EXHIBIT 10.20
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
SEAMLESS CORPORATION
Senior Secured Convertible Promissory Note
due June 22, 2010
No. 09-CN-102 $309,760
Dated: June 22, 2009
For value received, SEAMLESS CORPORATION (the "MAKER"), hereby promises
to pay to the order of Ayuda Equity Funding LLC (together with its successors,
representatives and assigns, the "HOLDER"), in accordance with the terms
hereinafter provided, the principal amount of Three Hundred Nine Thousand Seven
Hundred Sixty Dollars ($309,760), together with interest thereon.
All payments under or pursuant to this Note shall be made in United
States Dollars in immediately available funds to the Holder at the address of
the Holder first set forth above or at such other place as the Holder may
designate from time to time in writing to the Maker or by wire transfer of funds
to the Holder's account, instructions for which are attached hereto as EXHIBIT
A. The outstanding principal balance of this Note shall be due and payable on
June 22, 2010 (the "MATURITY DATE") or at such earlier time as provided herein.
ARTICLE I
Section 1.1 PURCHASE AGREEMENT. This Note has been executed
and delivered pursuant to the Note and Warrant Purchase Agreement dated as of
February 12, 2009 (the "PURCHASE AGREEMENT") by and among the Maker and the
purchasers listed therein. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth for such terms in the Purchase
Agreement.
Section 1.2 INTEREST. Beginning on the issuance date of this
Note (the "ISSUANCE DATE"), the outstanding principal balance of this Note shall
bear interest, in arrears, at a rate per annum equal to ten percent (10%),
payable monthly at the Maker's option in cash or registered shares of GDT TEK,
INC., par value $.001 per share (the "COMMON STOCK"), commencing on July 22,
2009 and on the first business day of each following month. Interest shall be
computed on the basis of a 360-day year of twelve (12) 30-day months and shall
accrue commencing on the Issuance Date. Furthermore, (i) upon the occurrence of
an Event of Default (as defined in Section 2.1 hereof), or (ii) if the Common
Stock is delisted from the OTC Bulletin Board and is no longer subject to the
reporting requirements of the Exchange Act, then to the extent permitted by law,
the Maker will pay interest to the Holder, payable on demand, on the outstanding
principal balance of the Note from the date of the Event of Default until such
Event of Default is cured or waived at the rate of the lesser of fifteen percent
(15%) per annum and the maximum applicable legal rate per annum. The Maker shall
provide irrevocable written notice to the Holder of the form of interest payment
at least ten (10) business days prior to the date such interest payment is due.
If the Maker elects to make interest payments in registered shares of Common
Stock, the number of registered shares of Common Stock to be issued to the
Holder shall be an amount equal to the interest payment divided by sixty percent
(60%) of the average of the three (3) lowest Closing Bid Prices (as defined in
Section 1.3(c) hereof) for the ten (10) Trading Days immediately preceding the
interest payment date. Notwithstanding the foregoing to the contrary, in the
event the Common Stock is delisted from the OTC Bulletin Board and is no longer
subject to the reporting requirements of the Exchange Act, the number of
registered shares of Common Stock to be issued to the Holder shall be an amount
equal to the interest payment divided by thirty percent (30%) of the average of
the three (3) lowest Closing Bid Prices for the ten (10) Trading Days
immediately preceding the interest payment DATE.
Section 1.3 PAYMENT OF PRINCIPAL.
(a) Commencing on December 22, 2009 and continuing thereafter
on the first business day of each month (a "PRINCIPAL PAYMENT DATE"), the Maker
shall pay an amount to the Holder equal to one-sixth (1/6th) of the original
principal amount of this Note (the "PRINCIPAL INSTALLMENT AMOUNT"); PROVIDED,
HOWEVER, if on any Principal Payment Date, the outstanding principal amount of
this Note is less than the Principal Installment Amount, then the Maker shall
pay to the Holder such lesser amount. The Maker may pay such Principal
Installment Amount in cash or registered shares of the Common Stock. If the
Maker elects to pay the Principal Installment Amount in cash such amount shall
be wired in immediately available funds on the Principal Payment Date; PROVIDED,
HOWEVER, that if the Holder has delivered a Conversion Notice to the Maker or
delivers a Conversion Notice prior to the Principal Payment Date, the Holder
shall indicate in such Conversion Notice whether the principal amount of this
Note to be so converted shall be applied against the final Principal Installment
Amount or some other Principal Installment Amount. The Maker shall provide
irrevocable written notice to the Holder of the form of payment of the Principal
Installment Amount at least ten (10) business days prior to the first day of
each month for which a Principal Installment Amount is required to be made by
the Maker.
(b) If the Maker elects to pay the Principal Installment
Amount in registered shares of Common Stock, the number of registered shares of
Common Stock to be issued to the Holder shall be an amount equal to the
Principal Installment Amount divided by fifty percent (50%) of the average of
the three (3) lowest Closing Bid Prices for the ten (10) Trading Days
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immediately preceding the Principal Payment Date; PROVIDED, HOWEVER, that if the
Holder has delivered a Conversion Notice to the Maker or delivers a Conversion
Notice prior to the Principal Payment Date, the Holder shall indicate in such
Conversion Notice whether the principal amount of this Note to be so converted
shall be applied against the final Principal Installment Amount or some other
Principal Installment Amount. Notwithstanding the foregoing to the contrary, in
the event the Common Stock is delisted from the OTC Bulletin Board and is no
longer subject to the reporting requirements of the Exchange Act, the number of
registered shares of Common Stock to be issued to the Holder shall be an amount
equal to the Principal Installment Amount divided by thirty percent (30%) of the
average of the three (3) lowest Closing Bid Prices for the ten (10) Trading Days
immediately preceding the Principal Payment Date. In addition, the Maker may
elect to pay the Principal Installment Amount in registered shares of Common
Stock on any Principal Payment Date only if (A) a registration statement
providing for the resale of the shares of Common Stock issuable upon conversion
of this Note is effective and has been effective, without lapse or suspension of
any kind, for a period of twenty (20) consecutive calendar days, or the shares
of Common Stock may be sold without any volume limitations pursuant to Rule 144
under the Securities Act, (B) trading in the Common Stock shall not have been
suspended by the Securities and Exchange Commission or the exchange or market on
which the Common Stock is trading, (C) no Event of Default exists and is
continuing, and (D) the issuance of shares of Common Stock on the Principal
Payment Date does not violate the provisions of Section 3.4 hereof.
(c) The term "CLOSING BID PRICE" shall mean, on any particular
date (i) the last trading price per share of the Common Stock on such date on
the American Stock Exchange or another registered national stock exchange on
which the Common Stock is then listed, or if there is no such price on such
date, then the last trading price on such exchange or quotation system on the
date nearest preceding such date, or (ii) if the Common Stock is not listed then
on the OTC Bulletin Board or any registered national stock exchange, the last
trading price for a share of Common Stock in the over-the-counter market, as
reported by the OTC Bulletin Board or in the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (iii) if the Common
Stock is not then reported by the OTC Bulletin Board or the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), then the average of the "Pink Sheet" quotes for
the relevant conversion period, as determined in good faith by the Holder, or
(iv) if the Common Stock is not then publicly traded the fair market value of a
share of Common Stock as determined by the Holder and reasonably acceptable to
the Maker.
