice to the other AS herein provided.
4.3 AMENDMENTS. This Note and any provision hereof may only be amended
by an instrument in writing signed by the Borrower and the Holder. The term
"Note" and all reference thereto, as used throughout this instrument, shall mean
this instrument (and the other Notes issued pursuant to the Purchase Agreement)
as originally executed, or if later amended or supplemented, then as so amended
or supplemented.
4.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and assigns, and SHALL INURE to be the benefit of the Holder and its
successors AND assigns. Each transferee of this Note must BE an "accredited
investor" (as defined in RULE 501(a) of the 1933 Act). Notwithstanding anything
in this Note to the contrary, this Note may be pledged as collateral in
connection with a BONA fide margin account or other lending arrangement.
4.5 COST OF COLLECTION. If default is made in the payment of this Note,
the Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.
4.6 GOVERNING LAW. THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK,
NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT
SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN
EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS'
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.
4.7 CERTAIN AMOUNTS. Whenever pursuant to this Note the Borrower is
required to pay an amount in excess of the outstanding principal amount (or the
portion thereof required to be paid at that time) plus accrued and unpaid
interest plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on
this Note may be difficult to determine and the amount to be so paid by the
Borrower represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this Note
and to earn a return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for such shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount
of stipulated damages is not plainly disproportionate to the possible loss to
the Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.
4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The
Maximum Share Amount and Reserved Amount shall be allocated pro rata among the
Holders of Notes based on the principal amount of such Notes issued to each
Holder. Each increase to the Maximum Share Amount and Reserved Amount shall be
allocated pro rata among the Holders of Notes based on the principal amount of
such Notes held by each Holder at the time of the increase in the Maximum Share
Amount or Reserved Amount. In the event a Holder shall sell or otherwise
transfer any of such Holder's Notes, each transferee shall be allocated a pro
rata portion of such transferor's Maximum Share Amount and Reserved Amount. Any
portion of the Maximum Share Amount or Reserved Amount which remains allocated
to any person or entity which does not hold any Notes shall be allocated to the
remaining Holders of Notes, pro rata based on the principal amount of such Notes
then held by such Holders.
4.9 DAMAGES SHARES. The shares of Common Stock that may be issuable to
the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to Section
2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall be treated as
Common Stock issuable upon conversion of this Note for all purposes hereof and
shall be subject to all of the limitations and afforded all of the rights of the
other shares of Common Stock issuable hereunder, including without limitation,
the right to be included in the Registration Statement filed pursuant to the
Registration Rights Agreement. For purposes of calculating interest payable on
the outstanding principal amount hereof, except as otherwise provided herein,
amounts convertible into Damages Shares ("DAMAGES AMOUNTS") shall not bear
interest but must be converted prior to the conversion of any outstanding
principal amount hereof, until the outstanding Damages Amounts is zero.
4.10 DENOMINATIONS. At the request of the Holder, upon surrender of
this Note, the Borrower shall promptly issue new Notes in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $50,000 as the Holder shall request.
4.11 PURCHASE AGREEMENT. By its acceptance of this Note, each Holder
agrees to be bound by the applicable terms of the Purchase Agreement.
4.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided below,
the Holder of this Note shall have no rights as a Holder of Common Stock unless
and only to the extent that it converts this Note into Common Stock. The
Borrower shall provide the Holder with prior notification of any meeting of the
Borrower's shareholders (and copies of proxy materials AND OTHER information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to THE HOLDER, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12.
4.13 REMEDIES. THE BORROWER acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Borrower acknowledges that the remedy at law for a breach of its obligations
under this Note will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Note, that the
Holder shall be entitled, in addition to all other available remedies at law or
in equity, and in addition to the penalties assessable herein, to an injunction
or injunctions restraining, preventing or curing any breach of this Note and to
enforce specifically the terms and provisions thereof, without the necessity of
showing economic loss and without any bond or other security being required.
