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
Brooklyn, New York
November 4, 2005
$154,700
FOR VALUE RECEIVED, MT ULTIMATE HEALTHCARE CORP., a Nevada corporation
(hereinafter called the "Borrower"), hereby promises to pay to the order of
AJW PARTNERS, LLC or registered assigns (the "Holder") the sum of $154,700, on
November 4, 2008 (the "Maturity Date"), and to pay interest on the unpaid
principal balance hereof at the rate of eight percent (8%) (the "Interest
Rate") per annum from November 4, 2005 (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 $.02 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, $.001 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 November 4, 2005, 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
Intellectual Property Security Agreement, each dated November 4, 2005 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 III, 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 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
November 4, 2005, 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 lesser of (i) the Variable Conversion Price (as defined herein) and
(ii) the Fixed 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 (each of which being
hereinafter referred to as an "Adjustment"). 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 mutually acceptable to
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 50.0%. The "Fixed
Conversion Price" shall mean $.01.
(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 during the period
the conversion right exists, 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 two (2)
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 $2,000 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 Fixed
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 Fixed 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 Fixed Conversion Price then in effect, then the Fixed
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 Fixed Conversion Price then in effect, then the Fixed 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 Fixed
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, plus (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 pro 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.
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 (for a period of at
least sixty (60) days, if such failure is solely as a result of the
circumstances governed by Section 1.3 and the Borrower is using its best
efforts to authorize a sufficient number of shares of Common Stock as soon as
practicable), 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 ten (10) 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 sixty (60) days
following the Closing Date (as defined in the Purchase Agreement) or obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement within one hundred and fifty (150) days following the Closing Date
(as defined in the Purchase Agreement); provided, however, that if the Company
is responding to SEC comments in good faith, it shall not be an event of
default if the Registration Statement is not declared effective within one
hundred and seventy-five days (175), 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
warranty 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 thirty (30) 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, and the same shall not have been stayed or
withdrawn within sixty (60) days from the date the Borrower receives notice
thereof;
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, 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) 130% times 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 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 45 Main Street, Suite 617, Brooklyn, NY 11201,
facsimile number: (815) 301-8756. 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
5.1 Call Option. Notwithstanding anything to the contrary contained
in this Article V, so long as (1) no Event of Default or Trading Market
Prepayment Event shall have occurred and be continuing, (2) 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
(3) the Common Stock is trading at or below $.01 per share (subject to
Adjustment), 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 or
a portion 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 or a portion of the Notes issued on the
Issue Date, (2) the date of prepayment and (3) the amount of the prepayment
and the amount of any Additional Payment as applicable (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) 125% for
prepayments occurring between thirty-one (31) and sixty (60) days of the
Issue Date, or (iii) 130% (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) 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 "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.
5.2 Partial Call Option. Notwithstanding anything to the contrary
contained in this Article V, in the event that the Average Daily 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 104% of the principal amount hereof (or such
lesser amount of principal as shall then be outstanding) divided by thirty-six
(36) plus one month's interest. The term "Initial Market Price" means shall
mean the volume weighted average price of the Common Stock for the five (5)
Trading Days immediately preceding the Closing (such price being $.01). The
term "Reporting Service" means a reliable reporting service mutually
acceptable to and hereinafter designated by the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer this 4th day of November, 2005.
MT ULTIMATE HEALTHCARE CORP.
/s/ David Walters
By:______________________________
David Walters
Executive Vice President
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 $.001 per share ("Common Stock"), of MT Ultimate Healthcare Corp., a
Nevada corporation (the "Borrower") according to the conditions of the
convertible Notes of the Borrower dated as of November 4, 2005 (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.