Section 1.4 SECURITY AGREEMENT. The obligations of the Maker
hereunder are secured by a continuing first priority security interest in
certain assets of the Maker pursuant to the terms of a security agreement dated
as of February 12, 2009 by and among the Maker, on the one hand, and the Holder
and the Other Holders, on the other hand.
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Section 1.5 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment
to be made shall be due on a Saturday, Sunday or a public holiday under the laws
of the State of New York, such payment may be due on the next succeeding
business day and such next succeeding day shall be included in the calculation
of the amount of accrued interest payable on such date.
Section 1.6 TRANSFER. This Note may be transferred or sold,
subject to the provisions of Section 4.8 of this Note, or pledged, hypothecated
or otherwise granted as security by the Holder.
Section 1.7 REPLACEMENT. Upon receipt of a duly executed,
notarized and unsecured written statement from the Holder with respect to the
loss, theft or destruction of this Note (or any replacement hereof) and a
standard indemnity, or, in the case of a mutilation of this Note, upon surrender
and cancellation of such Note, the Maker shall issue a new Note, of like tenor
and amount, in lieu of such lost, stolen, destroyed or mutilated Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section 2.1 EVENTS OF DEFAULT. The occurrence of any of the
following events shall be an "EVENT OF Default" under this Note:
(a) the Maker shall fail to make the Principal Installment
Amount on a Principal Payment Date or interest on an interest payment date and
such default is not fully cured within two (2) business days after the
occurrence thereof; or
(b) the suspension from listing, without subsequent listing on
any one of, or the failure of the Common Stock to be listed on at least one of
the American Stock Exchange, Nasdaq Global Market, Nasdaq Global Select Market,
Nasdaq Capital Market, New York Stock Exchange, Inc. or OTC Bulletin Board, for
a period of ten (10) consecutive Trading Days; or
(c) the Maker's notice to the Holder, including by way of
public announcement, at any time, of its inability to comply (including for any
of the reasons described in Section 3.8(a) hereof) or its intention not to
comply with proper requests for conversion of this Note into shares of Common
Stock; or
(d) the Maker shall fail to timely deliver the shares of
Common Stock upon conversion of the Note or make the payment of any fees under
this Note or the Purchase Agreement, which failure is not remedied within five
(5) business days after the incurrence thereof; or
(e) default shall be made in the performance or observance of
(i) any material covenant, condition or agreement contained in this Note (other
than as set forth in clause (f) of this Section 2.1) and such default is not
fully cured within five (5) business days after the Maker receives notice from
the Holder of the occurrence thereof or (ii) any material covenant, condition or
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agreement contained in the Purchase Agreement, the Other Notes, or any other
Transaction Document which is not covered by any other provisions of this
Section 2.1 and such default is not fully cured within five (5) business days
after the Maker receives notice from the Holder of the occurrence thereof; or
(f) any material representation or warranty made by the Maker
herein or in the Purchase Agreement, the Other Notes or any other Transaction
Document shall prove to have been false or incorrect or breached in a material
respect on the date as of which made; or
(g) the Maker shall (A) default in any payment of any amount
or amounts of principal of or interest on any Indebtedness (other than the
Indebtedness hereunder) the aggregate principal amount of which Indebtedness is
in excess of $100,000 or (B) default in the observance or performance of any
other agreement or condition relating to any Indebtedness in excess of $100,000
or contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, in each case the
effect of which default or other event or condition is to cause, or to permit
the holder or holders or beneficiary or beneficiaries of such Indebtedness to
cause with the giving of notice if required, such Indebtedness to become due
prior to its stated maturity; or
(h) the Maker shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or
assets, (ii) make a general assignment for the benefit of its creditors, (iii)
commence a voluntary case under the United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic), (iv) file a petition seeking to take advantage of any bankruptcy,
insolvency, moratorium, reorganization or other similar law affecting the
enforcement of creditors' rights generally which is not dismissed or stayed
within 30 days, (v) acquiesce in writing to any petition filed against it in an
involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic)
which is not dismissed or stayed within 60 days, (vi) issue a notice of
bankruptcy or winding down of its operations or issue a press release regarding
same, or (vii) take any action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing, subject to the foregoing time
periods; or
(i) a proceeding or case shall be commenced in respect of the
Maker, without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, moratorium,
dissolution, winding up, or composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of it or
of all or any substantial part of its assets in connection with the liquidation
or dissolution of the Maker or (iii) similar relief in respect of it under any
law providing for the relief of debtors, and such proceeding or case described
in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a period of sixty (60) days or any order for relief shall be entered
in an involuntary case under United States Bankruptcy Code (as now or hereafter
in effect) or under the comparable laws of any jurisdiction (foreign or
domestic) against the Maker or action under the laws of any jurisdiction
(foreign or domestic) analogous to any of the foregoing shall be taken with
respect to the Maker and shall continue undismissed, or unstayed and in effect
for a period of sixty (60) days; or
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(j) the failure of the Maker to instruct its transfer agent to
remove any legends from shares of Common Stock eligible to be sold under Rule
144 of the Securities Act and issue such unlegended certificates to the Holder
within three (3) business days of the Holder's request so long as the Holder has
complied with Section 5.1 of the Purchase Agreement; or
(k) the occurrence of an Event of Default under the Other
Notes.
Section 2.2 REMEDIES UPON AN EVENT OF DEFAULT. If an Event of
Default shall have occurred and shall be continuing, the Holder of this Note may
at any time at its option, (a) pursuant to Section 3.7(a) hereof, declare the
entire unpaid principal balance of this Note, together with all interest accrued
hereon, due and payable, and thereupon, the same shall be accelerated and so due
and payable, without presentment, demand, protest, or notice, all of which are
hereby expressly unconditionally and irrevocably waived by the Maker; PROVIDED,
HOWEVER, that upon the occurrence of an Event of Default described in (i)
Sections 2.1 (h) or (i), the outstanding principal balance and accrued interest
hereunder shall be automatically due and payable and (ii) Sections 2.1 (a)-(g),
(j) and (k), the Holder may demand the prepayment of this Note pursuant to
Section 3.7 hereof, (b) demand that the principal amount of this Note then
outstanding shall be converted into shares of Common Stock at a Conversion Price
(as defined in Section 3.2(a) hereof) per share calculated pursuant to Section
3.1 hereof assuming that the date that the Event of Default occurs is the
Conversion Date (as defined in Section 3.1 hereof), or (c) exercise or otherwise
enforce any one or more of the Holder's rights, powers, privileges, remedies and
interests under this Note, the Purchase Agreement or applicable law. No course
of delay on the part of the Holder shall operate as a waiver thereof or
otherwise prejudice the right of the Holder. No remedy conferred hereby shall be
exclusive of any other remedy referred to herein or now or hereafter available
at law, in equity, by statute or otherwise.