ARTICLE V. CALL OPTION
5.15.2 CALL OPTION. Notwithstanding anything to the contrary contained
in this Article V, so long as no Event of Default or Trading Market Prepayment
Event shall have occurred and be continuing, the Borrower has a sufficient
number of authorized shares of Common Stock reserved for issuance upon full
conversion of the Notes, then at any time after the Issue Date, and the Common
Stock is trading at or below $0.0005 per share, the Borrower shall have the
right, exercisable on not less than ten (10) Trading Days prior written notice
to the Holders of the Notes (which notice may not be sent to the Holders of the
Notes until the Borrower is permitted to prepay the Notes pursuant to this
Section 5.1), to prepay all of the outstanding Notes in accordance with this
Section 5.1. Any notice of prepayment hereunder (an "OPTIONAL PREPAYMENT") shall
be delivered to the Holders of the Notes at their registered addresses appearing
on the books and records of the Borrower and shall state (1) that the Borrower
is exercising its right to prepay all of the Notes issued on the Issue Date and
(2) the date of prepayment (the "OPTIONAL PREPAYMENT NOTICE"). On the date fixed
for prepayment (the "OPTIONAL PREPAYMENT DATE"), the Borrower shall make payment
of the Optional Prepayment Amount (as defined below) to or upon the order of the
Holders as specified by the Holders in writing to the Borrower at least one (1)
business day prior to the Optional Prepayment Date. If the Borrower exercises
its right to prepay the Notes, the Borrower shall make payment to the holders of
an amount in cash (the "OPTIONAL PREPAYMENT AMOUNT") equal to either (i) 120%
(for prepayments occurring within thirty (30) days of the Issue Date), (ii) 130%
for prepayments occurring between thirty-one (31) and sixty (60) days of the
Issue Date, or (iii) 140% (for prepayments occurring after the sixtieth (60th)
day following the Issue Date), multiplied by the sum of (w) the then outstanding
principal amount of this Note PLUS (x) accrued and unpaid interest on the unpaid
principal amount of this Note to the Optional Prepayment Date PLUS (y) Default
Interest, if any, on the amounts referred to in clauses (w) and (x) (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
pursuant to Section 2(c) of the Registration Rights Agreement (the then
outstanding principal amount of this Note to the date of payment PLUS the
amounts referred to in clauses (x), (y) and (z) shall collectively be known as
the "OPTIONAL PREPAYMENT SUM"). Notwithstanding notice of an Optional
Prepayment, the Holders shall at all times prior to the Optional Prepayment Date
maintain the right to convert all or any portion of the Notes in accordance with
Article I and any portion of Notes so converted after receipt of an Optional
Prepayment Notice and prior to the Optional Prepayment Date set forth in such
notice and payment of the aggregate Optional Prepayment Amount shall be deducted
from the principal amount of Notes which are otherwise subject to prepayment
pursuant to such notice. If the Borrower delivers an Optional Prepayment Notice
and fails to pay the Optional Prepayment Amount due to the Holders of the Notes
within two (2) business days following the Optional Prepayment Date, the
Borrower shall forever forfeit its right to redeem the Notes pursuant to this
Section 5.1.
5.253 PARTIAL CALL OPTION. Notwithstanding anything to the contrary
contained in this Article V, in the event that the Trading Price of the Common
Stock, as reported by the Reporting Service, for each day of the month ending on
any Determination Date is below the Initial Market Price, the Borrower may, at
its option, prepay a portion of the outstanding principal amount of the Notes
equal to 101% of the principal amount hereof divided by thirty-six (36) plus one
month's interest and this will stay all conversions for the month. The term
"INITIAL MARKET PRICE" shall mean the volume weighted average price of the
Common Stock for the five (5) Trading Days immediately preceding the Closing
which is $0.0005.
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed
in its name by its duly authorized officer this 16th day of June, 2008.
INGEN TECHNOLOGIES, INC.
By: /s/ Scott R. Sand
----------------------
Scott R. Sand
Chief Executive Officer
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Notes)
The undersigned hereby irrevocably elects to convert
$_________________________________ principal amount of the Note (defined below)
into shares of common stock, par value no per share ("Common Stock"), of Ingen
Technologies, Inc., a Georgia corporation (the "BORROWER") according to the
conditions of the convertible Notes of the Borrower dated as of June 16, 2008
(the "NOTES"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any. A copy of each Note is attached hereto (or evidence
of loss, theft or destruction thereof).
The Borrower shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC TRANSFER").
Name of DTC Prime Broker:______________________________________________
Account Number:________________________________________________________
In lieu of receiving shares of Common Stock issuable pursuant
to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the number of
shares of Common Stock set forth below (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
Name:__________________________________________________________________
Address:_______________________________________________________________
The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
conversion of the Notes shall be made pursuant to registration of the securities
under the Securities Act of 1933, as amended (the "ACT"), or pursuant to an
exemption from registration under the Act.
Date of Conversion:___________________________________________
Applicable Conversion Price:__________________________________
Number of Shares of Common Stock to be Issued Pursuant to
Conversion of the Notes:______________________________________
Signature:____________________________________________________
Name:_________________________________________________________
Address:
The Borrower shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Note(s) to be converted, and shall make payments pursuant to the Notes for the
number of business days such issuance and delivery is late.