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 3.1 CONVERSION OPTION. At any time on or after the
Issuance Date, this Note shall be convertible (in whole or in part), at the
option of the Holder, into such number of fully paid and non-assessable shares
of Common Stock as is determined by dividing (x) that portion of the outstanding
principal balance plus any accrued but unpaid interest under this Note as of
such date that the Holder elects to convert by (y) the Conversion Price then in
effect on the date on which the Holder faxes a notice of conversion (the
"CONVERSION NOTICE"), duly executed, to the Maker (facsimile number (775)
588-2499, Attn.: Secretary) (the "CONVERSION DATE"), PROVIDED, HOWEVER, that the
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Conversion Price shall be subject to adjustment as described in Section 3.6
below. The Holder shall deliver this Note to the Maker at the address designated
in the Purchase Agreement at such time that this Note is fully converted. With
respect to partial conversions of this Note, the Maker shall keep written
records of the amount of this Note converted as of each Conversion Date.
Section 3.2 CONVERSION PRICE.
(a) The term "CONVERSION PRICE" shall mean an amount equal to
the lesser of (x) $.0001 and (y) sixty percent (60%) of the average of the three
(3) lowest Closing Bid Prices for the ten (10) Trading Days immediately
preceding the Conversion Date; PROVIDED, HOWEVER, in the event the Common Stock
is delisted from the OTC Bulletin Board and is no longer subject to the
reporting requirements of the Exchange Act, the Conversion Price shall mean an
amount equal to the lesser of (x) $.0001 and (y) thirty percent (30%) of the
average of the three (3) lowest Closing Bid Prices for the ten (10) Trading Days
immediately preceding the Conversion Date. The Conversion Price shall be subject
to adjustment under Section 3.6 hereof.
(b) Notwithstanding any of the foregoing to the contrary, if
during any period (a "BLACK-OUT PERIOD"), a Holder is unable to trade any Common
Stock issued or issuable upon conversion of this Note immediately due to the
postponement of filing or delay or suspension of effectiveness of a registration
statement or because the Maker has otherwise informed such Holder that an
existing prospectus cannot be used at that time in the sale or transfer of such
Common Stock (provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within the control of
the Holder), such Holder shall have the option but not the obligation on any
Conversion Date within ten (10) Trading Days following the expiration of the
Black-out Period of using the Conversion Price applicable on such Conversion
Date or any Conversion Price selected by such Holder that would have been
applicable had such Conversion Date been at any earlier time during the
Black-out Period or within the ten (10) Trading Days thereafter. In no event
shall the Black-out Period have any effect on the Maturity Date of this Note.
Section 3.3 MECHANICS OF CONVERSION.
(a) Not later than three (3) Trading Days after any Conversion
Date, the Maker or its designated transfer agent, as applicable, shall issue and
deliver to the Depository Trust Company ("DTC") account on the Holder's behalf
via the Deposit Withdrawal Agent Commission System ("DWAC") as specified in the
Conversion Notice, 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. In the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Maker shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5.1 of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note (the "DELIVERY DATE"). If in the case of any
Conversion Notice such certificate or certificates are not delivered to or as
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directed by the applicable Holder by the Delivery Date, the Holder shall be
entitled by written notice to the Maker at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such conversion, in
which event the Maker shall immediately return this Note tendered for
conversion, whereupon the Maker and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 3.3(b) and (c) shall
be payable through the date notice of rescission is given to the Maker.
(b) The Maker understands that a delay in the delivery of the
shares of Common Stock upon conversion of this Note beyond the Delivery Date
could result in economic loss to the Holder. So long as the shares of Common
Stock issuable upon conversion of this Note are listed for trading on the OTC
Bulletin Board, if the Maker fails to deliver to the Holder such shares via DWAC
or a certificate or certificates pursuant to this Section hereunder by the
Delivery Date, the Maker shall pay to such Holder, in cash, an amount per
Trading Day for each Trading Day until such shares are delivered via DWAC or
certificates are delivered, together with interest on such amount at a rate of
10% per annum, accruing until such amount and any accrued interest thereon is
paid in full, equal to the greater of (A) (i) 1% of the aggregate principal
amount of the Notes requested to be converted for the first five (5) Trading
Days after the Delivery Date and (ii) 2% of the aggregate principal amount of
the Notes requested to be converted for each Trading Day thereafter and (B)
$2,000 per day (which amount shall be paid as liquidated damages and not as a
penalty). Nothing herein shall limit a Holder's right to pursue actual damages
for the Maker's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein and such Holder shall
have the right to pursue all remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief). Notwithstanding anything to the contrary contained herein,
the Holder shall be entitled to withdraw a Conversion Notice, and upon such
withdrawal the Maker shall only be obligated to pay the liquidated damages
accrued in accordance with this Section 3.3(b) through the date the Conversion
Notice is withdrawn.
(c) In addition to any other rights available to the Holder,
so long as the shares of Common Stock issuable upon conversion of this Note are
listed for trading on the OTC Bulletin Board, if the Maker fails to cause its
transfer agent to transmit to the Holder a certificate or certificates
representing the shares of Common Stock issuable upon conversion of this Note on
or before the Delivery Date, and if after such date the Holder is required by
its broker to purchase (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the shares of
Common Stock issuable upon conversion of this Note which the Holder anticipated
receiving upon such exercise (a "BUY-IN"), then the Maker shall (1) pay in cash
to the Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A) the number of
shares of Common Stock issuable upon conversion of this Note that the Maker was
required to deliver to the Holder in connection with the conversion at issue
times (B) the price at which the sell order giving rise to such purchase
obligation was executed, and (2) at the option of the Holder, either reinstate
the portion of the Note and equivalent number of shares of Common Stock for
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which such conversion was not honored or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Maker timely complied
with its conversion and delivery obligations hereunder. For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted conversion of shares of Common Stock with
an aggregate sale price giving rise to such purchase obligation of $10,000,
under clause (1) of the immediately preceding sentence the Maker shall be
required to pay the Holder $1,000. The Holder shall provide the Maker written
notice indicating the amounts payable to the Holder in respect of the Buy-In,
together with applicable confirmations and other evidence reasonably requested
by the Maker. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Maker's failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Note as required pursuant to the
terms hereof.
Section 3.4 OWNERSHIP CAPS AND CERTAIN CONVERSION
RESTRICTIONS.
(a) Notwithstanding anything to the contrary set forth in
Section 3 of this Note, at no time may the Holder convert all or a portion of
this Note if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by the Holder and its affiliates at such time (including pursuant to the
Warrants), the number of shares of Common Stock which would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) more than 4.99% of all of the Common
Stock outstanding at such time; PROVIDED, HOWEVER, that upon the Holder
providing the Maker with sixty-one (61) days notice (pursuant to Section 4.1
hereof) (the "WAIVER NOTICE") that the Holder would like to waive this Section
3.4(a) with regard to any or all shares of Common Stock issuable upon conversion
of this Note, this Section 3.4(a) will be of no force or effect with regard to
all or a portion of the Note referenced in the Waiver Notice.
(b) Notwithstanding anything to the contrary set forth in
Section 3 of this Note, at no time may the Holder convert all or a portion of
this Note if the number of shares of Common Stock to be issued pursuant to such
conversion, when aggregated with all other shares of Common Stock owned by the
Holder and its affiliates at such time, would result in the Holder beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules thereunder) in excess of 9.99% of the then issued and outstanding
shares of Common Stock outstanding at such time (including pursuant to the
Warrants); PROVIDED, HOWEVER, that upon the Holder providing the Maker with a
Waiver Notice that the Holder would like to waive Section 3.4(b) of this Note
with regard to any or all shares of Common Stock issuable upon conversion of
this Note, this Section 3.4(b) shall be of no force or effect with regard to all
or a portion of the Note referenced in the Waiver Notice.
Section 3.5 INTENTIONALLY OMITTED.
Section 3.6 ADJUSTMENT OF CONVERSION PRICE.
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(a) The Conversion Price shall be subject to adjustment from
time to time as follows:
(i) ADJUSTMENTS FOR STOCK SPLITS AND COMBINATIONS. If
the Maker shall at any time or from time to time after the Issuance Date, effect
a stock split of the outstanding Common Stock, the applicable Conversion Price
in effect immediately prior to the stock split shall be proportionately
decreased. If the Maker shall at any time or from time to time after the
Issuance Date, combine the outstanding shares of Common Stock, the applicable
Conversion Price in effect immediately prior to the combination shall be
proportionately increased. Any adjustments under this Section 3.6(a)(i) shall be
effective at the close of business on the date the stock split or combination
occurs.
(ii) ADJUSTMENTS FOR CERTAIN DIVIDENDS AND
DISTRIBUTIONS. If the Maker shall at any time or from time to time after the
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, then, and in each event, the applicable
Conversion Price in effect immediately prior to such event shall be decreased as
of the time of such issuance or, in the event such record date shall have been
fixed, as of the close of business on such record date, by multiplying, the
applicable Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date; and
(2) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such dividend or
distribution.
(iii) ADJUSTMENT FOR OTHER DIVIDENDS AND
DISTRIBUTIONS. If the Maker shall at any time or from time to time after the
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holders of this Note shall receive upon conversions thereof, in
addition to the number of shares of Common Stock receivable thereon, the number
of securities of the Maker which they would have received had this Note been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the Conversion Date,
retained such securities (together with any distributions payable thereon during
such period), giving application to all adjustments called for during such
period under this Section 3.6(a)(iii) with respect to the rights of the holders
of this Note and the Other Notes; PROVIDED, HOWEVER, that if such record date
shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions.
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(iv) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE OR
SUBSTITUTION. If the Common Stock issuable upon conversion of this Note at any
time or from time to time after the Issuance Date shall be changed to the same
or different number of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
3.6(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 3.6(a)(v)), then, and in each event, an
appropriate revision to the Conversion Price shall be made and provisions shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert this Note into the kind and amount of
shares of stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such Note might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein.
(v) ADJUSTMENTS FOR REORGANIZATION, MERGER,
CONSOLIDATION OR SALES OF ASSETS. If at any time or from time to time after the
Issuance Date there shall be a capital reorganization of the Maker (other than
by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 3.6(a)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in Section
3.6(a)(iv)), or a merger or consolidation of the Maker with or into another
corporation where the holders of outstanding voting securities prior to such
merger or consolidation do not own over fifty percent (50%) of the outstanding
voting securities of the merged or consolidated entity, immediately after such
merger or consolidation, or the sale of all or substantially all of the Maker's
properties or assets to any other person (an "ORGANIC CHANGE"), then as a part
of such Organic Change, (A) if the surviving entity in any such Organic Change
is a public company that is registered pursuant to the Securities Exchange Act
of 1934, as amended, and its common stock is listed or quoted on a national
securities exchange or a national automated quotation system or the OTC Bulletin
Board, an appropriate revision to the Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the Holder shall have the right thereafter to convert such Note into the
kind and amount of shares of stock and other securities or property of the Maker
or any successor corporation resulting from Organic Change, and (B) if the
surviving entity in any such Organic Change is not a public company that is
registered pursuant to the Securities Exchange Act of 1934, as amended, or its
common stock is not listed or quoted on a national securities exchange or a
national automated quotation system or the OTC Bulletin Board, the Holder shall
have the right to demand prepayment pursuant to Section 3.7(b) hereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 3.6(a)(v) with respect to the rights of the Holder
after the Organic Change to the end that the provisions of this Section
3.6(a)(v) (including any adjustment in the applicable Conversion Price then in
effect and the number of shares of stock or other securities deliverable upon
conversion of this Note and the Other Notes) shall be applied after that event
in as nearly an equivalent manner as may be practicable.
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(vi) ADJUSTMENTS FOR ISSUANCE OF ADDITIONAL SHARES OF
COMMON STOCK. In the event the Maker, shall, at any time, from time to time,
issue or sell any additional shares of common stock (otherwise than as provided
in the foregoing subsections (i) through (v) of this Section 3.6(a) or pursuant
to Common Stock Equivalents (hereafter defined) granted or issued prior to the
Issuance Date) ("ADDITIONAL SHARES OF COMMON Stock"), at a price per share less
than the Conversion Price then in effect or without consideration, then the
Conversion Price upon each such issuance shall be reduced to a price equal to
the consideration per share paid for such Additional Shares of Common Stock.
(vii) ISSUANCE OF COMMON STOCK EQUIVALENTS. The
provisions of this Section 3.6(a)(vii) shall apply if (a) the Maker, at any time
after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("CONVERTIBLE
SECURITIES"), other than the Notes, or (b) any rights or warrants or options to
purchase any such Common Stock or Convertible Securities (collectively, the
"COMMON STOCK EQUIVALENTS") shall be issued or sold. If the price per share for
which Additional Shares of Common Stock may be issuable pursuant to any such
Common Stock Equivalent shall be less than the applicable Conversion Price then
in effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall be less than the
applicable Conversion Price in effect at the time of such amendment or
adjustment, then the applicable Conversion Price upon each such issuance or
amendment shall be adjusted as provided in the first sentence of subsection (vi)
of this Section 3.6(a). No adjustment shall be made to the Conversion Price upon
the issuance of Common Stock pursuant to the exercise, conversion or exchange of
any Convertible Security or Common Stock Equivalent where an adjustment to the
Conversion Price was made as a result of the issuance or purchase of any
Convertible Security or Common Stock Equivalent.
(viii) CONSIDERATION FOR STOCK. In case any shares of
Common Stock or any Common Stock Equivalents shall be issued or sold:
(1) in connection with any merger or
consolidation in which the Maker is the surviving corporation (other than any
consolidation or merger in which the previously outstanding shares of Common
Stock of the Maker shall be changed to or exchanged for the stock or other
securities of another corporation), the amount of consideration therefor shall
be, deemed to be the fair value, as determined reasonably and in good faith by
the Board of Directors of the Maker, of such portion of the assets and business
of the nonsurviving corporation as such Board may determine to be attributable
to such shares of Common Stock, Convertible Securities, rights or warrants or
options, as the case may be; or
(2) in the event of any consolidation or
merger of the Maker in which the Maker is not the surviving corporation or in
which the previously outstanding shares of Common Stock of the Maker shall be
changed into or exchanged for the stock or other securities of another
corporation, or in the event of any sale of all or substantially all of the
assets of the Maker for stock or other securities of any corporation, the Maker
shall be deemed to have issued a number of shares of its Common Stock for stock
or securities or other property of the other corporation computed on the basis
of the actual exchange ratio on which the transaction was predicated, and for a
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consideration equal to the fair market value on the date of such transaction of
all such stock or securities or other property of the other corporation. If any
such calculation results in adjustment of the applicable Conversion Price, or
the number of shares of Common Stock issuable upon conversion of the Notes, the
determination of the applicable Conversion Price or the number of shares of
Common Stock issuable upon conversion of the Notes immediately prior to such
merger, consolidation or sale, shall be made after giving effect to such
adjustment of the number of shares of Common Stock issuable upon conversion of
the Notes. In the event Common Stock is issued with other shares or securities
or other assets of the Maker for consideration which covers both, the
consideration computed as provided in this Section 3.6(viii) shall be allocated
among such securities and assets as determined in good faith by the Board of
Directors of the Maker.
(b) RECORD DATE. In case the Maker shall take record of the
holders of its Common Stock for the purpose of entitling them to subscribe for
or purchase Common Stock or Convertible Securities, then the date of the issue
or sale of the shares of Common Stock shall be deemed to be such record date.
(c) CERTAIN ISSUES EXCEPTED. Anything herein to the contrary
notwithstanding, the Maker shall not be required to make any adjustment to the
Conversion Price in connection with (i) securities issued (other than for cash)
in connection with a merger, acquisition, or consolidation, (ii) securities
issued pursuant to the conversion or exercise of convertible or excercisable
securities issued or outstanding on or prior to the Issuance Date (so long as
the conversion or exercise price in such securities are not amended to lower
such price and/or adversely affect the Holders), (iii) the shares of Common
Stock issuable upon the conversion of this Note and the Other Notes or the
exercise of the Warrants, (iv) Common Stock issued or the issuance or grants of
options to purchase Common Stock pursuant to the Company's stock option plans
and employee stock purchase plans as they now exist on the Issuance Date and
approved by the Board and (v) the payment of any principal or interest in shares
of Common Stock pursuant to this Note or the Other Notes.
(d) NO IMPAIRMENT. The Maker shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, 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 to be observed or performed hereunder by the Maker, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment. In the event a Holder shall elect to convert any Notes as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, violation of an agreement to which such Holder is a party or
for any reason whatsoever, unless, an injunction from a court, or notice,
restraining and or adjoining conversion of all or of said Notes shall have
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to one hundred thirty percent (130%) of the amount of the Notes the
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Holder has elected to convert, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder (as liquidated damages) in the event it obtains
judgment.
(e) CERTIFICATES AS TO ADJUSTMENTS. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of this Note pursuant to this Section 3.6, the
Maker at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing in detail the facts upon which
such adjustment or readjustment is based. The Maker shall, upon written request
of the Holder, at any time, furnish or cause to be furnished to the Holder a
like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and 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 the conversion of this Note. Notwithstanding the
foregoing, the Maker shall not be obligated to deliver a certificate unless such
certificate would reflect an increase or decrease of at least one percent (1%)
of such adjusted amount.
(f) ISSUE TAXES. The Maker shall pay any and all issue and
other taxes, excluding federal, state or local income taxes, that may be payable
in respect of any issue or delivery of shares of Common Stock on conversion of
this Note pursuant thereto; PROVIDED, HOWEVER, that the Maker shall not be
obligated to pay any transfer taxes resulting from any transfer requested by the
Holder in connection with any such conversion.
(g) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of this Note. In lieu of any fractional shares
to which the Holder would otherwise be entitled, the Maker shall pay cash equal
to the product of such fraction multiplied by the average of the Closing Bid
Prices of the Common Stock for the five (5) consecutive Trading Days immediately
preceding the Conversion Date.
(h) RESERVATION OF COMMON STOCK. The Maker shall at all times
when this Note shall be outstanding, reserve and keep available out of its
authorized but unissued Common Stock, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of this Note;
PROVIDED that the number of shares of Common Stock so reserved shall at no time
be less than one hundred fifty percent (150%) of the number of shares of Common
Stock for which this Note is at any time convertible. The Maker shall, from time
to time in accordance with the Nevada General Corporation Law, increase the
authorized number of shares of Common Stock if at any time the unissued number
of authorized shares shall not be sufficient to satisfy the Maker's obligations
under this Section 3.6(h).
(i) REGULATORY COMPLIANCE. If any shares of Common Stock to be
reserved for the purpose of conversion of this Note require registration or
listing with or approval of any governmental authority, stock exchange or other
regulatory body under any federal or state law or regulation or otherwise before
such shares may be validly issued or delivered upon conversion, the Maker shall,
at its sole cost and expense, in good faith and as expeditiously as possible,
endeavor to secure such registration, listing or approval, as the case may be.
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Section 3.7 PREPAYMENT.
(a) PREPAYMENT UPON AN EVENT OF DEFAULT. Notwithstanding
anything to the contrary contained herein, upon the occurrence of an Event of
Default described in Section 2.1 hereof, the Holder shall have the right, at
such Holder's option, to require the Maker to prepay in cash all or a portion of
this Note at a price equal to one hundred ten percent (110%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest applicable at
the time of such request. Nothing in this Section 3.7(a) shall limit the
Holder's rights under Section 2.2 hereof.
(b) PREPAYMENT OPTION UPON MAJOR TRANSACTION. In addition to
all other rights of the Holder contained herein, simultaneous with the
occurrence of a Major Transaction (as defined below), the Holder shall have the
right, at the Holder's option, to require the Maker to prepay all or a portion
of the Holder's Notes at a price equal to one hundred ten percent (110%) of the
aggregate principal amount of this Note plus all accrued and unpaid interest
(the "MAJOR TRANSACTION PREPAYMENT PRICE").
(c) PREPAYMENT OPTION UPON TRIGGERING EVENT. In addition to
all other rights of the Holder contained herein, after a Triggering Event (as
defined below), the Holder shall have the right, at the Holder's option, to
require the Maker to prepay all or a portion of this Note in cash at a price
equal to one hundred twenty percent (120%) of the aggregate principal amount of
this Note plus all accrued and unpaid interest (the "TRIGGERING EVENT PREPAYMENT
PRICE," and, collectively with the Major Transaction Prepayment Price, the
"PREPAYMENT PRICE").
(d) INTENTIONALLY OMITTED.
(e) "MAJOR TRANSACTION." A "MAJOR TRANSACTION" shall be deemed
to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Maker with or into another Person (as defined in Section 4.13
hereof) (other than (A) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Maker or (B) a
consolidation, merger or other business combination in which holders of the
Maker's voting power immediately prior to the transaction continue after the
transaction to hold, 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).
(ii) the sale or transfer of more than fifty percent
(50%) of the Maker's assets (based on the fair market value as determined in
good faith by the Maker's Board of Directors) other than inventory in the
ordinary course of business in one or a related series of transactions; or
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(iii) closing of a purchase, tender or exchange offer
made to the holders of more than fifty percent (50%) of the outstanding shares
of Common Stock in which more than fifty percent (50%) of the outstanding shares
of Common Stock were tendered and accepted.
(f) "TRIGGERING EVENT." A "TRIGGERING EVENT" shall be deemed
to have occurred at such time as any of the following events:
(i) the suspension from listing, without subsequent
listing on any one of, or the failure of the Common Stock to be listed on at
least one of the American Stock Exchange, Nasdaq Global Market, Nasdaq Global
Select Market, Nasdaq Capital Market, New York Stock Exchange, Inc. or OTC
Bulletin Board, for a period of twenty (20) consecutive Trading Days;
(ii) the Maker's notice to any holder of the Notes,
including by way of public announcement, at any time, of its inability to comply
(including for any of the reasons described in Section 3.8) or its intention not
to comply with proper requests for conversion of any Notes into shares of Common
Stock; or
(iii) the Maker's failure to comply with a Conversion
Notice tendered in accordance with the provisions of this Note within ten (10)
business days after the receipt by the Maker of the Conversion Notice; or
(iv) the Maker deregisters its shares of Common Stock
and as a result such shares of Common Stock are no longer publicly traded; or
(v) the Maker consummates a "going private"
transaction and as a result the Common Stock is no longer registered under
Sections 12(b) or 12(g) of the Exchange Act; or
(vi) the Maker breaches any representation, warranty,
covenant or other term or condition of the Purchase Agreement, this Note or any
other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby or hereby, except to the
extent that such breach would not have a Material Adverse Effect (as defined in
the Purchase Agreement) and except, in the case of a breach of a covenant which
is curable, only if such breach continues for a period of a least ten (10)
business days.
(g) INTENTIONALLY OMITTED.
(h) MECHANICS OF PREPAYMENT AT OPTION OF HOLDER UPON MAJOR
TRANSACTION. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Maker shall deliver written notice
thereof via facsimile and overnight courier ("NOTICE OF MAJOR TRANSACTION") to
the Holder of this Note. At any time after receipt of a Notice of Major
Transaction (or, in the event a Notice of Major Transaction is not delivered at
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least ten (10) days prior to a Major Transaction, at any time within ten (10)
days prior to a Major Transaction), any holder of the Notes then outstanding may
require the Maker to prepay, effective immediately prior to the consummation of
such Major Transaction, all of the holder's Notes then outstanding by delivering
written notice thereof via facsimile and overnight courier ("NOTICE OF
PREPAYMENT AT OPTION OF HOLDER UPON MAJOR TRANSACTION") to the Maker, which
Notice of Prepayment at Option of Holder Upon Major Transaction shall indicate
(i) the principal amount of the Notes that such holder is electing to have
prepaid and (ii) the applicable Major Transaction Prepayment Price, as
calculated pursuant to Section 3.7(b) above.
(i) MECHANICS OF PREPAYMENT AT OPTION OF HOLDER UPON
TRIGGERING EVENT. Within one (1) business day after the occurrence of a
Triggering Event, the Maker shall deliver written notice thereof via facsimile
and overnight courier ("NOTICE OF TRIGGERING EVENT") to each holder of the
Notes. At any time after the earlier of a holder's receipt of a Notice of
Triggering Event and such holder becoming aware of a Triggering Event, any
holder of this Note and the Other Notes then outstanding may require the Maker
to prepay all of the Notes on a pro rata basis by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF PREPAYMENT AT OPTION OF
HOLDER UPON TRIGGERING EVENT") to the Maker, which Notice of Prepayment at
Option of Holder Upon Triggering Event shall indicate (i) the amount of the Note
that such holder is electing to have prepaid and (ii) the applicable Triggering
Event Prepayment Price, as calculated pursuant to Section 3.7(c) above. A holder
shall only be permitted to require the Maker to prepay the Note pursuant to
Section 3.7 hereof for the greater of a period of ten (10) days after receipt by
such holder of a Notice of Triggering Event or for so long as such Triggering
Event is continuing.
(j) PAYMENT OF PREPAYMENT PRICE. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Maker such holder's certificates representing the Notes which such holder
has elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.7(i),
to such holder within five (5) business days after the Maker's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.7(h), the Maker shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note
shall have been so delivered to the Maker; provided further that if the Maker is
unable to prepay all of the Notes to be prepaid, the Maker shall prepay an
amount from each holder of the Notes being prepaid equal to such holder's
pro-rata amount (based on the number of Notes held by such holder relative to
the number of Notes outstanding) of all Notes being prepaid. If the Maker shall
fail to prepay all of the Notes submitted for prepayment (other than pursuant to
a dispute as to the arithmetic calculation of the Prepayment Price), in addition
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to any remedy such holder of the Notes may have under this Note and the Purchase
Agreement, the applicable Prepayment Price payable in respect of such Notes not
prepaid shall bear interest at the rate of two percent (2%) per month (prorated
for partial months) until paid in full. Until the Maker pays such unpaid
applicable Prepayment Price in full to a holder of the Notes submitted for
prepayment, such holder shall have the option (the "VOID OPTIONAL PREPAYMENT
OPTION") to, in lieu of prepayment, require the Maker to promptly return to such
holder(s) all of the Notes that were submitted for prepayment by such holder(s)
under this Section 3.7 and for which the applicable Prepayment Price has not
been paid, by sending written notice thereof to the Maker via facsimile (the
"VOID OPTIONAL PREPAYMENT NOTICE"). Upon the Maker's receipt of such Void
Optional Prepayment Notice(s) and prior to payment of the full applicable
Prepayment Price to such holder, (i) the Notice(s) of Prepayment at Option of
Holder Upon Triggering Event or the Notice(s) of Prepayment at Option of Holder
Upon Major Transaction, as the case may be, shall be null and void with respect
to those Notes submitted for prepayment and for which the applicable Prepayment
Price has not been paid, (ii) the Maker shall immediately return any Notes
submitted to the Maker by each holder for prepayment under this Section 3.7(j)
and for which the applicable Prepayment Price has not been paid and (iii) the
Conversion Price of such returned Notes shall be adjusted to the lesser of (A)
the Conversion Price as in effect on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker and (B) the lowest Closing Bid
Price during the period beginning on the date on which the Notice(s) of
Prepayment of Option of Holder Upon Major Transaction or the Notice(s) of
Prepayment at Option of Holder Upon Triggering Event, as the case may be, is
delivered to the Maker and ending on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker; provided that no adjustment
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect. A holder's delivery of a Void Optional Prepayment Notice
and exercise of its rights following such notice shall not effect the Maker's
obligations to make any payments which have accrued prior to the date of such
notice. Payments provided for in this Section 3.7 shall have priority to
payments to other stockholders in connection with a Major Transaction.
(k) MAKER PREPAYMENT OPTION. At any time following the
Issuance Date, the Maker may prepay in cash all or any portion of the
outstanding principal amount of this Note together with all accrued and unpaid
interest thereon upon ten (10) business days prior written notice to the Holder
(the "MAKER'S PREPAYMENT NOTICE") at a price (the "MAKER'S PREPAYMENT PRICE")
equal to one hundred ten percent (110%) of the aggregate principal amount of
this Note plus any accrued but unpaid interest outstanding at such time;
PROVIDED, HOWEVER, that if the Holder has delivered a Conversion Notice to the
Maker or delivers a Conversion Notice within such ten (10) Trading Day period
following delivery of the Maker's Prepayment Notice, the principal amount of
this Note designated to be converted may not be prepaid by the Maker and shall
be converted in accordance with Section 3.3 hereof; PROVIDED FURTHER that if
during the period between delivery of the Maker's Prepayment Notice and the
Maker's Prepayment Date (as defined below), the Holder shall become entitled to
deliver a Notice of Prepayment at Option of Holder Upon Major Transaction or
Notice of Prepayment at Option of Holder upon Triggering Event, then such rights
of the Holder, at its option, shall take precedence over the previously
delivered Maker Prepayment Notice. The Maker's Prepayment Notice shall state the
date of prepayment which date shall be the eleventh (11th) Trading Day after the
Maker has delivered the Maker's Prepayment Notice (the "MAKER'S PREPAYMENT
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DATE"), the Maker's Prepayment Price and the principal amount of this Note to be
prepaid by the Maker. The Maker shall deliver the Maker's Prepayment Price on
the Maker's Prepayment Date, PROVIDED, that if the Holder delivers a Conversion
Notice before the Maker's Prepayment Date, then the portion of the Maker's
Prepayment Price which would be paid to prepay this Note covered by such
Conversion Notice shall be returned to the Maker upon delivery of the Common
Stock issuable in connection with such Conversion Notice to the Holder. On the
Maker's Prepayment Date, the Maker shall pay the Maker's Prepayment Price,
subject to any adjustment pursuant to the immediately preceding sentence, to the
Holder. If the Maker fails to pay the Maker's Prepayment Price by the eleventh
(11th) Trading Day after the Maker has delivered the Maker's Prepayment Notice,
the Maker's Prepayment Notice will be declared null and void AB INITIO and the
Maker shall lose its right to prepay this Note pursuant to this Section 3.7(k)
in the future. Notwithstanding the foregoing to the contrary, the Maker may
effect a prepayment pursuant to this Section 3.7(k) only if (A) a registration
statement providing for the resale of the shares of Common Stock issuable upon
conversion of this Note is effective and has been effective, without lapse or
suspension of any kind, for a period of twenty (20) consecutive calendar days
immediately preceding the Maker's Prepayment Notice through the Maker's
Prepayment Date, or the shares of Common Stock may be sold without any volume
limitations pursuant to Rule 144 under the Securities Act, (B) trading in the
Common Stock shall not have been suspended by the Securities and Exchange
Commission or the American Stock Exchange (or other exchange or market on which
the Common Stock is trading), (C) the Maker is in material compliance with the
terms and conditions of this Note and the other Transaction Documents, and (D)
the Maker is not in possession of any material non-public information.
Section 3.8 INABILITY TO FULLY CONVERT.
(a) HOLDER'S OPTION IF MAKER CANNOT FULLY CONVERT. If, upon
the Maker's receipt of a Conversion Notice, the Maker cannot issue registered
shares of Common Stock for any reason, including, without limitation, because
the Maker (w) does not have a sufficient number of shares of Common Stock
authorized and available, (x) is otherwise prohibited by applicable law or by
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Maker or any of
its securities from issuing all of the Common Stock which is to be issued to the
Holder pursuant to a Conversion Notice or (y) fails to have a sufficient number
of shares of Common Stock registered for resale under a registration statement,
then the Maker shall issue as many shares of Common Stock as it is able to issue
in accordance with the Holder's Conversion Notice and, with respect to the
unconverted portion of this Note, the Holder, solely at Holder's option, can
elect to:
(i) require the Maker to prepay that portion of this
Note for which the Maker is unable to issue Common Stock in accordance with the
Holder's Conversion Notice (the "MANDATORY PREPAYMENT") at a price per share
equal to the Triggering Event Prepayment Price as of such Conversion Date (the
"MANDATORY PREPAYMENT PRICE");
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(ii) if the Maker's inability to fully convert is
pursuant to Section 3.8(a)(y) above, require the Maker to issue restricted
shares of Common Stock in accordance with such holder's Conversion Notice;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, this Note that was to be converted pursuant to the
Conversion Notice (provided that the Holder's voiding its Conversion Notice
shall not effect the Maker's obligations to make any payments which have accrued
prior to the date of such notice);
(iv) exercise its Buy-In rights pursuant to and in
accordance with the terms and provisions of Section 3.3(c) of this Note.
In the event a Holder shall elect to convert any portion of its Notes as
provided herein, the Maker cannot refuse conversion based on any claim that such
Holder or any one associated or affiliated with such Holder has been engaged in
any violation of law, violation of an agreement to which such Holder is a party
or for any reason whatsoever, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or of said Notes shall have been
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the principal amount of the Notes the Holder has elected
to convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
(b) MECHANICS OF FULFILLING HOLDER'S ELECTION. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "INABILITY TO FULLY CONVERT NOTICE"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of this
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("NOTICE IN
RESPONSE TO INABILITY TO CONVERT").
(c) PAYMENT OF PREPAYMENT PRICE. If the Holder shall elect to
have its Notes prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay
the Mandatory Prepayment Price to the Holder within thirty (30) days of the
Maker's receipt of the Holder's Notice in Response to Inability to Convert,
PROVIDED that prior to the Maker's receipt of the Holder's Notice in Response to
Inability to Convert the Maker has not delivered a notice to the Holder stating,
to the satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Maker shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on the date that is one (1) business day following the
Maker's receipt of the Holder's Notice in Response to Inability to Convert
(other than pursuant to a dispute as to the determination of the arithmetic
calculation of the Prepayment Price), in addition to any remedy the Holder may
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have under this Note and the Purchase Agreement, such unpaid amount shall bear
interest at the rate of two percent (2%) per month (prorated for partial months)
until paid in full. Until the full Mandatory Prepayment Price is paid in full to
the Holder, the Holder may (i) void the Mandatory Prepayment with respect to
that portion of the Note for which the full Mandatory Prepayment Price has not
been paid, (ii) receive back such Note, and (iii) require that the Conversion
Price of such returned Note be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the Holder voided the Mandatory
Prepayment and (B) the lowest Closing Bid Price during the period beginning on
the Conversion Date and ending on the date the Holder voided the Mandatory
Prepayment.
(d) PRO-RATA CONVERSION AND PREPAYMENT. In the event the Maker
receives a Conversion Notice from more than one holder of the Notes on the same
day and the Maker can convert and prepay some, but not all, of the Notes
pursuant to this Section 3.8, the Maker shall convert and prepay from each
holder of the Notes electing to have its Notes converted and prepaid at such
time an amount equal to such holder's pro-rata amount (based on the principal
amount of the Notes held by such holder relative to the principal amount of the
Notes outstanding) of all the Notes being converted and prepaid at such time.
Section 3.9 NO RIGHTS AS SHAREHOLDER. Nothing contained in
this Note shall be construed as conferring upon the Holder, prior to the
conversion of this Note, the right to vote or to receive dividends or to consent
or to receive notice as a shareholder in respect of any meeting of shareholders
for the election of directors of the Maker or of any other matter, or any other
rights as a shareholder of the Maker.
ARTICLE IV
MISCELLANEOUS
Section 4.1 NOTICES. Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) upon hand delivery, telecopy or facsimile at
the address or number designated in the Purchase Agreement (if delivered on a
business day during normal business hours where such notice is to be received),
or the first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the third business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The Maker will give
written notice to the Holder at least ten (10) days prior to the date on which
the Maker takes a record (x) with respect to any dividend or distribution upon
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the Common Stock, (y) with respect to any pro rata subscription offer to holders
of Common Stock or (z) for determining rights to vote with respect to any
Organic Change, dissolution, liquidation or winding-up provided, notwithstanding
the foregoing in no event shall such notice be provided to such holder prior to
such information being made known to the public. The Maker will also give
written notice to the Holder at least ten (10) days prior to the date on which
any Organic Change, dissolution, liquidation or winding-up will take place
provided, notwithstanding the foregoing in no event shall such notice be
provided to the Holder prior to such information being made known to the public.
The Maker shall promptly notify the Holder of this Note of any notices sent or
received, or any actions taken with respect to the Other Notes.
Section 4.2 GOVERNING LAW. This Note shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Note shall
not be interpreted or construed with any presumption against the party causing
this Note to be drafted.
Section 4.3 HEADINGS. Article and section headings in this
Note are included herein for purposes of convenience of reference only and shall
not constitute a part of this Note for any other purpose.
Section 4.4 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, at
law or in equity (including, without limitation, a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Maker 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 thereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Maker (or the performance thereof). The Maker acknowledges
that a breach by it of its obligations hereunder will cause irreparable and
material harm to the Holder and that the remedy at law for any such breach may
be inadequate. Therefore the Maker agrees that, in the event of any such breach
or threatened breach, the Holder shall be entitled, in addition to all other
available rights and remedies, at law or in equity, to seek and obtain such
equitable relief, including but not limited to an injunction restraining any
such breach or threatened breach, without the necessity of showing economic loss
and without any bond or other security being required.
Section 4.5 ENFORCEMENT EXPENSES. The Maker agrees to pay all
costs and expenses of enforcement of this Note, including, without limitation,
reasonable attorneys' fees and expenses.
Section 4.6 BINDING EFFECT. The obligations of the Maker and
the Holder set forth herein shall be binding upon the successors and assigns of
each such party, whether or not such successors or assigns are permitted by the
terms hereof.
Section 4.7 AMENDMENTS. This Note may not be modified or
amended in any manner except in writing executed by the Maker and the Holder.
Section 4.8 COMPLIANCE WITH SECURITIES LAWS. The Holder of
this Note acknowledges that this Note is being acquired solely for the Holder's
own account and not as a nominee for any other party, and for investment, and
that the Holder shall not offer, sell or otherwise dispose of this Note. This
Note and any Note issued in substitution or replacement therefor shall be
stamped or imprinted with a legend in substantially the following form:
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"THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY THE MAKER OF AN OPINION OF
COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE AND THE
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF HAVE MAY BE SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES
LAWS."
Section 4.9 CONSENT TO JURISDICTION. Each of the Maker and the
Holder (i) hereby irrevocably submits to the exclusive jurisdiction of the
United States District Court sitting in the Southern District of New York and
the courts of the State of New York located in New York county for the purposes
of any suit, action or proceeding arising out of or relating to this Note and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Maker and the Holder consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under the Purchase Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 4.9 shall affect or limit any right to serve
process in any other manner permitted by law. Each of the Maker and the Holder
hereby agree that the prevailing party in any suit, action or proceeding arising
out of or relating to this Note shall be entitled to reimbursement for
reasonable legal fees from the non-prevailing party, AND DO HEREBY WAIVE TRIAL
BY JURY.
Section 4.10 PARTIES IN INTEREST. This Note shall be binding
upon, inure to the benefit of and be enforceable by the Maker, the Holder and
their respective successors and assigns.
Section 4.11 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.
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Section 4.12 MAKER WAIVERS. Except as otherwise specifically
provided herein, the Maker and all others that may become liable for all or any
part of the obligations evidenced by this Note, hereby waive presentment,
demand, notice of nonpayment, protest and all other demands' and notices in
connection with the delivery, acceptance, performance and enforcement of this
Note, and do hereby consent to any number of renewals of extensions of the time
or payment hereof and agree that any such renewals or extensions may be made
without notice to any such persons and without affecting their liability herein
and do further consent to the release of any person liable hereon, all without
affecting the liability of the other persons, firms or Maker liable for the
payment of this Note.
(a) No delay or omission on the part of the Holder in
exercising its rights under this Note, or course of conduct relating hereto,
shall operate as a waiver of such rights or any other right of the Holder, nor
shall any waiver by the Holder of any such right or rights on any one occasion
be deemed a waiver of the same right or rights on any future occasion.
(b) THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS
NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY
APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO
ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE
TO USE.
Section 4.13 DEFINITIONS. For the purposes hereof, the
following terms shall have the following meanings:
"PERSON" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"TRADING DAY" means (a) a day on which the Common Stock is
traded on the American Stock Exchange or another registered national stock
exchange on which the Common Stock is then listed, or (b) if the Common Stock is
not listed then on the American Stock Exchange or any registered national stock
exchange, a day on which the Common Stock is traded in the over-the-counter
market, as reported by the OTC Bulletin Board or in the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); PROVIDED, HOWEVER, that in the event that the
Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then
Trading Day shall mean any day except Saturday, Sunday and any day which shall
be a legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other government action to close.
By: /s/ Albert Reda
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Name: Albert Reda
Title: Chairman of the Board
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